Guangzhou Reinvents Itself
The Pearl River Delta, with Guangzhou located at its center, has been dubbed the world's factory floor. It has one of the most mature and complete industrial systems in China and thrives on commerce and trade. With COVID-19 casting a shadow over prosperous Guangzhou, the city, known for its stability, has picked up speed to look carefully at the new demands for industrial and social change. "Large-scale" and "industrialization" have become the new buzzwords in Guangzhou's legal service market.
The GDP growth data for the first half of 2020 released by China's provinces and municipalities not long ago have pushed Guangdong capital Guangzhou into the headlines: Guangdong's GDP remained No.1 in China, however, with a year-on-year decrease of 2.5 percent; and in the list of top 10 Chinese cities with strongest GDP growth in the first half of this year, Guangzhou was surpassed by Chongqing for the first time in many years, falling to the fifth place.
In fact, there have been discussions about "whether Guangzhou has fallen out of the first-tier cities" in recent years. "In the past, when talking about the major cities in China, we'd say they are 'Beijing, Shanghai, Guangzhou and Shenzhen.' But now some people would refer to 'Beijing, Shanghai, Chongqing and Shenzhen,’" Mo Zhe, senior partner and executive director of Kingbridge Law Firm, tells ALB.
Guangzhou has always been a "steady" big city, it develops step by step, seldom seeing its industries achieve giant leap in progress or show sudden jumps or drops," Wu Guoquan, director of DeHeng Law Offices (Guangzhou), comments.
However, as a popular saying goes: "You have to run just to stay in place." In particular, under the impact of COVID-19 this year, Guangzhou found that its "no-rush" development model is faced with unprecedented challenges.
UPGRADING MANUFACTURING INDUSTRY
Guangzhou has always taken pride in its manufacturing industry. But the growth rate of Guangzhou's secondary industry dropped by 7 percent during the first half of the year; it might be because of the basis of Guangzhou's manufacturing industry – a considerable part of its industrial structure is composed of traditional manufacturing industries, such as petrochemical and automobile manufacturing, which are greatly affected by the pandemic, according to an analysis report by the National Business Daily.
Automobile, petrochemical and electronic manufacturing have been the three pillar industries of Guangzhou, enabling it to achieve rapid and remarkable development during the past 15 years. But in fact, the growth rates of those industries have dropped sharply since 2014, and they are no longer the main driver of the economic growth in the region.
Han Yu, partner at Kingpound Law Firm, points to three reasons why Guangzhou's traditional manufacturing industry can't keep up the momentum: (1) strict environmental protection supervision has made it difficult for the heavily polluting manufacturing industries such as the chemical industry to survive; (2) in the context of national industrial upgrading, the heavy industry has become less competitive; and (3) the market demand for products of such enterprises is declining, too.
The sagging performance of the traditional manufacturing industries is reflected in the legal services market. "The business performance decides how much the companies are willing to pay for legal services fees. With the decline of traditional industries, there's no longer high demand for lawyers serving in these industries, such as traditional legal consulting works," Han says.
But changes have taken place.
Let's take a look at the manufacturing industry in Guangzhou again. In the first half of the year, the growth rate of Guangzhou's high-tech manufacturing industry increased by 1.5 percent; among which, the investment in the four major manufacturing industries, namely automobile, pharmacy, medical equipment and devices, and computer increased by 37.1 percent, 19.8 percent, 94.5 percent, and 2.2 times, respectively.
"Guangzhou is reinventing itself from a 'world's factory floor' to a hub of strategic emerging industries and advanced manufacturing. The integration of digital and industrial development will become a new trend," Lu Yuefeng, director of Dentons Guangzhou office, says.
Wu of DeHeng tells ALB that lawyers have observed such changes in their legal services. "There have been a number of industrial Internet projects launched in Guangzhou since 2018; and some large domestic and foreign technology companies in Guangzhou have started to apply technologies in industrial production ... In particular in the machinery manufacturing and processing industry, we have some clients who widely use robots, manipulators and other technological means in the production of equipment."
Guangzhou is also building advanced manufacturing zones, such as the advanced manufacturing cluster in the Guangzhou Development Zone in Huangpu District, the National New Industrialization Demonstration Base (in big data) in Pazhou, and the Nansha Industrial Base.
According to the Three-year Action Plan for Making Guangzhou a City of Advanced Manufacturing Industry, by 2021, Guangzhou will build two world-class advanced manufacturing clusters in terms of automobiles and ultra-high-definition video and new display, and build four national advanced manufacturing clusters, including new materials, urban consumption industry, high-end equipment manufacturing, and biomedicine.
All these efforts have started to pay off. Autonomous driving companies Pony.ai and WeRide.ai are now headquartered in Nansha; and Xpeng Motors, headquartered in Tianhe District of Guangzhou, completed its $1.5 billion IPO on the New York Stock Exchange at the end of August. And industrial clusters of new display, semiconductor and integrated circuit have also taken shape.
FORMER CITY OF COMMERCE EYES LIVESTREAMING
Another economic driver of Guangzhou, international trade, didn't perform as well during the first half of the year, either.
Because the Canton Fair couldn't be held on schedule and the export product structure tended to be traditional, the total import and export volume of Guangzhou saw a year-on-year decrease of 7.6 percent in the first half of the year.
"Guangzhou has a unique position in China in commerce and trade. At the beginning of China's reform and opening up, drawing on the Canton Fair, there were many types of wholesale markets in Guangzhou, diversifying the economic vitality and growth in the city. Businessmen from all over the world could be seen here," Wu recalls.
"COVID-19 had a great impact on international trade. Thanks to the Internet, many trading activities are now carried out over the Internet," he continues.
The seemingly inevitable changes due to the pandemic actually coincide with Guangzhou's development strategy in recent years. E-commerce has been developing rapidly in Guangzhou over the past few years. In March 2020, Guangzhou even officially came up with a slogan "building Guangzhou into a city of live-streaming e-commerce."
"As a city of commerce with a history of a millennium, Guangzhou has unique advantages in commerce and trade. Doing business is like a tradition for Guangzhou locals, and the rapid development of e-commerce in Guangzhou shares the same business logic with that tradition," Zhu Zhengfu, the vice president of the All China Lawyers Association and chairman of partners' meeting of Hylands Law Firm, says.
In other words, in Guangzhou, ordinary people make every endeavor to do business.
There are data supporting the above statement: in the first half of the year, Guangzhou's online retail sales increased by 31.6 percent; through the organization of foreign trade "cloud recommendation,” "cloud negotiation" and "cloud contract signing,” 1,067 new foreign direct investment enterprises have been established in Guangzhou; and the actual use of foreign capital increased by 0.2 percent year on year.
And overseas online shopping has become a new business trend in Guangzhou. "The government continuously promulgates new policies to support the development of cross-border e-commerce, further reducing the cost of such business, improving the business environment, and attracting a large number of cross-border e-commerce companies to gather and develop," Lu of Dentons Guangzhou says.
Retail live streaming is well under way. According to the 2020 New Economy Report on Live-streams on Taobao Live, Guangzhou is currently the second largest city of live streaming on Taobao Live. In June, Guangzhou even hosted China's first city-based live streaming e-commerce festival.
NEW IMAGE WITH NEW INDUSTRIES
While the city is accelerating the transformation of traditional industries, Guangzhou has something deeper to think about: what kind of image the city is trying to build? Especially in the Greater Bay Area, how to make Guangzhou a city that is different from Shenzhen, Hong Kong or other places?
In fact, the Outline Development Plan for the GBA already gives a quite clear positioning for Guangzhou, that is, Guangzhou should "be given full play to the leading role of the national central city, and should comprehensively strengthen its functions as an international trade center, a comprehensive transportation hub, and a technology, education and cultural center."
In order to match the above-said expectations, Guangzhou is picking up speed to attract businesses of emerging industries; and its first target is the new economic industries represented by the Internet.
"Guangzhou had a painful experience in (the Internet) field. There were several Internet companies started up in Guangzhou, but it failed to keep them here. For example, NetEase moved from Guangzhou to Hangzhou. In the era of mobile Internet and 5G, Guangzhou has a strong desire to win a place in this sector in the future competition," Han of Kingpound says.
Drawing on its advantages in terms of education, scientific research and talent, Guangzhou has started to vigorously build an Internet industry cluster in recent years. Wu tells ALB that Pazhou, Panyu, Donghu Development Zone, Nansha, and Huangpu Development Zone have all attracted innovation and technology companies. Pazhou, once known for the Canton Fair, stands out from the aforesaid areas. In the future, "it will become an area where the Internet companies gather and the digital Guangdong economic cluster area."
According to Cyzone.cn, there are currently 20 Internet companies building their headquarters in Pazhou. DeHeng’s Guangzhou office moved to Pazhou just a year ago. "We are observing the development and changes in Pazhou every day. It is now at the stage of construction and laying the foundation, the relevant industries will have significant outputs in three to five years," Wu comments.
The financial industry is another sector that Guangzhou has an eye to.
"In fact, Guangzhou has been pressured by neighboring cities in recent years; the pressure from Shenzhen is mainly at the financial level. Because of the Shenzhen Stock Exchange, Shenzhen's financial assets are several times that of Guangzhou ... Guangzhou has always wanted to increase its competiveness in the financial sector," Wu says.
The financial sector in Guangzhou met the expectations during the first six months, achieving a growth rate of 8.1 percent. Standard Chartered announced not long ago that it would invest $ 40 million to establish a GBA Center in Guangzhou, which is expected to be put into operation in the third quarter.
Wu tells ALB that Guangzhou has built international financial cities in Dongpu and Chebei, and Nansha has also joined hands with the International Finance Forum to promote the construction of the Guangzhou Nansha International Financial Island Project.
"In addition, Guangzhou is also considering the development of futures trading and carbon trading, and the establishment of related resource trading centers to drive the development of financial businesses. It also expects to give play to the role of a city of commerce and trade in promoting the development of trade finance, including trade financial settlement and trade financial product supply chains," Wu says,
It is not only the Internet and finance sectors; the medical and pharmaceutical, as well as the information technology industries in the city are also making rapid progress.
Today Guangzhou is home to some leading enterprises in the medical and pharmaceutical sector, such as Guangzhou Kingmed Diagnostics Group Co., Ltd., GE, BeiGene, and Thermo Fisher Scientific. And in the field of artificial intelligence and new generation technology, there have emerged some technology companies such as PCITECH, Gizwits, Ehang, and Guangzhou NINED Digital Technology Co., Ltd.
NEW OPPORTUNITIES FOR LAWYERS
With the arrival of new industries, Guangzhou lawyers have seen new opportunities in the legal market.
The first "blue ocean" mentioned by lawyers is intellectual property. "The competition in the intellectual property legal service market is fierce, including patent, trademark, copyright and other related segments, especially computer software copyright and patent applications by technology companies," Wu says.
The second one is the abundant opportunities created by the development of the Internet.
Following the opening of two Internet courts in Hangzhou and Beijing, the third Internet court, Guangzhou Internet Court, opened in 2018. "The number of cases handled by Guangzhou Internet Court is way more than expected, to some extent, overwhelming. According to the data we have, the number of cases filed with Guangzhou Internet Court in a month has reached 3,000, and there are still thousands of cases waiting in line," Wu tells ALB.
Mo of Kingbridge tells ALB that Guangzhou Internet Court heard more than 40,000 cases in total in 2019, while one-fourth of them were handled by Kingbridge. "(It shows that) the Internet has brought a lot of new business for lawyers, in particular copyright cases related to the Internet videos, live streaming, self-media, and music," she says.
"But how to handle so many cases? It poses higher requirements for lawyers in terms of the business operation models. There're many things need to be done through technological means, including obtaining evidence and data in related cases, which requires lawyers to continuously improve their professional capabilities, and meanwhile innovate in services, technology and equipment," Mo says.
Foreign-related legal services is another area in Guangzhou which is seeing rapid development.
Huang Shan is currently the president of the Guangzhou Lawyers Association and also the founding partner of Guangdong Grandholders Law Firm. He tells ALB: "Guangzhou actually has very good resources of foreign-related legal service talent. The Guangzhou Lawyers Association is working on the establishment of the Guangzhou International Legal Service Center to bring together lawyers who are engaged in foreign-related legal services in Guangzhou. The Center's functions include training, publicity and business promotion and referrals."
According to data from the Guangzhou Lawyers Association, there are currently 167 foreign-related law firms in Guangzhou, with 648 lawyers engaged in foreign-related legal services. The Guangzhou Lawyers Association founded China's first institute for foreign-related lawyers, and initiated the practice of selecting "top 10 foreign-related barristers in Guangzhou."
"The emergence and development of new sectors have created new opportunities and a level playing field for all players in the market … it's like running a race, the runner who gets prepared first might stand out and win the race," Huang concludes.
PROMOTING LEGAL AS A KEY INDUSTRY
The legal service market in Guangzhou, just like those in other places, has experienced rapid growth over the past four years, in terms of the number of lawyers and the number of law firms.
According to data from the Guangzhou Lawyers Association, between 2016 and 2019, the number of practicing lawyers in Guangzhou increased from more than 10,000 to about 15,800, with an average annual growth rate of 13.5 percent; the number of law firms increased from 604 to 770, with an average annual growth rate of 8.5 percent. And "the revenue of Guangzhou's legal service industry has basically maintained an average annual growth rate of 30 percent in the past four years," Huang adds.
However, behind the rapid development, Guangzhou lawyers also have their own "frustration.” "Wang Bo, our former director of Kingpound, often said that the legal market in Guangzhou was advanced in the past, and law firms in Beijing and Shanghai often sent lawyers to Guangzhou to learn our practices. But since about a decade ago, who still comes to Guangzhou to learn from us? For Guangzhou lawyers, it's that they are not willing to give way," Han says.
Speaking of the changes in the Guangzhou legal market in the past few years, the lawyers first point to the trend of rapid growth in size of law firms.
“A few years ago, boutique firms boomed in the legal industry. But we later found that it seems that the legal market in Guangzhou favors large firms instead. Many law firm mergers took place over the past few years, and this trend of law firms' growing in size will continue in the next three to five years," Han points out.
Kingbridge is a typical example of a Guangzhou local law firm growing from a small firm, with 19 lawyers in 2014, to a large firm now, with more than 370 lawyers, Mo tells ALB. And the firm also achieved an annual revenue growth of more than 50 percent.
The firm's expansion is not only manifested in the number of employees. Kingbridge now has ten branch offices; in addition to a couple of offices establish in the GBA, the firm has set up a Guangdong-Hong Kong-Macao joint office in Nansha, and established branches in Changsha and Sanya. Kingbridge is also preparing to set up offices in Yantai and Qingdao of Shandong Province.
Kingpound has set up overseas branches in Australia, Canada, Myanmar, and Japan in the past few years. "We actually do not advocate aggressive expansion. In fact, we've never done this – setting up so many branch offices within a rather short period of time – ever since the firm was founded 20 years ago," Han admits.
In addition to expansion, the lawyers also point out that there are other key words in Guangzhou legal service market, which are "integration,” "teamwork,” and "specialization.”
“In the past, most local firms didn't care about integration, but now they find that the division of work, enhanced specialization, service quality improvement, brand unification, etc. … these all need to be achieved through integration. A firm probably can't go far by following the traditional model. Only those that successfully realize the integration and transformation can maintain their competitive edge," Huang points out.
Then whether domestic and foreign law firms' accelerated expansion in Guangzhou has put pressure of competition on Guangzhou local lawyers? "I personally believe that competition occurs when there aren't enough works. As long as we can keep the legal industry developing rapidly, everyone in the market will have a piece of pie."
"Once you've come to Guangzhou to practice law, you are a Guangzhou lawyer. The typical mentality of Guangzhou people is: Whoever does a better job than I do, I will learn from him, and then I'll become better. Being dedicated, diligent, and down to earth, you can see these typical Lingnan culture characteristics in Guangzhou lawyers," Huang says.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.