胡律师举出了几个实例：在食品行业，绿爱公司建设共享工厂，实现了“大数据在线设计、 互联网数字印刷、工业 4.0 智能制造”；在医药行业，鲁南制药集团打造了支持医药研发的微球协同创新平台；在农业领域，农业“新六产”、医养健康、智能制造、数字经济成为发展关键。
ALB and SD Guoyao Law Firm jointly present: Shandong Embracing the New
Shandong, a coastal province south of the Beijing metropolitan region and north of the Yangtze River Delta, is a major industrial, agricultural, and trading hub in China as well as a gateway to Northeast Asia. For years, the province has recorded the third-largest GDP in China. Its economy is undergoing drastic changes, and the local legal market is also seeing new opportunities and challenges.
With a turbulent 2020 coming to an end, one might wonder how Shandong Province has coped during these difficult times.
According to data from the first half of 2020, Shandong recorded a GDP of 3.3 trillion yuan ($450 billion), maintaining its third-place ranking in China. Eleven cities from the province were also among the 100 Chinese cities with the highest GDP in the same period.
Shandong is one of China’s economic powerhouse provinces. After China’s reform and opening up happened, Shandong experienced rapid economic growth thanks to its agricultural sector. With the rise of heavy industries such as petrochemicals and oil refining, Shandong continued to grow as a prominent economy after 2000.
Fu Yifu, director of the Suning Institute of Finance, says that every city in Shandong province carries a large economic weight and the province has achieved balanced urban development among its cities.
Despite these achievements, there are concerns about Shandong's development.
First, the region’s large economy is losing steam. Data from Wind shows that Shandong’s GDP growth remained above 10 percent before 2011 but has been slowing since 2012. In 2019, Shandong’s GDP growth was 5.5 percent, lower than the national rate of 6.1 percent.
Second, despite balanced urban development amongst its cities, there are no megacities that can play a leading role.
Among the 16 prefecture-level cities in Shandong, only Qingdao has a GDP exceeding 1 trillion yuan. There are no cities in Shandong with over 10 million people, and young people are constantly leaving. In 2019, only 23.5 percent of local graduates stayed in Shandong province, with the rest moving to the Jingjinji metropolitan region or the Yangtze River Delta.
TRANSFORMING OLD INTO NEW
There has been discussion on the economic challenges faced by Shandong.
In January 2018, the State Council approved a blueprint to establish a pilot zone in Shandong to innovate traditional industries. A month later, Liu Jiayi, secretary of the Shandong Provincial Party Committee, cited data that revealed the economic challenges in Shandong: outdated structures and a lack of innovation.
“Among the top 100 internet companies in China, only two of them are from Shandong. The service industry is still dominated by traditional sectors such as transportation, commerce, catering, and hospitality. Shandong only recorded 1,399 international patent applications under the PCT (Patent Cooperation Treaty), which is only 5.8 percent of Guangdong’s,” Liu said.
“In terms of energy consumption, Shandong's total energy consumption and total emissions of major pollutants are among the top in the country, and we account for 9 percent of the country’s energy consumption."
Subsequently, Shandong unveiled the “three-step” goal of economic structural transformation. By 2022, Shandong’s economy will be dominated by the “four news”, namely new technologies, new industries, new business forms and models, and the new economy will account for 30 percent of economic growth. By 2028, the province will complete transforming the old industries. By 2035, it will cement its position as a leading province in the country.
Meanwhile, the opening of Shandong’s market has also become a national strategy.
In August 2019, the China (Shandong) Pilot Free Trade Zone was established, with a focus on fostering new trade models, expanding the cross-border use of the renminbi, accelerating the development of marine industries, and deepening regional economic cooperation between China, Japan and South Korea. In October, the China-SCO Local Economic and Trade Cooperation Demonstration Zone was also launched in Shandong.
Besides trading cities such as Qingdao and Yantai, other cities in Shandong province are also enjoying the benefits of further opening up.
An example would be Binzhou in northern Shandong. In the past few years, Binzhou has built a high-end aluminum industry base and attracted many foreign-invested enterprises. “To date, Binzhou has commenced 16 projects that aim to attract investment from Japan and South Korea for industries ranging from aluminum to high-end chemicals, traditional Chinese medicine, high-efficiency agriculture and marine biology," says Suo Lin, director at Shandong Guoyao Law Firm’s Binzhou office.
“The robust development of foreign trade has driven the growth of foreign-related legal services,” says Zhang Yuejun, vice chairman of Binzhou Lawyers Association. “The association has established a talent pool for foreign-related legal services, and it now mainly provides services in reviewing foreign trade contracts, compliance reviews of foreign-related enterprises and foreign-related arbitration."
JINAN, LIAOCHENG AND BINZHOU: SEEKING CHANGES
The megacities play a key role in economic structural transformation. As early as in 2017, Shandong authorities were aware it was important to develop a metropolitan area. According to the Shandong Peninsula Urban Agglomeration Development Plan (2016-2030), Shandong should have established modern metropolitan areas that are dynamic, highly integrated, and highly competitive by 2030.
In particular, there will be three metropolitan areas forming around the cities of Jinan, Qingdao and Linyi on the Shandong Peninsula.
Developing the economic zone centred around Jinan, known as the Capital Economic Circle, is a main priority. Covering seven cities, the metropolitan area is expected to become a regional economic, financial, logistics, and technological innovation centre.
When talking about the development of a capital economic circle, Xiang Hao, director of Dentons Jinan office, emphasizes the integration and interconnection of infrastructure, environmental protection and governance, culture, and resources.
Other cities in the capital economic circle will need to rely on Jinan to boost their development, and they will also complement Jinan’s development.
One example would be Binzhou, a city north of Jinan. “Both Jinan and Binzhou are on the Yellow River. The provincial capital needs the support of Binzhou to achieve faster and better development,” Suo from Guoyao tells ALB.
Regarding Binzhou’s future role in the capital economic circle, Suo spoke of the city’s strategic location and accessibility: "First, Binzhou will become an important node city in the capital economic circle thanks to the construction of high-speed railways. Second, the Binzhou Port is the closest port to the Jinan metropolitan area.”
Another example would be Liaocheng, a city west of Jinan. Gao Yingguo, executive director of Shandong Guoyao Law Firm’s Liaocheng Office, believes the city will play three roles: a food supplier for the capital economic circle, a base for ancillary industries, and Jinan’s “west garden.”
"Resource-based industries are facing issues such as insufficient investment, financing challenges, and the need for strategic transformation. The outbreak of the pandemic further highlighted these issues."
- Suo Lin, Shandong Guoyao Law Firm
In addition to enhancing regional connectivity and complementarity, facilitating transformation in the capital economic circle is also a key.
Like other places in Shandong, the capital economic circle is also known for traditional resource-based industries and large state-owned enterprises. "Resource-based industries are facing issues such as insufficient investment, financing challenges, and the need for strategic transformation. The outbreak of the pandemic further highlighted these issues," Suo says.
In the past few years, the capital economic circle has accelerated the transformation and upgrading of traditional industries. In Binzhou, traditional industries are transforming into a high-end petrochemical industry base, a home textile industry cluster pilot zone, and a high value-added food processing industry. In Liaocheng, the traditional equipment manufacturing industry is going high-end, digital, and intelligent.
As the transformation of traditional industries proceeds at full swing, Xiang of Dentons Jinan has noticed that law firms are increasingly providing legal services to companies that are to be restructured, as well as formulating actionable implementation plans and designing asset restructuring and corporate restructuring plans for these companies. Guoyao’s Gao adds: "Companies have many new needs, such as M&A, investment and financing, equity design, operating models, intellectual property protection and so forth."
She cites a few examples. In recent years, Liaocheng has launched its own agricultural brand, which has created new legal needs in intellectual property rights protection and e-commerce. An emphasis on environmental protection has brought legal risks to companies in this regard. Furthermore, the development of new tech industries needs capital and technologies, which has created legal needs in M&A, investment, and financing.
Suo has noticed the new needs from traditional enterprises from another perspective. She says: "These companies have generally established the legal risk control function, and they accelerate the integration of law and business to include legal review in their management.”
Besides upgrading the old industries, new industries are also stepping up their presence in the capital economic circle faster.
Some of the new industries are homebred, such as semiconductor high-power chips, new-generation information technology, intelligent manufacturing and high-end equipment, and quantum information technology in Jinan, as well as new materials, new energy vehicles, biopharmaceutical, smart equipment, and hydrogen power in Liaocheng.
Some are introduced. For example, Jinan introduced the Shandong Industrial Technology Research Institute, the Shandong Institute of Advanced Technology, and the National Supercomputing Center. Liaocheng introduced 32 investment projects, including the Wanda Happy Town and Alibaba Cloud Innovation Center. Meanwhile, Binzhou has established the Bohai Advanced Technology Research Institute and the Weiqiao National Science and Technology Park.
Speaking of the changes brought by the new industries to legal services, Suo says: "Under a new economic era, legal services are required to be both comprehensive and targeted. What I mean by targeted is that there need to be analyses and marketing for a key industry, and legal services providers also need to have respective expertise.”
Gao points to several key legal service capabilities required by new industries: "For example, intangible asset evaluation and intellectual property protection that come with introducing new technologies and innovations and establishing financing models and risk control for emerging industries. Emerging industries may see issues involving industrial convergence, low-end overcapacity or problematic design and production due to immature technologies. These issues may result in legal challenges subsequently."
QINGDAO: ACCELERATING INNOVATION
Located on the Jiaodong Peninsula with beautiful scenery and a mild climate, Qingdao is the wealthiest city in Shandong province.
Qingdao’s foreign trade is booming. Even in 2020, a year rocked by the pandemic, Qingdao’s total imports and exports reached 395.54 billion yuan in the first eight months, accounting for 29.6 percent of Shandong’s total imports and exports during the same period.
After the 2018 Shanghai Cooperation Organization Summit was held in Qingdao, the city has been opening up further. In early 2020, the Shandong authorities reiterated that the Jiaodong Economic Circle centred around Qingdao targets Japan and South Korea and has favourable conditions to open up, and can grow as a new platform for international cooperation under the Belt And Road Initiative.
Resolving old problems is necessary to support new development. Mu Yunchun, director of Dentons Qingdao Office, tells ALB that the problems faced by traditional industries in Qingdao are similar to those in other cities in Shandong. In late September, Qingdao has just rolled out a policy on promoting the high-quality development of traditional industries.
He continues: “The new policy promotes the upgrading of traditional industries, which translates into legal needs for defining property rights, equity design, restructuring, transfer, reviewing business models, intellectual property services related to the development of new products, drafting contracts for the upstream and downstream services, and handling labour contracts.”
Meanwhile, new industries are gaining presence in Qingdao. With the establishment of the West Coast New Area, the core area of Blue Silicon Valley, the High-Tech Industrial Development Zone, and the Jiaodong Airport Economic Demonstration Zone in the past few years, Mu has noticed the emergence of new sectors such as new materials, aviation economy, marine biomedicine, industrial robots, marine equipment, marine renewable energy, and 3D printing.
"Emerging industries require lawyers to gain new knowledge and understand the characteristics of and regulations on these industries in order to provide clients with customized services," he points out.
Speaking of the changes in Qingdao's legal market, Mu raises two points. First, as the city is opening up to the outside world faster, the demand for foreign-related legal services is growing and requirements for lawyers’ capabilities are getting stricter. Second, as China is developing a multi-level capital market, emerging industries are booming and the country is relaxing IPO rules, business areas such as public listing, M&A and restructuring will see fiercer competition.
Against this backdrop, Mu believes that the legal market in Qingdao is facing a potential reshuffle.
SOUTH SHANDONG: PLAYING CATCH UP
The South Shandong economic circle is centred around cities of Linyi, Zaozhuang, Jining and Heze. In 2020, these cities were catching up. For example, Linyi moved up two spots to fifth position among the top five cities in Shandong in the first half of 2020, and it ranked 47th across the country.
Despite the call for transforming the old into the new, these cities have not abandoned their traditional industries. They have customized development plans according to the resources available.
In the case of Linyi, Hu Jintao, director of Shandong Guoyao Law Firm’s Linyi office, tells ALB: “Traditional industries are the pillars of Linyi’s economy, especially machinery, metallurgy, food, chemicals, construction materials, medicine, wood, and textiles and clothing. Linyi has sought to enhance the quality and efficiency of these industries with innovation, capital, information technology, and branding.”
Hu names a few examples. In the food industry, a local candy company set up co-manufacturing spaces to aim at using technologies to design, print and manufacture. In the pharmaceutical industry, Lunan Pharmaceutical Group established a collaborative innovation platform to support R&D. In the agricultural industry, key areas of development include diversified businesses, healthcare, intelligent manufacturing, and digital economy.
The development of Linyi has attracted high-tech companies such as genomics company BGI, Huawei's big data arm, and Siasun Robot & Automation to operate there. The new Xinminghui Warehousing and Logistics Park project will also support trade in the Linyi mall, which is the largest logistics hub in northern China. “With great accessibility, Linyi is set to become an intelligent logistics base for the South Shandong economic circle and the metropolitan areas on the Shandong Peninsula,” Hu tells ALB.
The legal industry also benefits from economic development. Zhang Zhaowei, chairman of Linyi Lawyers Association, tells ALB that there are 153 law firms and 2,144 lawyers in the city as of 2019, up 16.8 percent year-on-year.
“The legal industry in Linyi is dominated by traditional litigation business, which accounts for 90 percent of the market share. The development of emerging high-tech industries has had huge impacts on the legal industry.”
- Hu Jintao, Shandong Guoyao Law Firm
But there are concerns for the legal industry too, Hu says.
“The legal industry in Linyi is dominated by traditional litigation business, which accounts for 90 percent of the market share. The transformation of traditional industries and the development of emerging high-tech industries have had huge impacts on the legal industry,” he explains. “Legal issues related to the emerging high-tech industries have posed a challenge to many lawyers, who cannot respond promptly and therefore lose a lot of good cases to work on.”
OPPORTUNITIES AND CHALLENGES
Like its economy, Shandong’s legal market also faces challenges such as conventional thinking, difficulty in transforming, talent shortage, and a lack of specialization and innovation.
Lawyers point out that the law firms in Shandong have not scaled up yet. Guoyao’s Hu tells ALB that in Linyi, 60 percent of the law firms have fewer than 10 employees, and only six firms have more than 50 employees. The same applies to Binzhou. Zhang Yuejun of Binzhou Lawyers Association, says the biggest law firm in the city has only 33 employees, adding that: “There is a shortage of professional teams and talent. There are not many cases or high legal fees.”
“Clients are seeking consultation on more specialized and complex issues. Lawyers with general skills can no longer meet their demands. Many of the lawyers no longer work alone or play different roles. Instead, they seek teamwork and specialized expertise.”
- Gao Yingguo, Shandong Guoyao Law Firm
Another characteristic of Shandong's legal market is an urgent need for professional teams and services.
Guoyao’s Gao has noticed that in recent years, clients are seeking consultation on more specialized and complex issues. Lawyers with general skills can no longer meet their demands. Many of the lawyers no longer work alone or play different roles. Instead, they seek teamwork and specialized expertise.
And to Hu, sticking to the traditional management model will become one of the hurdles for Shandong’s law firms to carry out transformation. In the case of Linyi, he says: “Almost all the law firms adopt the commission-based payroll system. Many lawyers often switch jobs because they factor in the management fees, case fees and social security fees. Those with only five years of practice experience often found a new firm with three or five partners, and they do not think about long-term development.”
"Lawyers should keep up with market trends. Law firms must reform to become modern by scaling up, forming teams, gaining specialized expertise, and enhancing efficiency. This is also what the legal market wants from the lawyers,” he points out.
Guoyao’s Suo also confesses: "As the economy grows, the legal services needed by companies have become more specialized, but the local legal services providers are still sticking to the traditional work model. There is a tremendous need for legal services. How to transform from competing over a shrinking profit pool to looking for new market space with specialized expertise is both a challenge and an opportunity for us.”
Lawyers have witnessed the rapid growth of the legal market in Shandong in recent years. Apart from the 16.8 percent year-on-year increase in the number of Linyi’s legal practitioners in 2019, in Liaocheng, since 2012, the number of lawyers and their income have increased by 30-50 percent annually; Zhang Yuejun also revealed that the number of law firms and legal practitioners in the city of Binzhou has increased by 26 percent and 21 percent, respectively, compared to 2017.
Suo believes that economic development presents both opportunities and challenges for lawyers. "Those who are engaged in the same business face different market changes, clients and types of work every year. The rise of a new industry could also change the area of focus for many lawyers … meanwhile, economic development, changes of international political environment, and issues faced by companies will also become new challenges that law firms and lawyers must deal with."
In the face of challenges, Yan Guangyu, secretary-general of Liaocheng Lawyers Association, delivers an optimistic note: “Any type of business is a challenge for lawyers. The legal industry requires constant learning. I believe wherever there is business, there is a demand, and wherever there is a demand, there is pressure.”
To contact the editorial team, please email ALBEditor@thomsonreuters.com.