Only two years remain until the target date of achieving the initial establishment of the Hainan Free Trade Port by 2025. Although the pandemic has had a negative impact on Hainan’s progress, the region has successfully moved away from relying too heavily on real estate. Despite facing several obstacles, new industries are emerging and showing signs of growth. The legal sector in Hainan, which has experienced significant growth since 2019, is also moving towards a path of sustainable and long-term development.
Emerging as a new cornerstone of China's institutional innovation, the "Overall Plan for the Construction of Hainan Free Trade Port (Hainan FTP)" announcement in 2020 set the stage for a series of novel policies and regulations in the island province. These measures have propelled swift advancement across diverse industries. Although the pandemic undeniably tempered overall progress, the past three years have been witnessed to significant leaps in FTP construction.
Liao Hui, the director of Zhong Lun Law Firm’s Haikou office's executive committee, shares insights with ALB, highlighting a discernible trend over recent years — the "steady increase in foreign investment activity." Hainan has experienced an annual average foreign investment growth rate surpassing 60 percent, indicative of the region's burgeoning openness.
Amid the influx of capital, prominent investors have directed their attention to Hainan. Liao observes the establishment of regional headquarters by numerous central and state-owned enterprises, alongside the eagerness of multinational corporations to tap into the region's opportunities. In a bid to attract more corporate headquarters, the Hainan government introduced a fresh set of measures in March. These initiatives aim to enrich Hainan's international presence and foster the settlement and expansion of headquarters equipped with core technologies, intellectual property, or innovative business models.
"With the deadline for the island's comprehensive unveiling by the close of 2025 drawing near, and as high-level openness commitments gradually materialize, our law firm, dedicated to serving the market economy, is poised to access amplified developmental prospects," Liao asserts.
In recent years, the most conspicuous transformation in Hainan has been the ongoing evolution of new industries. Wang Shuo, a partner at DeHeng Law Offices’ Sanya office, highlights that within the framework of the FTP plan, Hainan has expedited the advancement of a contemporary industrial system propelled by tourism, modern services, high-tech sectors, and tropical agriculture. "These four primary industries currently contribute to 70 percent of the province's GDP, which also ushers in novel requirements for legal services."
A native of Hainan, Liao possesses an intimate understanding of the regional industrial shift. He notes that since the 1990s, Hainan's growth has been dominated by real estate and tourism, both of which have encountered multiple bubbles. "This aspect has been the most significant challenge to Hainan's industrial progress, with shifts in leadership causing uncertainty and missed opportunities. Over the past three decades, Hainan has struggled to ascertain its distinctive industrial direction."
Consequently, he deeply values the industrial policies enacted in the past three years. "On one hand, there has been a resolute departure from real estate, coupled with the introduction of the country's most stringent property purchase restrictions in Hainan." Concurrently, several newly established industries have achieved notable outcomes.
"Firstly, there's duty-free consumption, with the world's largest duty-free mall establishing itself in Haikou. Secondly, international education has gained prominence, as Hainan FTP stands as the sole region in China where foreign institutions can establish wholly owned schools. Presently, institutions like Harrow Haikou International School and the Hainan Bielefeld University of Applied Sciences project in Yangpu are being established, attracting high-net-worth families seeking quality education."
"Thirdly, healthcare has taken center stage, with Boao Lecheng designated as the exclusive area in China allowed to import advanced medicine and medical devices from developed nations without necessitating clinical trials. This will significantly address China's aging population challenges. Finally, owing to its distinctive tropical climate, Hainan's development hinges on industries that can harness its climatic advantages, such as tropical seed breeding, tropical marine fishing, and aerospace."
The establishment of new industries relies heavily on financial support. Liao notes substantial growth in foreign-related business and corporate investment and financing activities. "For instance, the successful establishment of the Hainan FTP Construction Investment Fund last year, with a management size of 10 billion yuan, has supported the growth of pivotal industries and major projects in Hainan. Since its inception, we've undertaken numerous projects related to fund setup, investment, and integration, evidencing the swift evolution of the private equity fund sector."
Zhao Liang, director of the management committee of AllBright Law Offices’ Haikou office, acknowledges that over the past year and a half, the FTP's construction has yielded remarkable achievements in cultivating a contemporary industrial system, notably through the advancement of key parks that have effectively fostered the growth of new industrial clusters.
"For instance, the Haikou Fullsing Internet Industrial Park embodies the rapid progress of Hainan's digital industry, focusing on bolstering the digital content processing sector. Furthermore, high-tech industries have burgeoned. By the close of 2022, there were more than 1,500 high-tech enterprises, primarily centered on internet and data services," notes Zhao.
To actively integrate into the development of these new industries, the Haikou office has invested substantial effort. In March of this year, AllBright forged a fresh collaboration agreement with the UK-based firm Bird & Bird in Hainan, capitalizing on the FTP's policies to engage in cooperation across sectors like banking and finance, bulk import and export trade, intellectual property, maritime affairs, and more.
Regarding the recent introduction of new industries and their corresponding legal service demands, Lin Rujin, executive director of DeHeng's Haikou office, also offers firsthand insights, particularly concerning the "swift growth of the biopharmaceutical and maritime port logistics sectors." With the emergence of these new industries, DeHeng Haikou has leveraged the strengths and expertise of its headquarters' teams in biopharmaceuticals and maritime law to explore and innovate more effective legal service models tailored to the actual needs of the FTP.
The "Hainan Fever" that swept through the legal services industry in 2019 remains vivid in the memory of many. This fervor accompanied the introduction of the free trade port concept and the issuance of the "Hainan Economic Special Zone Lawyer Regulations" in September of that same year. Wang Shuo from DeHeng informs ALB that from the implementation of these new policies in 2019 until March of this year, "254 new law firms were established in Hainan, marking an astounding 178 percent increase, while the number of lawyers surged by 2,507, effectively doubling the previous count."
Undoubtedly, such rapid expansion has engendered a qualitative transformation in Hainan's legal market. Zhao Liang of AllBright underscores, "The swift and momentous surge in law firms and lawyers in Hainan, while a short-term phenomenon, has led to a disparity between the legal industry's capacity and the island's economic growth pace." Nonetheless, he concedes that the rapid influx of external dynamics has also propelled Hainan's legal industry into maturity within a comparatively condensed span.
Liao Hui, formerly the president of the Hainan Lawyers Association and currently of Zhong Lun, offers a perceptive analysis of the local market. He asserts that the FTP's construction has wielded a substantial impact on Hainan's legal services sector. "Prior to 2019, the Hainan market held a relatively insular stance, allowing Hainanese lawyers to lead relatively comfortable lives with satisfactory business income. However, following the FTP policy's inception, the decline in the real estate sector inevitably led to a contraction in the legal services market, presenting challenges for Hainan's legal practitioners," Liao elucidates.
Nevertheless, he perceives the changing environment as an opportunity for local lawyers. "Encompassing the new industries mentioned earlier, alongside the initiation of significant ventures such as investment funds, project mergers and acquisitions, finance and securities, these evolutions have engendered numerous high-end opportunities. However, seizing these prospects would prove demanding for Hainanese lawyers lacking professional expertise and international acumen," Liao adds.
Lin Rujin and Wang Shuo have also discerned the escalating competition within the traditional legal services sector, along with the prospects arising from emerging domains. Lin highlights that realms like financial capital, business compliance, customs and international trade, intellectual property, cross-border investment and mergers, and pharmaceuticals and healthcare "call for comprehensive services from major firms like DeHeng." Concurrently, Wang underscores the necessity for lawyers proficient in specific industries to provide precise guidance in these burgeoning sectors.
In a constantly evolving market characterized by new entrants and shifting service demands, how can law firms formulate development strategies to maintain their position and continue thriving? Interestingly, the law firms interviewed have all established offices in Hainan following the FTP policy, and their narratives offer insights into addressing this question.
Since its inception in 2019, Zhong Lun Haikou has expanded to a team of 27 individuals, including 3 partners, with revenues exhibiting a consistent upward trajectory. Liao Hui informs ALB that transitioning from his previous role as a director in a prominent local firm in Hainan to joining Zhong Lun provided him the opportunity to employ a top-tier law firm's brand in a "limited capacity, unique theme" market such as Hainan. This journey has prompted much introspection and contentment.
"Zhong Lun's brand, expertise, and operational model might yield substantial business prospects in major cities, yet in Hainan, we made a conscious decision to emphasize boutique, specialized positioning, catering to high-end clients and enterprises like Hainan Development Holdings, Hainan Financial Holdings, Hainan Equity Trading Centre, Hainan Free Trade Port Fund, Hainan Provincial Finance Group, and Haikou Comprehensive Bonded Zone," Liao conveys.
"We even voluntarily relinquished certain conventional business areas, eschewing price-based competition, as doing so would ultimately undermine clients' interests. Our aspiration is: for the same endeavor, we must enhance its execution; for undertakings others can't manage, we must be capable of addressing them, offering adept and efficient resolutions. Despite encountering numerous challenges over the past three years, our trajectory remains unwavering."
In 2022, AllBright Haikou came into existence, and in a little over a year, the team has burgeoned to 70 members, including 10 partners and 3 senior partners. Despite this remarkable growth, Zhao Liang underscores that AllBright Haikou also aspires to foster a "boutique firm that pursues quality rather than undirected scale." The office has achieved notable revenue since its inception, relying on meticulous service and active expansion into foreign-related, financial, medical, aviation, and education sectors that align with the FTP's developmental direction.
DeHeng also set foot in Haikou in 2022, and presently boasts a staff of 20, primarily rendering services in domestic and international dispute resolution, enterprise risk management, compliance, financing and mergers and acquisitions, bankruptcy and reorganization, capital markets, corporate securities, labor law, and tax law. Their clientele is primarily drawn from financial, medical, and real estate domains, alongside various governmental bodies.
Reflecting on the preceding year's development, Lin Rujin states that DeHeng has leveraged its existing brand strengths while deeply appreciating the significance of local resources. "Effectively, DeHeng Haikou stems from an amalgamation with a local law firm, offering clients specialized legal services that are grounded in Hainan's current state while retaining a global outlook," he shares.
Simultaneously, Wang Shuo believes that the resource advantages of a nationwide law firm brand are pivotal for future competitiveness. He informs ALB that with the FTP's progress, the demand for Hong Kong, Macau, and foreign legal affairs is progressively increasing. "DeHeng Sanya now serves as a bridge, collaborating with our overseas offices to address various requirements of clients in foreign investment, international commercial transactions, cross-border mergers and acquisitions, bond funds, bank financing, and dispute resolution, offering seamless and high-quality cross-border legal services."
With the relaxation of pandemic controls this year and a strategic emphasis on sectors like healthcare and consumption as pivotal post-pandemic drivers for China's economy, the stage is perfectly set for the advancement of Hainan FTP. Lawyers are eagerly anticipating further expansion in the local economy and the legal services sector.
Lin Rujin underscores that the forthcoming trajectory for DeHeng Haikou will concentrate on cross-border trade and investment, financial innovation, intellectual property, and shipping and logistics. Meanwhile, Wang Shuo holds particular anticipation for the swift progress of the healthcare, wellness, consumer industries, and modern financial services. As the 2025 milestone approaches, signifying Hainan's jurisdiction beyond China customs, modern financial services are poised to ascend to a higher level. This could potentially entail greater freedom in realms such as private fund management, overseas remittances, and bill financing, consequently fostering escalated demand for related legal services.
Zhao Liang discloses to ALB that AllBright Haikou will channel its efforts into offshore finance and trusts, banking and private equity funds, family offices, import and export trade, intellectual property, maritime law, and cross-border e-commerce services in the upcoming phase.
Liao Hui shares that in the forthcoming period, Zhong Lun Haikou will persist in excelling within traditional domains like dispute resolution, engineering, and project development. Additionally, the office will pivot towards non-litigation realms such as investment and mergers, capital markets, financing, private equity, and investment funds. These fields align with Zhong Lun's professional strengths and enthusiasm to contribute to Hainan's market evolution.
Furthermore, after establishing the office's foundation over three years, Liao feels that the "Zhong Lun model is viable in Hainan FTP's development." Zhong Lun Haikou is now entering a "growth stage," aiming to engage top-notch professionals in Hainan within targeted practice areas through integration into the Zhong Lun platform. "We firmly believe that Hainan's future holds promise," he asserts.