Yangtze River Delta: Embracing Innovation
The Yangtze River Delta (YRD) region, China's biggest city cluster, plays a pivotal role in China's economy. According to data from 2018, the YRD region was home to 16 percent of China's population and contributed around 23.5 percent of China's total GDP. In late 2019, the Chinese government officially made the integration of the YRD region a national strategy. The region will play a more important role in enabling innovation breakthroughs and leading growth in the future.
Given its favourable conditions, the YRD region is the cradle of China’s early civilization. From an agricultural powerhouse to an industrial corridor, the region has continuously played a significant role in China’s economic growth.
Since regional economic integration became more of an objective for China, the concept of the "YRD region" has been taking shape.
The YRD region began as a geographical concept, but evolved into an economic concept covering adjacent cities and towns as urbanization and industrialization the region developed.
A recent government policy has more thoroughly defined the YRD region. On December 1, 2019, the State Council put forward a development plan for the integration of the YRD region, which stipulates that the central area of the region is made up of 27 cities including Shanghai, and those in the provinces of Jiangsu, Zhejiang and Anhui. Under a broader definition, the greater YRD region is made up of 41 cities, including Shanghai and all cities in the provinces of Jiangsu, Zhejiang and Anhui.
Some believe that the YRD region, made up of 41 cities, is the most prominent megapolis in China.
GDP figures from 2019 show that Jiangsu province, Zhejiang province, Shanghai, and Anhui province nationally ranked second, fourth, tenth and eleventh, respectively, in economic growth, with annual growth rates exceeding 6 percent. Among the cities in the YRD region, Shanghai ranked first in actual GDP, topping 3 trillion yuan ($448 billion), while Suzhou, Hangzhou, Nanjing, Wuxi, and Ningbo all recorded GDPs of over a trillion yuan.
INTEGRATING IN TROUBLED TIMES
“Whether the State Council had rolled out the development blueprint or not, economic integration in the YRD region is already a reality,” Dentons Ningbo’s executive director Tong Zhe tells ALB. As the region is seeing organic growth, one may wonder why the Chinese government made the region’s integration a national strategy.
To understand this, knowing how the authorities view the integration of the YRD region is required. After the development plan was promulgated in 2019, Ming Pao, a newspaper based in Hong Kong SAR, commented: “Announcing the development plan for the YRD region means that the plan is now officially put into action. The YRD region will further thrive in the future, which can stimulate the development of the hinterland in the region and bring prosperity to the whole country.”
The newspaper then compared the YRD region with the Pearl River Delta: "The key to the success of the YRD region does not lie in its innate conditions, but institutional integration … While Guangzhou and Shenzhen were still competing to be the leader in the Pearl River Delta, Shanghai had already called for meetings to discuss the YRD region’s development … Mutual development has become the norm now, and this is what cooperation truly means to enabling integration.”
Essentially, authorities in the YRD region have long understood what it means to act within one's competence, and the plan for integration will continue to strengthen the determination for cooperation.
For example, Yangshan Port, which is currently the world’s largest container terminal, is located in Zhejiang province, but managed by Shanghai for greater efficiency. According to the development plan, local governments in the YRD region can establish intergovernmental mechanisms to share revenue and initiate funds to support industrial development. In 2018, Shanghai International Group Corporation Limited initiated the 100 billion-yuan Yangtze River Delta Collaborative Advantage Fund to invest in “hard technology,” "industry chain perfection" and “star programmes.”
Simply put, the YRD region intends to realize integration in all aspects of production and life under the new development plan.
On August 20, 2020, President Xi Jinping again emphasized the importance of the integration of the YRD region during a visit to Anhui Province. He laid out three tasks for the region’s development: to consolidate efforts to seek scientific breakthroughs, to provide high-quality products and supply high-level technologies to support China’s high-quality development, and to act as a bridge between the domestic and international markets.
All these imply that the integration of the YRD region now has a new purpose in the evolving global economic and geopolitical landscapes and the changing times in China. As the most developed region in China, the YRD has become the “people’s hope” as other countries are imposing restrictions on tech exports and the country is trying to reinvent its global role.
SHANGHAI: CAPITAL POOL AND R&D POWERHOUSE
In his speech on Aug. 20, Xi Jinping laid out three key goals for Shanghai's development: to continue the reform and opening-up of Pudong District, to establish the Lingang New Area in the Shanghai Free Trade Zone, and to keep promoting Shanghai as an international financial centre.
“The establishment of the Lingang New Area in the Shanghai FTZ has supported innovation in the financial sector, expanded the cross-border use of Renminbi yuan, deepened the reform of forex management, and optimized the financial environment. The introduction of the STAR board has further stimulated the growth of high-tech companies.”
- Liu Rongrong, Dentons
Whether by establishing a financial centre or attracting foreign investment, Shanghai’s most important function is to attract capital to support industrial development in other parts of the region. According to a Savills report, 24 percent of China’s capital is concentrated in the YRD. In China, indirect financing is the standard way to finance a business, but the government has been calling for more direct financing methods. As a result, direct financing represented 36 percent of the funds raised by Shanghai by end of 2019.
Dentons Shanghai’s director Liu Rongrong tells ALB of the significant financial policies in Shanghai over the past few years: “The establishment of the Lingang New Area in the Shanghai FTZ has supported innovation in the financial sector, expanded the cross-border use of Renminbi yuan, deepened the reform of forex management, and optimized the financial environment. The introduction of the STAR board has further stimulated the growth of high-tech companies. Authorities have rolled out 100 measures to further open Shanghai’s economy and encouraged multinational companies to set up regional headquarters in the city, which works with the Foreign Investment Law to further vitalize foreign businesses in the city,” she says.
Such changes have also affected the firm’s business. "In recent years, Dentons Shanghai has provided services for Chinese companies to go global, for foreign companies to invest in China, and for Chinese companies to go public on the STAR board,” Liu says.
Another of Shanghai’s roles is to leverage its international city status to serve as the R&D centre for the entire YRD.
"High-tech industries and strategic emerging industries, such as smart grid, new energy, integrated circuits, and civil aircraft manufacturing, have grown significantly in Shanghai over the past two years. Prime examples include
Tesla’s Shanghai Gigafactory and GTA Semiconductor's special process production line project. Shanghai is striving to build several world-class industry clusters,” Liu observes.
"High-tech products or services are characterized by their technologies, influence and intellectual property rights, so legal services need to be more specific and in alignment with the law,” she added. She believes lawyers should understand and help with the reform and amendment of technology-related laws and industry regulations. Meanwhile, they should assist tech companies in navigating foreign laws and regulations, especially in international trade.
Shanghai has become a popular market for new businesses, such as bankruptcy and restructuring, fintech and internet business, as well as healthcare and insurance, says Chen Feng, vice president of the Shanghai Bar Association. Chen believes these sectors have created new requirements for lawyers. "Although China has been coming up with new laws and regulations to regulate the emerging sectors, they are still very innovative, so lawyers need to keep studying the new sectors … The association has been working in this area, including looking into the bankruptcy business in advance, as well as setting up committees to study financial tools, artificial intelligence, and the Internet sector,” he says.
HANGZHOU: DIGITAL ECONOMY LEADS DEVELOPMENT
Home of internet giants such as Alibaba and Ant Financial, Hangzhou now plays a significant role in China's internet economy.
According to the 2019 Yangtze River Delta Digital Integration Report by Ali Research Institute, Hangzhou ranked top with a score of 83 in the digital economy index in the region. The report shows that Hangzhou scored 99, 93 and 84 in digital infrastructure, digital government services, and digital commerce, respectively. From industries to livelihoods, the digital economy is transforming the city.
The development of Hangzhou also reflects that of the entire YRD region. According to the same report, the YRD region contributed 28 percent of China’s digital economy, and the digital economy was 41 percent of the local economy. By 2018, 58 unicorn companies were based there.
Digital economy companies naturally became the major clients of Hangzhou law firms.
Internet companies now account for around 16 percent of Dentons Hangzhou’s clients. "We mainly provide services in corporate compliance and cybersecurity for these clients," the firm’s director He Jianwen tells ALB. "For example, we help them with issues surrounding personal privacy protection, as well as business licenses for new businesses. We also provide services such as compliance reviews of online sales models, the criminal compliance of online business activities, as well as internet intellectual property protection, and dispute resolution."
"China probably sees the fastest growth in the Internet economy in the world,” He notes. "New legal issues come faster than solutions, and issues are unprecedented. Lawyers show their competency by identifying the nature of the problems. Therefore, for internet companies and their products, we not only conduct preliminary compliance reviews in accordance with the current laws, but also analyze potential risks to minimize compliance risks by leveraging our hands-on experience and understanding of the latest regulatory developments of the sector, as well as taking reference from previous court rulings and opinions from academia and regulators.”
JIANGSU AND ANHUI: STRONGER IN MANUFACTURING
In the Aug. 20 speech, Xi also mentioned that the region must accelerate digitalization and intelligent transformation to make industrial supply chains more stable and competitive. This is the task ahead for Jiangsu and Anhui in the region’s future development, as both provinces are known for manufacturing.
In a report on the region’s coordinated development of the manufacturing industry, the major industries are robotics, integrated circuits, and new energy vehicles. The report also points out the deepening integration of the industry chains in the YRD region. An example is the G60 Science and Innovation Corridor, which sees many companies along the expressway that runs through Shanghai, Suzhou, Hangzhou, and Hefei. The corridor links up financing, R&D, and manufacturing.
Speaking of the changes in traditional manufacturing in past few years, Dentons Nanjing’s director Shen Yongming tells ALB: "In recent years, the manufacturers in Jiangsu province have begun to adopt intelligent transformation, which can be demonstrated in a few aspects. First is the completion of the 5G+Industrial Internet Platform. Second is the greater synergy between upstream and downstream industries. Traditional manufacturers have built cross-regional digital factories and industrial internet platforms centred on intelligent transformation. Third is the extension of digital services to the manufacturing sector, which gives rise to platforms for credit evaluation, financial risk control and credit services for small and medium-sized enterprises.”
He points out that while traditional industries are transforming, new manufacturing and services industries are also emerging in Jiangsu. These industries include biopharmaceuticals, software and information services, financial and tech services, modern logistics and high-end commerce and trade, cutting-edge new materials, new energy, and core information technology.
According to a Savills report, the National Development and Reform Commission named seven industry clusters in the YRD region as the first batch of national strategic emerging industry clusters. The YRD region’s strength in information technology lies in its coverage of the entire industry chain, which can provide companies with full product line solutions from network construction to terminal storage systems.
Those changes are also reflected in the legal market.
Jiangsu Suzhou Steel Group is a state-owned enterprise. Its general counsel, He Xiang, tells ALB that, thanks to certain policies by the Suzhou government, the group “is no longer only looking at assembly line manufacturing, but also paying attention to product development and design, productivity improvement, and equipment effectiveness.” Meanwhile, the group has tapped into global high-end manufacturing.
Due to the group’s transformation, the legal team has begun helping with strategic planning, overseas investment, and equity structure design, a shift from traditional duties such as reviewing contracts and resolving labor disputes. Under the Belt and Road initiative, companies are taking a deeper look into overseas investments, another focus for the legal team.
He tells ALB that against this backdrop, specialized and international law firms can better attract companies’ business. He summarizes the companies’ expectations for external law firms into three points: the ability to understand the policies where the company is located; the ability to keep pace with the company’s global development; and the ability to provide business resources with industry insights apart from legal knowledge.
Law firms are also expanding their services. Dentons Suzhou’s director Xiao Xiang tells ALB that the development of emerging and traditional industries “involves technology as well as investment and financing.” Law firms must consider more factors when providing services, such as what investment and financing plans to adopt, how to protect intellectual property rights and trade secrets, how to make full use of government subsidies and incentives, the pre-regulatory guidance for entering the capital markets in the later period, the equity design of tech startups, and data protection.
Cities such as Nantong are seeing more changes as the YRD region further integrates.
The Shanghai-Suzhou-Nantong Railway opened on July 1, shortening travel time from Shanghai to Nantong to only 1.5 hours. The city of Nantong also put forward an initiative to fully connect with Shanghai. Wang Nian, senior partner at Dentons Nantong tells ALB that over the past few years, the local government has invested heavily in transport infrastructure as well as new towns. The construction of Nantong’s new airport, the high-speed railway along the Yangtze River, and the Tongzhou Bay seaport "will fundamentally change Nantong's traffic performance and its position."
Wang also says that over the past few years, Nantong has seen rapid growth in new industries such as market procurement, cross-border e-commerce, and integrated services for foreign trade. The city is also promoting industry clusters in new-generation information technology, semiconductors, industrial robots, aviation, marine equipment, and biopharmaceuticals.
"The development of emerging industries has brought new demands and expectations for legal services. In terms of what we provide, companies demand services that oversee the whole process. As to how we provide our services, companies demand timely and efficient services via online communications, appointments, and site visits. In terms of the results, companies expect us to effectively prevent and resolve disputes and to control legal risks.”
- Wang Nian, Dentons
Zong Haixia, general counsel of Nantong Coastal Development Group, shares with ALB that apart from traditional real estate projects, their company is evolving more and more in large infrastructure projects related to the integration. “The company, therefore, is under rapid growth, which requires higher standards of risk control and legal services … while working with external lawyer, we now require them to have a broader knowledge spectrum when acting as daily counsel and are in-depth experts when acting on specific project.”
Wang Nian echoes Zong’s observation. "The development of emerging industries has brought new demands and expectations for legal services. In terms of what we provide, companies demand services that oversee the whole process. As to how we provide our services, companies demand timely and efficient services via online communications, appointments, and site visits. In terms of the results, companies expect us to effectively prevent and resolve disputes and to control legal risks.”
Hefei has also experienced drastic transformation.
As the capital city of Anhui Province, Hefei has not played a significant role previously, but Savills points out that the city will see more high-speed railways in the next five years, making it easier to commute to neighbouring cities. Furthermore, Hefei's information technology industry is prospering, which makes it more attractive to talent.
Dentons Hefei’s director Ji Min summarizes the Hefei’s recent industrial development: “The traditional industries release impetus and the emerging industries start the growth engine. Together, they drive Hefei's high-quality development." The home appliance industry is one of the city’s highlights. Equipment manufacturing is also further growing, while high-end manufacturing, intelligent manufacturing, and robotics are booming. As for emerging industries, the new China Sound Valley high-tech park has attracted over 330 tenants and fosters AI development. The new energy vehicle industry also has a presence.
Economic development has brought prosperity to the legal market. “Hefei is one of the fastest-growing cities, one that is comparable to Shenzhen. The city has been expanding in recent years and has a population of over 8 million people,” Zhou Shihong, vice president of Anhui Lawyers Association and president of Hefei Lawyers Association, tells ALB. As such, Hefei now sees 15 percent more lawyers every year, who are charging 24 percent more annually. In the past two years, more foreign law firms have set up offices in Hefei and makeup half of the market. “This has changed the game in the legal industry and leads to higher billing rates and the expansion of the scope of our business,” Zhou says.
Ji Min also points out that economic development has led to changes in the quantity and quality of legal services. As traditional industries grow and expand, they need more services, such as mergers and acquisitions, financing, and public offerings. On the other hand, high-tech companies need intellectual property rights and protection for their innovations, so more lawyers are engaging in the sector.
NINGBO: A STRATEGIC LOCATION
The second-largest city in Zhejiang Province and a coastal city in the YRD region, Ningbo will continue to grow by leveraging its strategic geographical location. “As an important city on the southern wing of the region, Ningbo will serve as an international shipping port, a trading port, a high-end manufacturing hub, and a regional wealth management and capital centre in the future,” Dentons Ningbo’s Tong tells ALB.
Over the past few years, Ningbo’s industrial and urban landscapes have seen two major developments. According to the report from Ali Research Institute, since the bonded warehouse system was established, Ningbo Free Trade Zone e-commerce cross-border imports soared from 350 million yuan in 2013 to 10 billion yuan in 2018. Since 2012, the local authorities have been optimizing the city’s transport infrastructure with new-generation information technology, further consolidating its strategic regional position.
Tong tells ALB that the law firm ranks in the top three in dispute resolution, corporate and M&A, as well as real estate and construction. Speaking of the changes in legal services, he uses civil and commercial dispute resolution as an example. "The number of disputes involving private equity funds, wealth management and investment is on the rise. Corporate equity disputes are becoming more common. Criminal, administrative, and civil disputes are intertwined. This leads to a growing demand for cross-sector legal services,” he says.
When discussing new trends in the legal market in the YRD region, the forward-looking legal professionals mention the disruption brought by Internet technology and alternative legal service providers to the traditional legal business.
Some trends, such as the development of the Internet, are affecting how lawyers work and what they do. “As there are more Internet users in Hangzhou, how regulators can leverage technology to impose industry standards and effective regulations on the fast-growing Internet industry and the evolving online business activities has become a hot debate,” He Jianwen tells ALB.
He gives examples of how technology can change the work of the judiciary. “The judiciary in Hangzhou has adopted a lot of tech tools, such as using electronic materials during trials. Judges are increasingly communicating with lawyers over online platforms. When executing a court order, the courts even use online platforms such as Taobao to dispose of assets,” he says.
Meanwhile, Ji Min admits internet technology is crucial to a law firm in carrying out training, communication, marketing, and recruitment. On the other hand, technology has also facilitated more rights infringements and crimes. More law firms also provide tech-enabled legal services, and lawyers will need to also be tech experts.
"Legal service providers are no longer limited to law firms. For example, the big four accounting firms have all set up legal services divisions. Online legal platforms and legal tech companies gain an upper hand in winning clients and managing their operations. Management software providers also intend to provide traditional legal services such as consultation and equity management.”
--Shen Yongming, Dentons
The active market economy also gives rise to alternative legal services providers, which can pose challenges for law firms.
"Legal service providers are no longer limited to law firms. For example, the big four accounting firms have all set up legal services divisions. Online legal platforms and legal tech companies gain an upper hand in winning clients and managing their operations. Management software providers also intend to provide traditional legal services such as consultation and equity management,” Shen tells ALB.
"The biggest challenge for legal service providers is that there are more players, but the business volume shrinks. Law firms’ competitiveness lies in their professionalism. I hope law firms will collaborate with the new players instead of competing with them. This way, we can have a healthy legal services market,” he adds.
Another trend is that as integration continues, law firms are setting up more branches and are weaving rather fine networks in this region.
"It is a national strategy to promote high-quality integrated development in the YRD region, so legal players must follow this trend,” Shen says. Therefore, Dentons now has set up 11 offices in the YRD region, a move that will better help the branches share big data, provide targeted legal services, obtain resources, and facilitate their services. This will be highly beneficial for the law firm.
Speaking of the outlook of the legal market in the YRD region, Chen from the Shanghai Bar Association says those who do not think ahead will find difficulties soon. Therefore, the association has put forward a three-year action plan to explore new growth opportunities. The plan not only discusses common issues such as how to foster talents and how law firms can scale up, go global, and cater to market needs, but also raises concerns about emerging issues such as the special status of law firms in the market economy, the mixed operation system, and the possible changes in management and remuneration, to prepare for future challenges. This year, the Shanghai Bar Association also added corporate and public lawyers as its members, and expanded the special committee made up of lawyers from foreign law firms, with an aim to bolster the development of the legal industry through exchanges and communication.
As for what roles lawyers in the YRD region will play, Dentons Shanghai’s Liu Rongrong emphasizes their roles in the business world and society. Lawyers will need to help companies seek certainty and predictability in a business environment that is full of uncertainty. They also need to contribute their perspectives and experience to improve laws and regulations. “Lawyers of the future not only will be more professional, but also more agile to adapt to market changes and needs with industry experience and business acumen,” she says.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.