FUJIAN REPORT: PLAYING CATCH-UP
On China’s eastern seaboard, Fujian Province has long been known for its active private and export-oriented economy. It was once home to one of China’s leading legal markets, but since then, the sector has lost some of its sheen. With the past few years bringing rapid economic developments to Fujian, particularly due to its advanced manufacturing industry, local lawyers are working hard to keep up with the province’s economic development and ensure that its legal industry regains its old glory.
In 2022, Fujian’s GDP exceeded the threshold of five trillion yuan ($728 million) for the first time, the eighth highest in the country and edging very close to powerhouse Hubei in central China. In the same year, Fujian’s economic growth rate reached 4.7 percent, ranking first across China.
According to Chinanews.com, Fujian has been enjoying the most preferential policies in China in recent years, including initiatives such as the Fujian Pilot Free Trade Zone, the Fuzhou-Xiamen-Quanzhou National Innovation Demonstration Zone and the Fuzhou New Area. Boosted by policies, Fujian’s rapid development has benefited from a clear strategy to focus on advanced manufacturing.
Chen Jiatang, executive director and senior partner of DeHeng (Fuzhou) Law Offices, points out that Fujian’s industrial policies in recent years are to continue promoting the development and growth of pillar industries and improving the quality and efficiency of industrial chains. "In the past three years, Fujian’s four pillar industries have grown significantly: the electronic information industry has jumped to be the fifth largest in the country; the advanced equipment manufacturing industry has exceeded one trillion yuan in revenue, with shipment of power batteries continuing to clinch the top spot globally; the petrochemical industry has seen a significant increase in production capacity; and, the modern textile and garment industry has formed a complete industrial chain," says Chen.
In addition, the digital, maritime, green, and cultural and tourism economies, collectively known as the "big four economies,” have also become top priorities for Fujian.
As Chen puts it, more investment in Fujian, the increase in market players, the growth of trade and services, and the emergence and development of new industries have all "created new fields, new types and new opportunities of legal services, but also raised new requirements.”
At the same time, however, Fujian’s legal services industry seems to be caught short.
Chen often travels to different cities for work, and "has experienced this firsthand.” He says that Fujian’s ranking on the China Justice Index released over the years has been on the lower side, which "matches neither its status as a developed eastern province nor its level of economic development.”
He summarises the problems in Fujian’s legal services market as follows: relatively low fees and total industry revenue; limited coverage of legal services, mainly serving local clients; fierce competition for traditional practice areas and insufficient talents for high-end fields; private enterprises are very active but lacking modern management philosophies and legal awareness, etc.
"All of these are hindering the sound and healthy development of Fujian’s legal services market. Law firms and lawyers must understand the problems, find the right directions, seize opportunities, and breach new grounds with a can-do attitude and the wisdom of legal professionals," shares Chen.
Indeed, as Chen has described, if one looks at the growth history of Fujian’s legal services industry, after peaking during the opening-up in the 1990s, the entire industry has fallen into relative stagnation. In the past decade, however, the industry has made great efforts to catch up, and is exploring a suitable growth path in both distinct practice areas and the development strategy with "local wisdom" and the can-do spirit.
In some way, the growth of Xiamen-headquartered Yinghe Law Firm is reflective of the evolution of Fujian’s legal services industry.
Xiamen Foreign Economic Law Firm, Yinghe’s predecessor, was established in 1984. At that time, the Xiamen Special Economic Zone was just launched, and Yinghe, as a first mover, was an industry leader across Fujian. Fast forward to 2000; however, with the rapid development of partnership law firms, Yinghe lost its competitive edges due to a brain drain, and fell into ten years of obscurity.
In 2011, several young partners of Yinghe hoped to lead the firm out of the doldrums. Chen Yonghui, Yinghe’s current director, is one of them. He describes the next decade as "starting from scratch again.” "We trained a team of young lawyers on our own. Many of them joined Yinghe immediately after graduation. They are now senior partners well recognised in their practice areas and the industry."
Chen Yonghui tells ALB that Yinghe has gained rich service experience, a solid client base and public recognition in Xiamen, and with local Xiamen clients continuing to expand their business, the service coverage of Yinghe is also expanding, and many lawyers have been involved in investment projects in other provinces.
Another Xiamen-based firm, Fidelity Law Firm, has gone through a similar journey, which is greatly reflected in the history of its cross-border legal services.
Johnny Guo is a senior partner and leader of the firm’s cross-border practice. He recalls that in the 1980s and 1990s, riding Fujian’s export-oriented economy, Xiamen’s cross-border legal services in maritime and foreign investment fields were leading the country. At that time, Fidelity also ventured into cross-border services and was especially strong in maritime and shipping law.
However, Xiamen lost its advantages as the whole country gradually opened up in the 1990s. Fidelity and other Fujian firms saw more and more of their cross-border services being taken away by lawyers from Beijing and Shanghai. After 2010, however, with the re-emergence of cross-border services in Fujian, "we once again ventured into this field early," shares Guo.
In 2016, Fidelity opened its Shanghai office and entered a joint venture with Hogan Lovells, serving high-end foreign clients such as Lego and Blizzard Entertainment and building a name for its cross-border practice in a broader market. In 2019, Fidelity opened the Fidelity-Guanghe joint venture office in the Xiamen Free Trade Zone. "At present, we have 11 Taiwanese lawyers working in the joint venture office, mainly serving Taiwanese businesses. We also look forward to leveraging the joint venture brand to attract more Taiwanese businesses to the free trade zone," shares Guo.
In rebuilding its splendour, Fujian’s legal services market has also attracted many national brands. DeHeng is one of them. Chen Jiatang tells ALB that when the DeHeng Fuzhou office was established at the beginning of 2012 and was positioned as "DeHeng’s office for the cross-strait legal services market.”
Thanks to Fujian’s legal services market playing catch-up in the past decade and the firm’s strategic positioning of building a high-end, full-service firm, DeHeng Fuzhou is now an "influential and well-known firm with sound management and good reputation, and is strong in litigation and arbitration, engineering construction and real estate, government and corporate affairs, corporate rescue and bankruptcy, capital and securities law, criminal law and compliance,” said Chen Jiatang.
A COMPETITIVE EDGE
Economic forces usually dictate the demand for legal services in any place. Especially in a market like Fujian, with many regional characteristics, building a legal services industry based on economic needs has also been one of the secrets for the rapid development of firms there.
At Yinghe, Chen Yonghui highlights three of the firm’s strong areas. One is government-related legal services. "The municipal and district governments of Xiamen, as well as important government functional departments, are all Yinghe’s clients. This is where our strength lies." Another is real estate construction and engineering. "When it comes to real estate, everyone will mention 'Beijing, Shanghai, Guangzhou, Shenzhen and Xiamen'. So, Xiamen’s mature real estate industry dictates the importance of relevant legal services."
The third relates to services for high-tech enterprises. "Xiamen emphasises on developing into a beautiful, modern and global city with high-quality growth nowadays and focuses on attracting technology companies for local investment. At present, we mainly provide dispute services to these new entries, but are also growing our capacity for investment, intellectual property, corporate compliance, etc."
Fidelity’s senior partner Huang Huang shares that in the past few years, apart from focusing on traditional practice areas such as merger and acquisition, bankruptcy reorganisation, commercial dispute resolution, non-performing assets and enforcement, taxation, and rural revitalisation, “the firm has observed increased activities in areas such as intellectual property, corporate compliance, digital economy, and the ‘Belt and Road Initiative’-related legal services.”
In particular, Huang mentions that in the digital economy sector, Fujian has witnessed the development of emerging industries such as blockchain and metaverse in the past few years. Fidelity has accordingly set up a digital economy team, serving not only relevant companies but also big data development bureaus in various regions.
Guo adds that thanks to star companies such as Meitu and Meiyou, Xiamen’s computer software industry has attracted much attention. "In Xiamen’s 14th Five-Year Plan, software and information services still represent a 100 billion yuan industry chain." In this field, lawyers have also seen new service needs, such as "export of games overseas, overseas data compliance, etc. For example, we are currently helping clients set up databases in Malaysia.”
In addition to digital economy, Huang says that new energy enterprises in Fujian have also been the focus of legal services in recent years. Companies such as Kehua Hengsheng, Zijin Mining and CATL all have a lot of legal needs for lawyers to explore.
In line with Fujian’s export-oriented economy, cross-border legal services are also key areas eyed by local lawyers.
DeHeng’s Chen says: "Fujian is the second largest hometown in China to overseas Chinese and one of the first provinces to open to the outside world. It is a magnet of export-oriented economic sectors. There is great potential for cross-border legal services."
"In recent years, Fujian has set up a provincial talent pool comprising 156 expert cross-border lawyers, and has been continuously optimising training and attraction of high-end legal talents... Lawyers have been playing a key role in foreign investment into Fujian, outbound investment and financing by enterprises, maritime and shipping disputes, international trade disputes and protection of the rights and interests of overseas Chinese," says Chen.
Guo of Fidelity shares that through hard work, Fidelity has also made greater strides in cross-border business in several aspects. In addition to traditional areas of international trade, maritime and shipping, and foreign investment, the firm has noticed, in particular, the growth of services for outbound investment by Chinese enterprises.
Guo says that on the one hand, Fidelity serves the compliance needs of Chinese enterprises for their overseas operations. One example is the intensive training it conducted in 2019 for central enterprises that were to invest in Africa. On the other hand, the firm also serves the overseas investment projects of State-owned enterprises, or SOEs.
"SOEs account for a very large share of Xiamen’s economy. Xiamen C&D Group, Xiamen LTG Holding Group, and XMXYG Corp are all Fortune 500 companies, and have many projects for establishing subsidiaries and factories overseas in the past few years," says Guo. Southeast Asia and India have been popular investment destinations for Xiamen SOEs in recent years. However, as many export-oriented enterprises in Xiamen are engaged in international trade business, their business scope is very broad, and "we also provide clients with services targeting countries in Latin America and Europe.”
With a booming scene, lawyers in Fujian still have higher expectations for cross-border services. Chen Jiatang admits: "The cross-border legal services of Fujian lawyers still need to get to higher positions. For one, the type and volume of cross-border business is no match for Beijing, Shanghai, Guangzhou and Shenzhen. There is also clearly a shortage of legal professionals for cross-border services. These two factors interacting with each other has resulted in a lack of teams and lawyers specialising in cross-border services and a low success rate of local lawyers winning high-profile business."
"To change this, we not only need to step up support by accelerating the training of cross-border legal talents but also improve support policies to nurture a stronger cross-border legal services market," Chen suggests.
After more than a decade of growth and exploration, firms in Fujian are now actively thinking about their market positioning and development strategies for the future. Instead of blindly following others’ footsteps, they are keen to forge a path that suits their circumstances.
Chen Yonghui of Yinghe shares with ALB that "now Yinghe has again entered the phase of strategic positioning and transformation. We are thinking about matters such as upscaling and specialisation, including our positioning in the industry and Fujian and what suits Yinghe the best."
In this process, Yinghe will not always "put the organisation first" but will take a "people-oriented" approach. According to Chen, Yinghe's young partners are mostly between 30 and 40. They are the backbone of the firm, but are also facing unprecedented pressure in their personal lives. "If we rush to expand, the costs incurred may create more pressure on young people. That’s why we have refrained from taking some more radical approaches."
Although upscaling seems unavoidable in a firm's development, Yinghe’s Chen does not believe upscaling is simply about adding new offices. Taping a relatively young workforce with a flat management structure and high employee engagement, Yinghe wants to first focus on building itself into a powerhouse in Xiamen.
This year, the firm will also specifically encourage its lawyers to build their professional reputations. "We ask our young lawyers to do self-career design, including building a practice team and creating their professional advantages. In exchange for financial support from the firm, lawyers should demonstrate how many industry forums they will participate in, how many articles they will publish, and how many new clients they will develop, etc.,” says Chen.
Fidelity has chosen a different path that suits its profile.
Today, the firm has 14 offices outside of Xiamen. According to Huang: "We divide cities in Fujian into two categories: one category includes Fuzhou, Quanzhou and Xiamen with relatively high GDP, where the growth of our offices is also very fast; the other is other third- and fourth-tier cities, such as Putian and Longyan, where both the demand for and the quality of legal services are increasing. Offices in the second category mainly engage in litigation practice, but we are consciously bringing non-litigation business to them. For example, our Putian office is growing fast thanks to several bankruptcy and reorganisation projects."
Huang tells ALB that Fidelity embarked on its province-wide growth journey long before the influx of large non-local firms into Fujian, and the synergy and resource advantages the firm has gained from this growth strategy "are difficult for those large firms to surpass, especially in non-performing assets and finance fields. This is because clients in the non-performing assets field often have assets all over the province, while the business of financial clients, especially banking clients, also extends across Fujian. Having a wide network of offices guarantees the timeliness and quality of services.”
Beyond Fujian, Fidelity is also thinking about replicating the success of its Shanghai office in other key cities to launch its "go national" strategy. "The cooperation with Hogan Lovells in Shanghai has enhanced Fidelity’s brand awareness. Frankly speaking, however, recognition of our brand is still muted outside Fujian, which is a big challenge for us," says Huang. "We are thinking whether we can leverage differentiated practices to make more impact outside Fujian."
With deep insight into the future development trends of Fujian’s legal market, Chen Jiatang of DeHeng Fuzhou believes that the next growth stage for the firm needs to be designed on the basis of understanding those trends. "With the legal services market expanding, the number and size of firms and the number of practicing lawyers are growing faster, bringing both opportunities and challenges, and causing intensifying competition in the industry. The key to competition between firms in the future will lie in a firm’s core capabilities. Having an appropriate size, specialised practice areas, high-end services and a reputable brand should be the direction of a firm’s development."
Therefore, DeHeng Fuzhou will moderately expand its scale in the future and continue to pursue "meaningful development" — that is, emphasising teamwork, specialisation and branding. "While further entrenching ourselves on the local market, we will step up cooperation with other DeHeng offices and have more interactions with firms in the Greater Bay Area and the Yangtze River Delta region to complement each other’s advantages and grow together," says Chen.
AREAS TO WATCH
When it comes to practice areas to watch in Fujian’s legal services market in the next stage, Chen Jiatang points out: "Legal services must keep up with economic and social development. Going forward, Fujian will focus on sharpening the competitiveness of its manufacturing industry, creating key industrial chains and layouts, and driving forward the construction of emerging industry clusters such as optoelectronics in Fuzhou, high-end energy storage business in Ningde, fluorine new materials in Nanping, biomedicine in Sanming, and smart manufacturing equipment in Quanzhou."
Against this backdrop, Chen believes that “fixed asset investment, new energy, intellectual property and big data, ecology and environment, corporate compliance, corporate bankruptcy and rescue, and cross-border legal services are future priorities of Fujian’s legal services market. Firms must increase investment, attract and train talent, build talent pools, promptly launch new legal services products, and create new business and profit growth points.”
Yinghe’s Chen Yonghe points out that the industrial real estate industry that Xiamen is attracting, including having CATL headquartered in Ningde, represents business opportunities that lawyers should watch out for. However, lawyers in Xiamen must enhance their competitiveness to benefit from the projects of heavyweight enterprises truly.
Huang of Fidelity shares that this year the firm will continue to "mainly focus on areas that are in line with national strategies, such as digital economy, serving new energy companies, etc. In addition, as the fourth phase of the Golden Tax project is expected to go live this year, we will also prioritise finance and taxation practice. Our strategy is to focus on sharpening our professional competency of legal services in key industries and fields, create more star products, and raise our professional competitiveness and brand influence among legal service providers.”
As to cross-border legal services, with business gradually returning to normal, Guo expects that many cross-border lawsuits in the backlog will be able to be conducted normally, international trade business will continue to grow, and Chinese companies will be more willing to invest overseas. "Going forward, we hope to integrate multiple cross-border services to provide clients with upgraded services," says Guo.