“创新之都”的名号也为深圳的创新投入所证实：根据德勤和深圳市商业联合会发布的《2019 深圳高科技高成长20 强报告》，深圳是全国唯一一个全社会研发投入占GDP 比重超过4%的城市，其知识产权创造数量也居全国前列。而且深圳的创新呈现出明显的以“企业为主体”特征：深圳90%的创新型企业为本土企业， 90%的科研投入来源于企业，90%的专利生产来源于企业，并有90%的研发机构设立在企业内部。
ALB China Regional Report: Shenzhen
The southern Chinese city of Shenzhen is a place that never lacks for new things, and this is reflected not only in its 40 years’ history as one of China’s pioneering Special Economic Zones, but also in the rapid social reforms and growing legal market in recent years. Lawyers in this dynamic city say that as new industries take root, the legal services sector is improving accordingly.
The year 2020 is a key year in Shenzhen’s history: this year, the city celebrates its 40th anniversary as one of China’s first Special Economic Zones; also, the Greater Bay Area and Pilot Zone initiatives are kicking into full gear in the city. This year also sees the completion of China’s 13th Five-Year Plan, which means the local government is doing its best to achieve economic and social goals put forward by the plan.
However, 2020 is also a year full of ups and downs. With the Sino-U.S. trade frictions still going on, the COVID-19 outbreak has added another layer of uncertainty to China’s economy.
Facing these opportunities and challenges, Shenzhen has shown its character as a resilient city with its GDP increasing by 7.4 percent in the first half of 2019, surpassing rivals like Beijing, Shanghai and Guangzhou. The key reason behind this is the industry reform path adopted by Shenzhen since 2008. In the past decade, new industries like modern services, advanced manufacturing and hi-tech grew rapidly here, and those have shifted the city’s economy to be highly innovation-driven.
Shenzhen has long built its image as an innovation hub in China, boasting world-famous companies like Huawei, ZTE, Tencent and DJI. According to a recent report published by China Development Institute, in 2019, public-listed companies from the information technology and finance industries accounted for over 70 percent of the market value of all listed companies in Shenzhen.
The same report also released a list of twenty local companies with the strongest competing power and growth potential, among which were many from the advanced manufacturing, high technology, biotech and internet sectors.
Innovation plays a key role in Shenzhen’s economy. According to another report published by Deloitte, Shenzhen is the only Chinese city which invests more than 4 percent of its GDP into innovation. Local companies have been playing a leading role in this scene: in Shenzhen, 90 percent of the research investments are from companies, and 90 percent of the research institutions are set up by companies internally.
These have been vividly reflected in the client lists of local law firms.
“Clients from the traditional manufacturing industry are decreasing, meanwhile those from the intellectual manufacturing, design and internet sectors are increasing. According to last year’s statistics, companies from the TMT, technology, finance and real estate sectors have already accounted for 50 percent of all our clients.” Yao Weiqi, senior partner at Dentons’ Shenzhen office, tells ALB.
And the changes are continuing. Shenzhen has been quickly catching up on cutting-edge areas like fintech, 5G, artificial intelligence and biotech, according to new goals set up by both the GBA outline and the Pilot Zone initiative.
Take fintech as an example. Among the 27 fintech unicorns in China, six are from Shenzhen. At the end of 2019, one of them, OneConnect, completed a $312 million initial public offering in New York.
Achievements of other areas are also dazzling: Shenzhen now has over 800 high-end medical companies and about 600 AI companies. It also has 26 listed companies in the 5G area.
“Shenzhen is indeed a booming land. Only here can we witness startups growing into great companies, and occasional business opportunities becoming phenomenal business models.”
--Liu Zhenguo, DeHeng Law Offices
“Shenzhen is indeed a booming land. Only here can we witness startups growing into great companies, and occasional business opportunities becoming phenomenal business models,” Says Liu Zhenguo, managing partner of DeHeng Law Offices’ Shenzhen office.
As a city occupying a special place in modern China’s history, Shenzhen’s success has been highly related to various social reforms that happened in the city, combined with policy incentives, and this is still the case till today.
There has been a series of reforms going on in Shenzhen recently: In May, the national government issued a new document concerning providing financial support to and allowing financial innovation measures in the GBA area. In June, Shenzhen drafted China's first personal bankruptcy laws. Later that month, Shenzhen Stock Exchange’s ChiNext board officially launched a registration-based IPO system.
Yao explains to ALB: “Those new legislative and social moves were meant to push China further onto the same competing line with other developed countries. By being familiar with and playing by the same market rules, Chinese companies will quicken their paces on becoming irreplaceable players on the global market.”
Gao Shu, managing partner of China Commercial Law Firm, points to a more profound reason behind those reforms. “Social developments should keep up with technology developments. When imbalance happens or social development stagnates, it will no doubt block the further growth of economy.”
“Shenzhen will continue to see new reforms happening in economy and on social systems for a long time.” Gao adds.
INNOVATIVE LEGAL SERVICES
In a city where nothing stops, legal services also need to keep constantly evolving and improving.
“There are too many outstanding companies in Shenzhen nowadays, and they’re not satisfied with the question-answer mode of legal service anymore. Law firms have to be innovative.” Yao says.
One method has been breaking through the traditional single practice area service mode and begin to build new practices based on popular industries. Take Dentons Shenzhen as an example. Yao tells ALB that the firm has formed new TMT, aviation and biotech teams. When recruiting new talents, they’re now more in favor of lawyers with strong industry experiences, such as people who are familiar with TMT, technology, AI, 5G, cloud computing and fintech sectors.
Apart from building industry-based teams, Gao stresses the importance of conducting in-depth legal researches into those new areas. For example, Shenzhen also holds a leading place in blockchain technology in China and has influential companies like Ding Xuan Crypotography Testing and WeBank. Therefore, China Commercial launched a Blockchain Legal Research Institute last year and invited industry experts and companies to discuss legal issues, as well as their expectations of the legal services.
China Commercial plans to launch seven more institutes to “build a new service model by combining legal services, industry researches and other services together to better meet clients’ needs,” Gao says.
Another trend on the legal market has been building cross-area teams to provide full-lifecycle services to a single client.
Tong Xin, managing partner of Guanghe Law Firm shares an example with ALB: “Many fintech companies rely on the technologies of 5G and blockchain, therefore have high requirements for cybersecurity and data compliance services. But from a legal perspective, these involve complicated legal issues of civil laws, criminal laws and administrative laws. So we need to break the old practice areas and form a new department to serve those clients.”
Also, with the rapid growth of local companies, nowadays a company’s lifecycle might be compressed into just a few years compared to what its predecessor might experience in decades, which requires law firms’ capacity to provide consistent legal services with stable teams. According to Liu, Deheng therefore has formed new legal teams comprised of partners from IP, securities and investment departments to “provide the highest level of service.”
COMPLIANCE BECOMES NEW BATTLEFIELD
Apart from service innovations, with the rapidly changing regulatory environments both domestically and globally, and with local companies’ special usage of cutting-edge technologies and new business models which sometimes require them to walk in legal grey zones, law firms have witnessed compliance service becoming the new battlefield.
“Compliance became a hot topic since U.S. banned trading with ZTE in 2018.” Liu says.
Yao points out that different types of companies usually have different compliance focuses. “For example, internet and fintech companies are focusing more on data compliance in recent years. Criminal compliance is also key to internet companies, and our criminal defense team has successfully developed new businesses in this area.”
“Meanwhile traditional financial institutions are focusing more on risk control. We’ve realized that some companies from new industries are even more cautious in this area, they would include lawyers even at the very beginning when creating new business models,” she adds.
Liu says that sometimes compliance issue could become a matter of life or death to a company. “Data has become the ‘blood’ of many companies, and the regulators’ recent denial of Moji’s and World Online Advertising’s IPO applications has also shown the seriousness of this issue.”
Gao provides yet another perspective to this issue. According to him, law firms can assist companies on both internal and external compliance. By setting up a new service center, China Commercial now helps clients to build complete internal compliance systems, as well as to tackle compliance problems arising from international businesses.
“We’re helping clients to draw lines when doing businesses with foreign companies and in other countries, and we’re doing so by thoroughly reviewing all disputes concerning U.S. 377 investigation, trade secret, anti-laundry and antitrust,” Gao says.
ADAPTING TO THE NEW NORMAL
As Gao has mentioned, Shenzhen companies have high levels of internationalization, which, however, becomes a double-edge sword given the current situation.
Take U.S. government’s entity list as an example, it already includes a bunch of Shenzhen-based companies. Some people even joke that the Sino-U.S. trade frictions are actually frictions between the U.S. and the local Yuehai community in Shenzhen, which is the registration place of many world-famous companies.
Law firms are also helping Shenzhen tech giants adapting to this “new normal.”
Yao tells ALB that those assistances could be divided into three categories: first, law firms can send risk alerts to clients once there are new laws and regulations coming out in foreign markets, especially in the U.S.; second, law firms can help clients to review their full business cycles and provide compliance plans to the weak links.
And finally, “we also help clients to relief or solve the problems which put them into those lists in the first place. If clients want to therefore develop new markets, we’ll also help conducting compliance researches.”
Both Yao and Liu mention the importance of law firms to have international reach. “Only by cooperating with our own overseas offices or with partner firms can we provide long-term strategies to the clients,” Liu says.
Shenzhen’s gathering of new industries and the ever-changing economic and social landscape also provides huge opportunities for law firms.
“The cake is becoming bigger and bigger, which has drawn lots of competitors,” Liu says.
According to the latest statistics published by Shenzhen’s Lawyers’ Association, from 2017 to 2019, the number of legal practitioners in Shenzhen has grown with an annual increase of 12 percent. By the end of 2019, Shenzhen has 920 law firms and 14374 lawyers.
Competing here are not only local firms, but also top-tier firms coming southwards to open offices. According to ALB’s reports, at least six law firms headquartered in Beijing or Shanghai have opened new offices in Shenzhen in the past year.
The newcomers’ ambitions should also not to be underestimated. In 2019, twenty-two law firms in Shenzhen have headcounts of more than one hundred people, among which ten ones are local offices of firms outside of Guangdong province.
Meanwhile, foreign law firms and joint operations are also speeding up in the race. In 2019, at least three foreign law firms had launched representative offices in Shenzhen – this was reckoned as uneconomic previously because of Shenzhen’s neighboring location to Hong Kong. Nowadays there are also six joint operation firms in the Qianhai Free Trade Zone. In this March, the first joint association of firms from three jurisdictions, Mainland China, Hong Kong and Macau, also opened here.
Local law firms are holding a positive attitude towards this fierce competition. Gao points out: “Different law firms are bringing different firm culture to the scene, and this is a valuable chance for Shenzhen’s legal market to improve its overall service quality. But it also poses great challenges to local firms.”
What are the keys to stay competitive in this market? Different law firms have different answers.
Liu summarizes the winning secrets to just one word: service, which includes “strengthening the awareness of service, providing more seamless services, and developing new service products according to the clients’ needs.”
“The keys to stay competitive in the Shenzhen market are providing differentiated services, building seamless teamwork, and addressing to the clients’ pain points. The exploring spirit and bravery are in Shenzhen lawyers’ blood.”
--Yao Weiqi, Dentons
Yao echoes Liu’s viewpoints. “The exploring spirit and bravery are in Shenzhen lawyers’ blood,” she says.
“We have our own advantages, one of which is having a finer network of offices within the city. Take Guanghe as an example, we now have six offices in Shenzhen with more than 500 lawyers, and each office has its own specialties,”
--Tong Xin, Guanghe Law Firm
As the managing partner of a leading local firm, Tong points out the importance of differentiating one’s services. “We have our own advantages, one of which is having a finer network of offices within the city. Take Guanghe as an example, we now have six offices in Shenzhen with more than 500 lawyers, and each office has its own specialties,” he says.
Shenzhen is also experiencing the rising of so-called “expert lawyers”, the word refers to lawyers who have in-depth understanding of certain industries and are often of cross-discipline education or working backgrounds.
“No doubt expert lawyers are now leading the future,” Yao says, “the leading partners of our TMT, aviation and cross-border transaction teams are all young and innovative people in their early thirties. We’re also more in favor of talents of cross-discipline backgrounds when hiring.”
But she also points out that “expert lawyer” not only refers to one’s understanding of another industry, but also one’s acute business sense. “Sometimes a lawyer has to think as a businessman and has the judgement of where the wind is blowing. Only by doing so can he or she address to the clients’ pain points and win their trust.”
“Whether a lawyer is needed by an innovative company depends on whether he or she could actually merge into the client’s business. Therefore, ‘law plus technology’ and ‘law plus business’ are very important concepts in the future,” Gao adds.
Besides those details, lawyers also mention the importance of the changing of legal practitioners’ mindset. Yao tells ALB that after merging with Dentons, they’re now learning from western law firms about building the firm’s own culture.
“We’ve launched our own business development department and are seeing branding as one of our priorities. For me, this is a trial on the organization level to follow the route of ‘law plus business’,” she says.
Meanwhile, Gao expects that law firms could also enjoy some policy bonuses in the future. “We expect of innovations from a higher level, for example preferential tax measures and preferential policies for talent recruitment specifically designed for law firms.”
“If we’re doing right, legal business could become Shenzhen’s new growth pole, otherwise we’ll fall behind other sectors… I’m quite confident that the local legal market would become stronger, bigger and better.”
-- Gao Shu, China Commercial Law Firm
“If we’re doing right, legal business can become Shenzhen’s new growth pole, otherwise we’ll fall behind other sectors… I’m quite confident that the local legal market would become stronger, bigger and better,” Gao concludes.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.