ALB China Regional Report: West China
The year 2020 marks the 21st year of the implementation of China's “Go West” strategy. West China consists of 12 provincial-level units. With its area accounting for about 70 percent of the country's total area and its population accounting for 27 percent of the total population of China, this vast region contains huge opportunities for development. In May, the Chinese government released the new guidelines for advancing the development of West China, and the legal services market in the region sees new opportunities.
On May 17, the CPC Central Committee and the State Council issued the Guidelines on Advancing the Development of the Western Regions in the New Era to Form New Patterns, and "West China development" once again becomes a buzz word in China's regional economic development.
Most of West China remains comparatively underdeveloped due to geographical conditions and historical reasons. The 21-year implementation of Go West strategy has resulted in positive changes to the economic situation in the region. According to statistics, from 1999 to 2019, the provinces in the region has achieved an average GDP growth of about ten-fold, and among them, Guizhou, Shaanxi and Tibet saw a growth of more than fifteen-fold.
In a previous interview with Reuters, Chen Yao, vice president of the Chinese Association for Regional Economics, summarized up West China’s development into different stages: efforts during the first decade were focused on infrastructure construction, including transportation facilities, gas pipelines, and the enhancement of ecological environment, while during the second decade, it emphasizes on fostering advantageous industries with local characteristics.
Entering the 3.0 era, the key phrase for the development of the western region is "opening up."
According to the above report, foreign investment is gradually shifting to West China amidst the implementation of the Belt and Road initiative, transforming the region into the front end of China's opening up and making it a new momentum driving China's economic development.
Bordering 13 other countries, with 91 percent of China's land borders and 1/11th of the country's mainland coastline, West China has good conditions for opening up. According to data of the Ministry of Commerce, in the first half of 2019, the actual use of foreign capital in the western region was 34.96 billion yuan ($5 billion), up by 21.2 percent compared to last year.
The goal of the long-run development is to make the western region a "new window" for China's opening up, thus many measures supporting the innovations and reform will be implemented here.
"Under the BRI, an upgraded version of Go West strategy is forming," a government official who participated in the drafting of the New Guidelines says.
NEW INDUSTRIES, NEW DEMANDS
After 20 years of development, industrial clusters with local characteristics have been formed in many cities or areas in West China, including traditional and high-tech industries, which now are strong economic growth points in the region. New legal service demands are seen amidst the development of new industries.
Chengdu, the capital city of Sichuan province, has become a new "first-tier city" for young Chinese people because of its cozy atmosphere and the gathering of IT companies.
In 2017, Chengdu released its 13th Five-Year Plan for the Development of Strategic Emerging Industries. "Emerging industrial projects involving the new generation of information technology industry, high-end equipment manufacturing, energy conservation and environmental protection industry and biological industry, new energy, new materials and new energy vehicles are gathering in Chengdu," Liu Shoumin, director of Dentons Chengdu Office, tells ALB.
"With the transformation and upgrading of traditional industries, especially the new infrastructure, Chengdu is constantly upgrading in the fields of 5G infrastructure, urban rail transit, new energy vehicle charging piles, big data centers, and artificial intelligence field," he says.
According to Tencent Research Institute, in 2018, Chengdu's new economic vitality index ranked third in China, and its Internet-plus index ranked fifth. Electronic information, equipment manufacturing, medicine and health, new materials, and green food have become the new pillar industries in Chengdu, contributing to more than 82 percent of its economic growth.
"Enterprises in the new industries call for more specialized legal services," Liu says, pointing to STAR Market IPO services and consultations provided by Dentons Chengdu to local enterprises in industries such as new energy and new materials, energy-saving, environmental protection, bio-industry and high-end equipment manufacturing.
The same changes have taken place in Chongqing, the other major city in the Chengdu-Chongqing Economic Circle, where smart manufacturing, semiconductors, and digital culture industries have experienced rapid development.
Chongqing is an important manufacturing town in China. According to Chen Youkun, director of Dentons’ Chongqing Office, intelligent transformation has revitalized traditional industries. "The application of digital technology has enabled enterprises in traditional industries such as steel, textiles, electromechanical, and automotive to realize intelligent development in all operation processes," he says.
According to statistics from the Chongqing Economic and Information Technology Commission, in 2019, 1,280 intelligent transformation projects, 115 digital workshops, and 25 intelligent factories were built in Chongqing, which on average increased production efficiency by 68.7 percent and reduced operating costs by 20.8 percent.
Intelligent transformation has also brought along the landing of "hardcore" industries such as semiconductors and new display technologies in Chongqing.
Meanwhile, the development of digital culture industry is also adding charm to the city. Currently, Chongqing is building four digital cultural industrial parks to "promote the development of Internet information services, media, software and computer services, creative design, network culture, animation and games," Chen says.
New industries indeed pose new challenges to legal services. "Our clients are faced with increasingly complex legal issues. We must better understand the related industries to better serve our clients," he adds.
In e-commerce, lawyers must better understand the effectiveness of electronic contracts, electronic signatures and electronic evidence; and in the games industry, law firms need to strengthen services in copyright, IP protection and infringement, online game enterprise compliance, etc., Chen indicates.
New industries development brought about by the technological revolution is also seen in other parts of the western region.
For example, internet-based industries such as the Internet of Things, cloud computing, and big data have taken shape and gathered in Lanzhou, Pei Yanjun, director of Dentons’ Lanzhou office, tells ALB. And live streaming e-commerce has brought new opportunities to the logistics and storage industries there.
With the rise of those industries, legal service demands in network security and data protection surged in Lanzhou, requiring lawyers’ assistance on related compliance issues, Pei observes.
Meanwhile, Guizhou has become the "home to big data" in China. According to the Guizhou Province Internet Development Report 2019, by the end of 2019, there were 360 Internet companies in the province, and Guizhou's big data industry development index ranked third in the country.
China's three major telecom operators, as well as Tencent, Huawei and Apple iCloud have all set up their data centers in Guizhou, Xue Jun, president of the Guiyang Lawyer Association, tells ALB.
This surely has brought huge opportunities to the local legal market. According to statistics, the number of lawyers in Guiyang, capital city of Guizhou, increased by 20 percent in 2019, and by 15 percent as of July 2020. "Lawyers began to participate in important projects like the iCloud one and urban development, which poses higher requirements to us,” Xue says.
"To ensure healthy development of big data industry, the core is combining blockchain technology to identify the ownership of information rights, protect data security, etc.," Wang Ning, director of Dentons’ Guiyang office, points out. The firm has therefore set up a blockchain team and formed long-term cooperation with blockchain technology companies.
Many parts of West China have made their own "business cards for their local industries." Guangxi's automobile and logistics industries, Shaanxi's energy and real estate, Kunming's chemical metallurgy, tobacco, advanced equipment and new materials, Xinjiang's energy industry, and Yinchuan's modern logistics and e-commerce, just to name a few, which will promote the mature development of the local economies.
BIGGER CITIES TO HOLD BIGGER DREAMS
Megalopolises are another highlight in West China, and they are definitely the engine driving the regional development.
In China, central cities and megalopolises are becoming the main space for development. The New Guidelines clearly stipulates to enhance and give full play to the role of national and regional central cities, and promote the high-quality development of megalopolises and the network construction of large, medium and small cities.
According to Cushman & Wakefield’s 2020 Report on the Development of China's Metropolises, which enlisted 26 metropolitan areas in China, the Chengdu-Chongqing area is the fourth largest in China, Xi'an and Kunming are in the "growth metropolitan areas", and Guiyang, Yichuan, Nanning, Lanzhou, Xining, and Urumqi are among the "metropolitan areas under cultivation."
The Chengdu-Chongqing area is not doubt a shining star in West China. In early 2020, President Xi Jinping specifically proposed to promote the construction of the Chengdu-Chongqing economic circle, which triggered a big round of undergoing development projects.
The coziness of Chengdu and “spicy” Chongqing provide layered flavors to this region. Over the past few years, the population growth in both cities was over 200,000 each year respectively. In 2019, Chengdu ranked third in the national population inflow list.
McKinsey predicts that by 2025, the total economic output of Chengdu-Chongqing area will possibly exceed 3 trillion yuan. The city cluster will become the innovation center of the entire western region with the flowing-in of young people and new industries.
This is also reflected in the legal market. According to Yuan Xiaobin, president of Chongqing Lawyer Association, more young legal talent graduating from the Southwest University of Political Science and Law choose to work here because they're confident about the economic development in Chongqing and the preferential policies for the region. "Chongqing has become the best choice, next only to Beijing, Shanghai, Guangzhou and Shenzhen."
“The construction of Chengdu-Chongqing economic circle in the first stage will focus on the ‘deep integration’ of the two cities by enhancing trade exchanges and facilitating the transportation." Yuan says.
"The economic activity gives more opportunities for lawyers to participate in projects such as 5G infrastructure and Chongqing Science Park, which have attracted many domestic and foreign investors," Yuan adds.
These opportunities have given "Chongqing lawyers a strong sense of urgency." The Chongqing Lawyer Association is working to make Chongqing's legal services stand out in the western region by enhancing legal services’ quality, formulating standards for conventional commercial legal services, and accelerating the development of legal services related to litigation, arbitration and mediation.
Xi'an is another area worthy of attention in West China. Xi'an is one of oldest cities in China, the start of the ancient Silk Road, and now a hub for the BRI.
In February 2018, Xi'an officially became a national central city according to the Development Plan for City Clusters in the Guanzhong Plain. Since then, Xi'an has been accelerating its urban development. "Since 2017, many listed real estate companies have poured into the Xi'an market," Yang Hui, director of the management committee of Dentons Xi'an Office, observes.
Wang Li, legal director of Gemdale Group's western regional real estate company, tells ALB that when entering Xi'an in 2006, Gemdale was the first national first-tier real estate company to do so. Now most of the top 30 real estate companies in China all have projects in the city.
The BRI and Guanzhong-Tianshui Economic Zone witness profound changes in and rapid expansion of Xi'an, Wang says. "For Gemdale, we obtained two construction lands in the airport and international port areas last year, which were once remote areas in Xi'an."
Urban development involves infrastructure as well as cultural development. "Dentons Xi'an Office has set up a new department – technology and entertainment department – to echo the cultural developments locally. It's a new field developed by young lawyers in the current cultural market," Yang says.
Other cities in West China are following the steps of Xi'an, creating their own "cultural business cards."
"Spring City" Kunming is also a famous cultural city in China. The city is getting a move on building a "city of health," and it's becoming an aviation port and hub in Southwest China with new business formats such as "Internet + education", "Internet + medical", and "Internet + tourism", Ma Wei, director of Dentons’ Kunming office, tells ALB.
Another environment-friendly city - "Forest City" Guiyang – is also becoming increasingly popular. "Many large real estate companies are gathering in Guiyang … it means that people are very optimistic about the prospects of the city," Wang of Gemdale says.
BRI BRINGS NEW OPPORTUNITIES
The key phrase of the 3.0 version of the Go West strategy is "opening up." In fact, many provinces and cities in the region have already benefited from the opportunities brought about by the BRI, which is manifested in enterprises "going out" from the region, as well as the introduction of foreign capital into the region.
During the first three quarters in 2019, foreign trade in the western region grew by 11.8 percent; and from January to July that year, the actual use of foreign capital in the region was 39.94 billion yuan, up 25.2 percent year on year.
Opening up brings more than foreign-related trade opportunities. The processing trade that was once only done in coastal ports will be transferred to central and port cities in West China, driving the development of the surrounding markets. And China will make huge investments to build transportation hubs and networks in the region, forming a great path connecting Asia, Europe and Africa.
Many provinces and cities in the region are making arrangements to embrace the new opportunities, among which Yunnan is a good example.
"Taking the unique development opportunities brought about by the BRI, Yunnan is building an important node connecting South Asia and Southeast Asia," Ma Wei, director of Dentons’ Kunming office, tells ALB.
Yunnan has established a free trade pilot zone, Ma says. The first batch of 13 construction projects has just started in this April, involving electronic information, biomedicine, equipment manufacturing, medical materials production and headquarters economy, with a total investment of 9.27 billion yuan.
In this context, law firms having international connections enjoy particular advantages.
Ma says that Dentons has already served many companies in international investment and financing fields during the BRI construction, for example Dentons Kunming has provided legal services to Yunnan Provincial Energy Investment Group in its issuance of U.S. dollar bonds in the international capital market, and the firm also participated in the investment and financing activities of the Vangvieng – Vientiane Expressway BOT project and the Cambodia Siem Reap International Airport BOT project.
Ma points out: "With the increase in international projects, companies are facing new risks and challenges, requiring lawyers to have better risk control and compliance management ability, and relying more on law firms for their foreign-related resources and connections."
Thanks to the opening up, Yinchuan, the capital city of Ningxia Hui Autonomous Region, is becoming the "e-commerce capital" of West China.
In 2012, the State Council approved the establishment of the Ningxia Inland Open Economic Pilot Zone and Yinchuan Comprehensive Bonded Zone. In 2014, the General Administration of Customs approved Yinchuan as a cross-border e-commerce pilot city. These innovative policies laid the foundation for Yinchuan's development.
"Modern logistics, e-commerce and health and elderly care have seen rapid growth … and 'Internet + agriculture', 'Internet + finance', and 'Internet + medical services' have become the typical new business formats and gained momentum," Gao Fengjiang, a senior partner at Dentons’s Yinchuan Office, observes.
Local companies in Yinchuan now pose different requirements for legal services. Gao points to three aspects: "(1) IP protection; (2) financing needs, especially the needs of legal services for overseas listings; and (3) compliance, 'the compliant production means saving cost' has become a new guide for the local companies."
With the continuous opening up, what new demands do general counsel of companies in the region have for external law firms?
CISDI Group is a Chongqing-based State-owned enterprise that provides engineering and technical services for metallurgical projects. Zhou Yimei, the general counsel of CISDI, tells ALB that the biggest change brought about by the BRI is changing companies from "going out" to "going into."
"Our overseas businesses were relatively simple, mainly the manufacture and supply of equipment. Now most of our businesses involve construction of projects overseas, requiring us to communicate with overseas construction, labor, taxation, and even government departments, therefor our work focus has shifted to studying laws of foreign countries and finding overseas legal resources," she says.
The two overseas projects construction by CISID, the Formosa Plastics Group's Steel Plant in Vietnam and the Malaysia-China Kuantan Industrial Park steel project, have been put into production last year. Given CISID has not set up a complete overseas compliance system, it would prefer to purchase services from local law firms of the places where the projects are carried out, Zhou admits.
"But it's difficult for us to have a good knowledge of those resources. We need to rely on law firms in Chongqing for recommendations; but they sometimes are not very resourceful because of their geological limits," she says.
"It would be the most efficient way if we can tell Chinese lawyers our needs directly, and then the Chinese lawyers help us integrate domestic and foreign resources. But we still need to mind to possibilities of misinterpretations between various parties," Zhou adds.
Dentons’ Lanzhou office proposes a possible solution to the problem. A foreign-related business department has been established at the firm, which, relying on Dentons global legal network, offers tailored services for foreign-related companies and banks in Gansu. In the future, only with extensive network and strong expertise, can lawyers better serve clients in West China.
OPPORTUNITIES AND CHALLENGES
Is the legal market ready to respond to these rapid changes in West China?
Lawyers tell ALB that the legal market in West China has experienced tremendous changes over the past few years, and they've seen both opportunities and challenges.
"The legal service market has become more active. There's always been competition in the industry, but the competition has become more rational and individualized – low-price competition is rarely seen now, and economic return is no longer the only competition result pursued by lawyers," Yang of Dentons Xi'an says.
"And the competition exists in aspects of the professional qualities of lawyers, and the comprehensive strength of law firms," he adds.
Xiong Xiaomin, executive director of Dentons’ Nanning office, observes that the legal service market is shifting towards segmentation and specialization. "Some professional teams who used to work in comprehensive law firms have established boutique firms that focus on certain niche markets, giving clients different options when choosing service providers," he says.
Law firms arriving from outside the western region are another important driving force for the changes in the local legal market.
Take Guiyang as an example. Before 2015, there were only five or six branch offices established by law firms from other regions, but now the number is 22, Xue tells ALB. Among Guiyang’s four law firms with headcounts of more than 100 people, only one is a local firm.
Xue remains optimistic about the increased competition brought about by "outsiders.”
"If there are no 'outsiders', local lawyers may stay in their comfort zone ... Good competitors can be a catalyst for changes, and eventually success."
Many large law firms enter the west region by "re-branding" local firms.
"This was doubted greatly by local lawyers at first … but we gradually realize that by joining large firms, local lawyers indeed grow in aspects of service concepts, business skills, resource utilization capabilities, etc. ‘Outside’ law firms have also brought about mindset revolutions by introducing new business models and higher level of services," says Xue.
The "strong brand plus local resources" model retains the locality of legal services. Dentons Xinjiang sets a good example in this regard. Jia Xinhui and Yang Shuwen and their teams in the firm have remained committed to developing the Xinjiang market and maintained long-term cooperation with the people's courts in Xinjiang and even the Supreme People's Court, setting a good example of judicial cooperation.
Wang of Gemdale also points out that it's important for law firms to take root locally: "For example, the real estate market in Xi'an is highly competitive, focusing on investments and land acquisition. We collaborate closely with external law firms in this regard. Yang Hui from Dentons Xi'an has been very helpful because he is familiar with the market and has many resources."
According to Liu of Dentons Chengdu, brand strength, professional leadership and qualities of personnel are three important factors for legal firms to succeed in the market of West China. Dentons Chengdu now provides comprehensive legal services to clients across industries and disciplines. It is foreseeable that the industrialization of economy and the specialization of legal services in the western region will be realized together in the future.
Xue believes that there's much room for the legal market development in West China. When the expansion of law firms in first-tier cities slows down, firms in the western region will pick up the momentum, he notes.
"Staying adaptive to the trend of the times, standardizing management and building good brands, these will help law firms to gain momentum in the future," he says.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.