Land of abundance

On track to become the financial and commercial centre of South-West China, Chengdu's legal industry is undergoing significant changes. Most are driven by growing demand in the middle and upper market segments. Zhang Yun reports

The second anniversary of the Wenchuan earthquake that devastated Sichuan province was 12 May 2010. This year, those affected have been given a breath of new hope, as the majority of the planned RMB1trn reconstruction projects have been completed. The economy and infrastructure of the province is not only restored but has emerged from the disaster even better than before. 

  Law firms in Chengdu, the capital city of Sichuan, have dedicated a considerable amount of time and effort towards aiding victims and supporting relief and rebuilding efforts in the past two years. With the reconstruction work setting off a new upsurge in investments and transactions into the region, Chengdu's law firms have now gained new growth momentum and become more involved in all aspects of the region's economic development.

  Tahota, Chengdu's largest law firm by headcount and the winner of ALB's West China Law Firm of the Year in 2010 and 2008, has reported 66% growth in revenue for the first quarter of this year,  over the same period last year. And Cheng Shoutai, the founder and managing partner, is bullish on the prospects for the rest of this year and beyond.

  "Just by looking at the soaring number of foreign banks and financial institutions that have established branches in Chengdu and the top-grade office buildings newly added to downtown, anyone can get a good sense of how strongly and quickly the city has recovered from the tragedy and transformed to triumph," said Cheng. 

  In the course of this transformation, law firms are facing new opportunities and are standing at the threshold of a new phase of market dynamism. Tahota, for example, has been retained to provide local legal services and advice on the newly initiated Chengdu International Commerce Centre project, which is jointly developed by three major Hong Kong property developers - Sun Hung Kai Properties, Henderson Land Development and Wharf Holdings This will create an epoch-making new landmark on Chengdu's skyline. 

  In addition, Tahota has recently opened its Chongqing branch as a strategic move to reinforce its market leadership in West China. "The synergy and interactions between the development of Chengdu and the other major regional centre, Chongqing, will generate incredible growth opportunities for firms that can straddle the two cities," Cheng says.

Firm	Managing partner	Total number of lawyers	Office(s)
Tahota泰和泰	Cheng Shoutai程守太	139	Chengdu, Beijing, Shenzhen, Dalian, Chongqing, Hong Kong
Sichuan Jun He 四川君合*	Qin Zejun秦泽均	60	Chengdu
Sifangda四方达	Li Shiliang李世亮	52	Chengdu
Showme守民	Liu Shoumin刘守民	49	Chengdu
Dingli鼎立	Shi Jie施杰	48	Chengdu
Yingji英济	Wang Nengchun王能春	44	Chengdu, Chongqing
Huitao汇韬	Li Qijun 李启军	31	Chengdu
Yuanxu元绪	Xie Jiazuo谢佳佐	28	Chengdu, Beijing
Yun Kui 运逵	Yang Yunkui阳运逵	26	Chengdu
Kangwei康维	Gu Peidong顾培东	18	Chengdu
Note: Numbers of lawyers were obtained from the website of Chengdu Bar Association and each law firm on 12 May 2010.*Sichuan Jun He is not affiliated with Beijing Jun He.

Firm	Managing partner of Chengdu office	Number of lawyers in Chengdu	Year established
King & Wood 金杜	Zhang Ruji 张如积	23	1998
Guantao 观韬	Qiu Guangli仇光莉	12	2001
Dacheng 大成	Leng Yunsong冷云松	14	2001
Zhong Yin 中银	李新卫 Li Xinwei	14	2003
Zhonglun W & D 中伦文德	王志坚 Wang Zhijian	13	2007
Huatai华泰	Chang Xiaoyi常孝义	7	2007
Huicheng惠诚	Hao Xueyu 郝学余	3	2009
Yingke 盈科	Zeng wenzhong曾文忠	n/a	2010
Note: Numbers of lawyers were obtained from the website of Chengdu Bar Association and each law firm on 12 May 2010.

Deal	Value (US$m)	Firms involved
United Eagle Airlines restructuring	1,000	Tahota, Jun He
Diageo – Chengdu Yingsheng Investment acquisition	925	Haiwen & Partners, Freshfields, Slaughter & May
Sichuan Kelun Pharmaceutical IPO	735	King & Wood
Changhong convertible bonds issuance	440	Tahota
Sichuan Shuangma Cement - Lafarge Dujiangyan Cement stake acquisition	330	Undis.
Yanlord’s acquisition of residential site in Panchenggang	280	Undis.
Sichuan Expressway IPO	260	Zhong Yin
Sichuan Hanlong Group investment in Australia’s Moly Mines	200	Corrs Chambers Westgarth, Freehills, Blake, Cassels & Graydon
Guibao Science Technology IPO on ChiNext	44	Tahota
Sichuan Tengzhong – Hummer acquisition	Undis.	Jun He, Shearman & Sterling

Changing landscape

Quick facts about Chengdu

• Over 4000 lawyers (8000 in Sichuan) • Approximately 300 law firms (770 in Sichuan) • 2009 GDP reached RMB450bn, up 14.7% • Among the World’s 500 largest companies, more than 130 of them have subsidiaries, assembly and manufacturing bases or R&D centres in Chengdu, including Intel, Sony, Toyota, Microsoft, foxconn, Citibank, Lafarge, Coca-Cola, GE, HSBC, and Hutchison Whampoa • In the first quarter of 2010, the total amount of foreign direct investment in Chengdu reached US$1bn, an increase of 97% over the same period of last year • In 2009, the main business income from software and information services in Chengdu totalled at RMB75.6bn, up 47% year-on-year • In 2009, 26,130 patent applications were filed by Chengdu companies, and 16.349 cases were authorized, both ranking first in West and Central China

The marketplace has seen many changes in recent years, including an increasing number of new entrants in the local market, partner defections and the rise to prominence of several key firms. The changing demands of an expanding portfolio of clients - from domestic SMEs to global MNCs - has driven Chengdu firms to actively acquire and improve their skillsets and capabilities. Ambitious lawyers are, at the same time, motivated to switch platforms to seek an increased chance of working on more lucrative and complex transactions. 

  Dingli, one of the larger local firms, has lost a number of corporate partners in the past year, some going to Beijing firms such as Dacheng and Ying Ke. In 2009 a team of lawyers led by Dingli's former director Jiang Min and partners Zhang Jiarong and Gary Xiao, left the firm to set up Gu Yu, which focuses primarily on general corporate, foreign legal affairs, real estate and construction and government projects.

  "We were approached by a few national firms to join them, but we've decided to build up a new brand from scratch ourselves. We believe the legal market in Sichuan has a lot to offer, particularly in the middle and upper market segments," says Gary Xiao, the deputy head of foreign legal affairs division of Gu Yu. "So we strive to be strong local advisors, who are better positioned to service and benefit from the province's economic growth."

  Xiao expects his firm to recruit ten more lawyers in the next few years, pushing the total number of legal practitioners towards 30.

  It's common practice for large Beijing firms to snare partners - even an entire team - from leading local firms to establish and expand their branch offices. In 2007, Dacheng poached senior partners to lead its Chengdu team, from local firms Yinzheng, Huitao and Hesheng. In the same year, Zhonglun W&D hired a partner from leading full-service local firm Yingji for its Chengdu opening.

  Grandall Legal Group, however, penetrated the Sichuan market in a different way. In 2007 it established a strategic alliance with leading local firm Sifangda, which has been administered and operated as an office of Grandall since. The relationship has been beneficial for both firms - they are contemplating a full integration in the near future, upon receiving approval from the regulators.

  Zhang Ruji, the managing partner of King & Wood's offices in both Chengdu and Chongqing, relocated to the Chengdu office in 2001 and assisted with the setup of the firm's Chongqing office in 2006. "As the scale and sophistication of Sichuan enterprises' projects continues to grow, these clients increasingly prefer to hire bigger and more established national firms as their external counsel. By joining national firms, local lawyers generally can have a more prestigious platform to develop large corporate clients, boost their exposure in handling larger projects and [have] access to a wider range of resources," he says

  Staff movements, however, are in both directions - reflecting the dynamics of the market. While many lawyers have left local practices to join national firms, some have departed national firms to take up more senior roles in local partnerships. For example, several senior associates and partners at King & Wood left to join local firms as partners and even practice heads. "A steady level of personnel movements between leading national firms and local firms is critical for transferring knowledge, spreading good practices and lifting the bar in the local industry," says Zhang.

  In 2006, Liu Bin, a former partner with King & Wood, was appointed to the partnership of Tahota, boosting the capability and expertise of Tahota's capital markets and securities team. As lead partner, in 2009 he acted as the issuer's advisor in the IPO and listing of Chengdu Guibao Science Technology, on Shenzhen's newly-launched ChiNext board. The company was among the first batch of 28 companies to be listed on this board.In the same year, Liu also advised Sichuan Changhong on successfully issuing RMB3bn of convertible corporate bonds on the Shanghai Stock Exchange. In doing so, Tahota becomes one of the few local firms that have a track record of completing both an IPO and debt market deals.

Regional financial centre

Last September, JPMorgan Chase Bank (China) opened its fifth China branch in Chengdu - a key development for the city's plan to become a financial centre for the South-west region. "Chengdu is an important economic, financial and cultural centre in South-West China. The city is uniquely positioned to serve the development of enterprises in the region and we are delighted to make Chengdu our home," said Heidi Miller, chief executive officer of JPMorgan Treasury & Securities Services, at the Chengdu opening ceremony.

  Major international financial institutions - including Citigroup, HSBC, Standard Chartered Bank, ABN AMRO, BNP Paribas, Bank of Tokyo-Mitsubishi UFJ - all have established their branches in the city. The number of Chinese and foreign-invested banking institutions stationed in Chengdu has reached 45 so far. Domestic banks also have developed vigorously; the People's Bank of China has set up its South-West China headquarters in Chengdu, and almost all domestic banks and securities brokerage firms have located their regional headquarters or branches here.

  The prosperous financial sector in Chengdu has led to strong demands for banking and finance-related legal services and products. Many local firms claim that banking and finance is a main focus area for them and has been one of the fastest-growing practices. Sifangda has enjoyed an average growth rate of 20% in annual revenues over the past few years, and has seen over 70% of its income coming from non-contentious corporate and advisory work since 2008. A large number of these mandates come from banks and financial institutions.

  "The flourishing of [the] local economy is luring more banks and financial institutions to the city to capitalise on the economic growth. The local government's efforts in promoting Chengdu as a regional financial hub are also influential," says Li Shiliang, founder and managing partner of Sifangda. "I'm confident that more investments will be channelled into the financial sector, and, therefore, the relevant practice areas at local firms will be even more buoyant."

  Sichuan Yuanxu, led by managing partner Xie Jiazuo, is known locally for its expertise in finance, capital markets and insurance practices. The firm has serviced an array of banking, insurance and investment firms. "Given the continuing development and maturation of Chengdu's financial industry, I foresee the potential for our current practice to double in size and revenue in the coming years," Xie says. 

  As a growing number of the firm's Sichuan clients are expanding their business into Beijing, many Beijing companies are looking to invest into Sichuan, Xie has masterminded the establishment of its Beijing branch, which opened in March. "The Beijing office will serve as a gateway for us to expand our corporate and advisory practices and a window for us to keep updated with the latest legislative and regulatory changes as well as business intelligence," he says.

  With a well-established and accessible banking and finance mechanism, Chengdu naturally becomes a nurturing ground for high-tech and IT start-up companies. The city has already cultivated a large pool of fast-growing quality enterprises, which are planning to go public and to fund their next phase of growth.

  In the past three years, about 20 Sichuan-based companies have launched IPOs and listed on stock exchanges at home and abroad. King & Wood advised on 10 of the 20 IPOs, demonstrating its clear dominance in this market segment. The firm has already received mandates for more than 30 IPOs by Sichuan companies. "Judging by the number of companies that are planning a public float and the considerable number of companies that are eligible for an IPO, Chengdu definitely has the strongest economy in West and Central China," says Zhang.

He anticipates larger firms, including Zhong Lun and AllBright, will establish themselves in this nascent market. "The wealth gap between the eastern regions and the western regions is narrowing and will continue to narrow. This impetus will translate into an exponential growth in demand for legal services, in all disciplines and at all levels," he says. ALB