ALB CHINA REGIONAL REPORT: SOUTH CHINA
This year’s South China regional report focuses on the cities of Guangzhou and Shenzhen. Due to the impact of the pandemic and the murky geopolitical landscape, both cities have experienced profound changes to their legal and regulatory climate in the past two years. Meanwhile, the deepening connections within the Greater Bay Area continue to provide new industrial and business opportunities for the legal sector.
As the central cities of the Greater Bay Area (GBA), Guangzhou and Shenzhen both led the local economy with GDP of more than 2.5 trillion yuan ($390 billion) in the past year.
In July 2020, China proposed to “accelerate the formation of a new development layout with major domestic circulation, and domestic and international circulations promoting each other”. The new proposal requires China to shift its economic pattern from “quantity-centred” to “quality-centred”, and to drive the economy through innovation instead of inputs. Guangzhou and Shenzhen play an important role in this process that cannot be ignored.
In the past few years, Guangzhou has collaborated with Shenzhen to promote economic development. The two cities have set up a science and innovation corridor along the Guangzhou-Shenzhen expressway that consists of the Pazhou artificial intelligence and digital economy pilot zone, Nansha Science City, Guangming Science City, Shenzhen-Hong Kong Innovation and Technology Co-operation Zone and a series of other major projects.
“One has great strength in fundamental research, while the other has numerous innovative enterprises. With their advantages supplementing each other, Guangzhou and Shenzhen continue to open and share resources, stacking up the ‘multiplier effect’ of science and technology innovation,” says China National Radio on its website discussing the future path of the collaboration.
NEW INDUSTRIAL DIRECTION
The past two years have tested global cities in terms of resilience, and one of the manifestations of this resilience is their ability to continuously create new momentum for economic development. Considering the development of Guangzhou and Shenzhen from this angle, there are undoubtedly lots of highlights.
In terms of Guangzhou, its position as a new regional financial centre is taking shape.
“Guangzhou is building itself as a South China financial centre,” says Lu Yuefeng, director of Dentons Guangzhou office. “The Guangzhou Futures Exchange and China Emissions Exchange Guangzhou have landed. Guangzhou’s government also recently proposed the idea of establishing an asset management business centre.”
According to The Outline of the Fourteenth Five-year Plan for Financial Development released by the Guangzhou government, the city will establish six centres for asset management, green financial innovation, digital financial science and innovation, technology financial innovation, cross-border investment and financing services and financial factor trading in the GBA.
New developments inevitably bring in more demand for legal services.
“Financial market and financial transactions need legal services,” says Lu. But he points out that Guangzhou’s financial status depends on how the rules will be implemented. “Guangzhou lawyers should also be more involved in introducing financial headquarters to the city in the future,” says Lu.
The digital economy is another sector Guangzhou is developing.
In 2020, Guangzhou officially elevated artificial intelligence and the digital economy as one of the twin engines of the city. Vipshop, Alibaba, Tencent, GOME, Xiaomi, iFlytek and other innovative companies continue to move into Pazhou, the new city centre of Guangzhou. More than a hundred science and technology enterprises, including CloudWalk Technology and Pony AI, have also settled in Nansha.
This will also effectively increase the opportunities for lawyers.
“The most important growth for future business is going to be around the digital economy,” Lu points out. “The definition of the digital economy is broad, covering industries from digital finance and cross border e-commerce, to the live streaming industry. In terms of legal services, it involves areas such as investment, M&A, fund, capital markets, compliance, antitrust, and intellectual property.”
Lu notes that among Guangzhou lawyers, there is research underway on legal issues directly related to the digital economy such as “blockchain, Internet, data compliance and cybersecurity,” and some lawyers are also looking into areas including M&A, taxation, IP and the capital markets of digital enterprises.
“We hope to get more market share in these areas,” says Lu. “We also require lawyers to adjust their practice areas more in line with the digital economy.”
As a city of innovation in China, Shenzhen has also seen rapid growth of its digital economy. In 2020, the added value of its digital economy core industry reached 844.66 billion yuan, accounting for 30.5 percent of the city’s GDP, with the scale and quality ranking first in the country.
Under the pandemic, Shenzhen’s Internet, big data, artificial intelligence, and other technology industries began to integrate deeply with traditional areas as production and manufacturing, business and finance, cultural consumption, education and health, and travel. As Shenzhen Special Zone Daily says, Shenzhen “continuously subvert the traditional manufacturing model, production methods and industrial patterns.”
“The digital economy is one of the seven strategic emerging industries of Shenzhen,” says Zhang Jian, director of Dentons Shenzhen office. Against that backdrop, Zhang observes that over the last year “a series of legislations regarding digital economy first took place in Shenzhen”.
Regulations of the Shenzhen Special Economic Zone on Data was released in July 2021. In August, the Standing Committee of the People’s Congress of Shenzhen reviewed the Shenzhen Digital Economy Industry Promotion Regulations (Draft). Also, Regulations on the Administration of Intelligent Connected Vehicle Industry, Artificial Intelligence Promotion Regulations, and Cell and Gene Industry Promotion Regulations have all been submitted for consideration.
In the next five years, Shenzhen plans to develop and modify over 100 rules and regulations.
“The digital economy industry has its own pain points and legal issues. Many issues urgently require legislators to respond with new rules and regulations. In the future, legislation will help standardize the whole digital economy industry and create a good environment for development,” Zhang says of the reasons behind the legal changes.
The launch of new legislation requires lawyers to update their knowledge and assist on compliance for clients, and also urges them to think of self-transformation.
“Lawyers can not satisfy clients’ needs if their operation stays traditional while the client has already adapted to digital operations. In law firm management, it is also challenging for us to use digitalization to improve management efficiency and reduce bureaucratic arrangement,” says Zhang.
A mature economy nurtures a mature legal services market. The first legal service institution of China, Guangzhou Legal Counsel Office, was established in 1976. The first law firm of the PRC, Shekou Law Firm, was established in Shenzhen in 1983. After decades of development, the legal markets of Guangzhou and Shenzhen have established dominant positions.
Take Dentons as an example. Founded in 2001 and 2008 respectively, Dentons Guangzhou and Shenzhen both currently have corporate practices, finance and real estate, and dispute resolution as their top three practice sectors in terms of revenue.
People like to compare the Shenzhen market with the Guangzhou market. However, according to Lu, “The economic structure of Guangzhou and Shenzhen is not the same, which is also reflected in the different development of the legal market”. He adds that finance and technology are two pillars of Shenzhen’s economy, and “are both areas of innovation that require complex rules to regulate, thus creating a lot of demand for legal services.”
Meanwhile, “Guangzhou is more traditional with more developed industries and trade. Many traditional businesses rely on business customs that have developed over the years to regulate,” says Lu. “Also, the Shenzhen government has made an effort to create a legalized market environment, including the introduction of the Third Circuit Court and China International Commercial Court. In this sense, the legal market of Shenzhen indeed develops faster than that of Guangzhou.”
“ Guangzhou has prioritized two major areas of focus in the past two years. One is the digital economy and the other is to revitalize the city through urban renewal.”
Lu Yuefeng, Dentons Guangzhou
“But Guangzhou has its strengths,” Lu continues. “It has prioritized two major areas of focus in the past two years. One is the digital economy and the other is to revitalize the city through urban renewal.”
As discussed, the developing digital economy has brought new opportunities for legal services. “In particular, the number of M&A-related antitrust reviews of tech companies has increased significantly, and we have organized a special team to provide services in this area,” says Lu.
Urban renewal, another driving force, has also brought lots of new opportunities.
“Nowadays, urban renewal in Guangzhou is not only about demolishing the old and building the new, but also about introducing new businesses. For example, the Tiande Centre project is very successful. It was originally a village collective property, and it is revived through the introduction of quality companies,” shares Lu.
Over the past year, the Shenzhen legal market has also experienced a continuous emergence of “blue oceans”. Zhang observes that the fastest growing areas are restructuring and disposal of non-performing assets, and capital markets.
Zhang also notes the growth of cross-border business in Shenzhen, especially the cross-border data compliance area. He recently worked on such a project with his team: a client in the telecommunications industry in Shenzhen wanted to sell products in Europe, and Dentons Shenzhen worked with Dentons Paris office to review cross-border data compliance issues for the deal.
Apart from compliance, “there are some financial institutions that want to expand their business in the mainland China. There is a growing trend to seek professional advice on mainland policies,” says Zhang. Cross-border IPR, cross-border bankruptcy claims filing, foreign-related dispute resolution, and overseas listings are also trendy areas.
As a lawyer who has been riding the wave of China’s reform and opening up, Zhang recently has a new observation on how to seize opportunities in the fast-developing market of Shenzhen. “The longer you work as a lawyer, the more you find that you have to pay special attention to the study of national and local macro policies. Many business opportunities are actually within these policies. As a law firm leader, it is especially important to maintain sensitivity and acuity,” says Zhang.
NEW OPPORTUNITIES FOR THE GBA
When it comes to the development of Guangzhou and Shenzhen, one cannot ignore the many opportunities brought about by the continuous integration of the GBA. In the past few years, the GBA has seen continuous action in the judicial and financial fields, all of which have reshaped the content and market dynamics of local legal services.
One new opportunity was brought by the Cross-border Wealth Management Connect Scheme (Cross-border WMC). Under the scheme, people living in the GBA can make cross-border investments in eligible products sold by each other’s banks. Lu tells ALB that Dentons Guangzhou got involved with the related business at a very early stage.
“That’s not easy. In the past, the design of financial products would be conducted by the headquarters of major banks. But given that this product directly faces the GBA, a state-owned bank’s Guangdong branch took on the design work. Therefore we also got a chance to participate in the project.”
With the scheme, Guangzhou hopes to capture the wealth management needs of nearly one million high net worth families in Guangdong in the future and create a gathering area for private banking and wealth management institutions in China. Lu says that in recent years, Guangzhou’s cross-border financial business has grown rapidly, and Dentons Guangzhou has been involved in several projects including cross-border financing, guarantee, and debt issuance.
Zhang observes another direction of service that the development of cross-border finance has led to.
“Cross-border WMC makes individual cross-border investment more convenient. At the same time, it increases demand at the regulatory level. The regulatory institutions also need professional advise from lawyers. There are already financial regulatory institutions reaching out to us, consulting how to interface with financial licenses, financial insurance, and other products in Hong Kong and Macau,” says Zhang.
The integration of the GBA is also reflected in the legal service sector. “Dentons’ four offices in the GBA started to integrate, connecting business segments and improving transparency of information sharing,” Zhang introduces.
Also, integration means the appearance of new competition.
“Now, Hong Kong and Macau lawyers can get the mainland lawyer license and practice on the mainland. In particular, Hong Kong lawyers, in the future they will get more involved with the traditional legal service market in the mainland in many areas. I will pay close attention to what they will do in practice. I think it’s a good thing, it will increase the competition but it will also allow us to improve quickly,” says Lu.
In China, Guangdong Province has the largest number of lawyers, with Guangzhou and Shenzhen lawyers making up the bulk. According to the latest data, Guangzhou had 17,956 lawyers and 814 law firms by the end of 2020, generating revenues of 8.3 billion yuan, while Shenzhen had 15,442 lawyers and 922 law firms, generating revenues of 6.746 billion yuan in 2018.
Lu observes that the pandemic has largely reshaped the way lawyers work.
“A large amount of our work and communication has shifted to online,” says Lu. “Therefore, the advantages of a law firm like Dentons, which has branches all over the country and has top talent in different offices, are beginning to emerge. For example, we have Dai Jianming for digital compliance; Hu Xinran for urban renewal; Zhu Liang for cross-border finance; Chen Feng for automotive business; and Li Shoushuang for IPO business. We will strengthen cross-office cooperation in the next step.”
Zhang also agrees on the advantages of a large national firm. “The business of a lawyer is geographically affected. Take antitrust as an example, Beijing and Shanghai have strengths in these areas naturally, but Shenzhen lawyers rarely take antitrust as their focus. In addition, Shenzhen has fewer lawyers in the energy field while there are plenty in the West. Dentons’ domestic even global network enables us to better connect with colleagues at other offices and offer one-stop service to our clients,” says Zhang.
“Everyone is talking about digitalization and law firm must change as well.”
Zhang Jian, Dentons Shenzhen
In addition to leveraging the advantages of large firms, Zhang is actively thinking about the digital transformation of his own institution. “Everyone is talking about digitalization and law firm must change as well. Now we have seen some cutting-edge changes, such as the creation of cloud law firm, a new business model that is cheaper and therefore more challenging for us,” says Zhang.
Finally, Lu and Zhang stress the importance of continuously attracting talent in the Guangzhou and Shenzhen markets.
Lu says that the Dentons Guangzhou “hopes to hire more young lawyers, especially partners born in the 1990s. From a professional point of view, we also hope to have more excellent partners in the field of digital and innovation economy.”
Zhang points out that economic development has led to changes in the law firm’s business sector. The firm has begun to organize its business team based on the industry. Dentons Shenzhen “will pay special attention to the introduction of comprehensive talents, such as those who have transformed from the corporate in-house department, because they not only know the law, but also have a composite knowledge background, and have a better understanding of corporate production and industry.”
In the future, Guangzhou and Shenzhen lawyers will assess their performance from a more diverse angle. “We will not just look at the revenue generation and the proportion of tax contribution,” says Lu. “The most important dimension is the recognition and evaluation from clients.”
To contact the editorial team, please email ALBEditor@thomsonreuters.com.