The free-trade zone

The first ever pilot Free- Trade Zone (FTZ) in mainland China is all set to be launched in Shanghai on Sep. 29, with the general public excitedly waiting for the FTZ policies to be announced. It is generally believed the reforms will be focused on financial liberalisation.

Although details have not been revealed, China’s planners have defined the Shanghai FTZ as a test bed for bigger economic reforms, including convertibility of the RMB currency and further liberalisation of interest. New policies on foreign direct investment and taxation were also mentioned by the State Council. Even websites deemed sensitive and blocked by the Chinese government are reportedly accessible inside this 29-square-kilometre area.

The market has welcomed this piece of news with great optimism. Relevant stock shares saw strong gains following the central government approval. In fact, Chinese Internet TV operator BestTV quickly announced its joint venture plan with Microsoft, which has premises within the FTZ.

Lawyers too are looking forward to the trial. “Opportunities and challenges coexist in it,” says Charles Guan, managing partner of Grandall Law Firm’s Shanghai office. Based on current information, four areas – financial, corporate, trade and shipping - will definitely benefit from the launch of the FTZ, according to him.

Among these, financial reform has been the focus. Permission to set up financial institutions such as foreign, private, and joint venture banks and lease finance companies; permission to establish some offshore financial businesses; and permission for capital account convertibility are among the most discussed possibilities.

“All these new businesses need legal services. For example, founding a new bank would certainly make lawyers very busy,” says Guan. “And the rules will be very different from those outside the FTZ … Many restrictions will be removed, and economic activities will be under the rule of contracts and agreements between parties, instead of government regulations and directives.”

A key distinction is that the management of investment by the government will transform into a “negative list” system, where the authorities will only indentify some “don’ts” and anything not on the “negative list” will be considered legitimate. This would mean that the government will try to delegate some power to the market to increase efficiency and encourage innovation, in sharp contrast to only a limited number of matters on a “positive list” being allowed in the past.

Up till now, the Chinese government has been using a “positive list” system to manage investment and other economic activities. Under this system a matter defaults to “not allowed” unless it is one of the limited things on the “yes” list. But a key reform in the FTZ is that the “positive list” will be replaced by “negative list”, where the authorities will only indentify some “don’ts” and anything else will be considered legitimate.

This change hints that the government is trying to delegate some power to the market to increase efficiency and encourage innovation, suggest the observers.

“In the past a lawyer was not even necessary because there were clear guidelines by the authorities for many kinds of transactions. But in the FTZ, lawyers will be indispensible if the parties want their deal to be impeccable,” says Guan.

Corporate law practices will be different too. Registration with and approval procedures by government authorities will simplify in keeping with international norms, which will means that certain legal services will no longer be needed. On the other hand, due diligence and other legitimacy investigations will become more important.

“A market always needs to be regulated, either by the administration or by law. And we lawyers represent the law,” says Guan.

As logistics and cross-border settlements result from a growth in trade, Guan adds, practitioners in shipping, maritime and international trade will see a boom of opportunities.  “Professional lawyers will be in demand to help protect the rights and interests of relevant parties.”

Open to challenges

On the flip side, the much enlarged free space, the lifting of rigid restrictions and the disappearance of supervision will cause big uncertainties and risks. Although it is a lawyer’s job to address every possible risk for his clients, since there will not be a clear boundary, these risks might just get transferred onto lawyers themselves, according to Guan. As a result, lawyers will have to work out viable solutions for their clients as soon as each of the new regulations and policies are announced.

Another challenge that the FTZ’s launch will bring with itself include the introduction of an even more internationalised economic and legal environment. Some Chinese lawyers will have to quickly learn how to play the new game - something that they might not be very familiar with - since some practices will see unprecedentedly advanced levels of upgradation.

For instance, financial transactions will be a much more difficult arena of work with the use of increasingly complicated multijurisdictional investment structures, derivatives and other creative financial products.

“It requires thoroughly understanding the transaction in detail and as a whole. A comprehensive knowledge is a must-have for us. It’s a direct challenge to a lawyer’s professional abilities,” says Guan.

In fact, Shanghai has been probably the most internationalised economy in China, and Shanghai lawyers are proud to have top-of-the-rack capabilities.

“Shanghai takes the lead in China in terms of the standard of government administration and level of rule of law, and lawyers’ practices are very close to international peers,” says Vincent Lin of Zhonglun W&D’s Shanghai office.

The legal community in Shanghai appears to be distinctive in China – not just in terms of practice standards and working style, but also in how they dress and what they wear. They are distinctive even by what they wear.. A recent proposal by the Shanghai Bar Association urged all lawyers appearing in court to wear a robe, whereas in other parts of China, most lawyers are still reluctant to wear this outfit considered by the conservative Chinese as too “foreign.” The Association also holds an oath-taking ceremony for junior lawyers, just as the Western world does.

According to some, outside the FTZ, Shanghai lawyers have already grown into strong competition for international legal champions.

“With respect to the tendency of growth in terms of number of employees, revenue, the speed of headcount and profit increase, Chinese firms here are taking the lead ahead of the international firms. The foreign firms are seeing relatively slower speeds, or even negative growth,” says David Yu, managing partner of the Shanghai-based Llinks Law Offices.

“One reason is that Chinese firms are growing stronger. Another reason is that apart from Chinese outbound M&A, most of the other cross-border practices such as capital markets are not in their best of forms.”

Evidently, some foreign firms’ Shanghai offices are shrinking compared to what they were even five years back, with only a few lawyers in residence at present. In July, energy-focused firm Vinson & Elkins announced their decision to shut its Shanghai office, which had been operational for eight years in the city.

“This market is competitive. It’s not easy for international firms to expand. But we have our own sector focused niche area, or expertise, in outbound practices,” says Li Weishi, Shanghai-based partner at U.S. firm Covington & Burling.

However, the opening of the FTZ at this juncture might change the situation. With the FTZ’s launch, the international firms will not only be able to maintain their advantages, such as in Chinese outbound mergers and acquisitions, but they will also greatly benefit from the more welcoming policies.

“International firms fit in open and free market more easily,” says Guan. “Chinese lawyers have some knowledge and experiences of that, but definitely not as much as the international firms.”

Apart from competing for cross-border transactions, they may also be able to practise by setting up joint ventures with Chinese firms, according to Guan. Currently, foreign law firms are prohibited from advising on PRC law. But there might be a little loosening of this statute inside the Shanghai FTZ. Though not confirmed, the government is considering some flexible mechanisms in this regard.

“It could be mutually beneficial,” says Guan. “The foreign firms could have a much larger space, and we Chinese firms could learn from their experiences and cooperate on a global scale.”

Balls in a box

Shanghai has always welcomed competition, both international and national. Unlike other major cities such as Beijing and Shenzhen, Shanghai sets no entrance limit for lawyers from other provinces.

According to Shanghai Bar Association statistics, some 15,000 lawyers in Shanghai working in 1,150 firms earned 22.3 billion yuan ($3.63 billion) from more than 520,000 cases between 2009 and 2012.
Although the total number of Shanghai law firms has remained more or less the same, the nature of competition between them has changed radically.

“The market space is getting smaller,” says Yu.

He compares the legal market to a box filled with balls. A few large balls occupy most of the space in the box, but there is still space between the big balls.

“To continue filling you need smaller balls, then even smaller balls, then smaller than smaller balls, and finally, sand,” he says.

His theory suggests a strong tendency of polarisation. The so-called 20-80 phenomenon is very conspicuous in Shanghai, meaning that the top 20 percent firms take up 80 percent of the market share. “In Shanghai, it’s almost a 10-90 divide,” says Yu. “My conclusion is that the strategy of expansion to gain market share could still work, but the marginal effect would decrease with time.”

It also means the competition between firms has escalated to a new intensity. Consequently, specialisation, best practices and complementary cooperation matter the most.

Shanghai lawyers have done a great job in the first two, says Lin Wei, partner and head of Zhonglun W&D in Shanghai. Armed with every single detail of a deal, Shanghai lawyers have exquisite execution of action compared to their Beijing colleagues.

They also have unique skills in litigation, an area considered as the full demonstration of a lawyer’s essential techniques and capabilities. They communicate with the judges in their own effective manner.
“However, many Shanghai firms tend to do business on their own, lacking sharing and optimisation of resources,” says Lin.

Yu adds that another development approach is to enlarge the market, or the box, everybody is in. In fact, the growth of the Shanghai legal industry has exceeded the GDP rate in recent years, thanks partly to the increasing demand for legal services by informed clients.

“It’s a common observation that over the past decades, Shanghai clients have matured. Some have already got international standard in-house counsel,” says Lin.

But the major drive to expand the box lies in the growth of the entire economy - the FTZ’s likely impact being a case in point.

“I am optimistic that the Shanghai FTZ is a necessary step for China to open up and integrate into the world. It is also a meaningful setup for the country’s development in the next decade or more,” says Guan.

“A successful FTZ would also set an example to improve China’ legislation and regulation, and encourage Chinese lawyers to cooperate, compete, and win on the world stage.”

<标题> 上海自由贸易区：开放的魔箱

<提要>

期待已久的自由贸易区即将出炉，加上金融业和其他产业的新改革方案，预计将强化上海法律服务市场的开放和国际化。在此竞争异常激烈的环境中，上海的律师事务所正付出更甚于以往的努力来强化自己的地位。

<小标题> 自由贸易区

中国大陆有史以来第一个自由贸易区（自贸区）已万事俱备，预计将于9月29日在上海启幕。各界热切地期待着即将发布的自贸区政策。坊间普遍预计改革将集中在金融业开放上。

尽管细节尚未公布，中国的政策规划者已经将上海自贸区定位为更大经济改革的试验田，包括人民币的可自由兑换以及利率的进一步放开。国务院还提及有关外商直接投资和税收的新政策。

市场以巨大的乐观欢迎这一消息。中央政府批准自贸区方案后，相关股票价格大幅上扬。实际上，中国互联网电视运营商百视通很快宣布了与微软公司之间的合资计划，合资企业将在自贸区内运营。

律师们也非常期待这一自贸区试点。“机遇和挑战并存。”国浩律师事务所上海分所管理合伙人管建军表示。他说，根据目前的信息，金融、公司、贸易和航运等四大领域将肯定会受益于自贸区的启动。

其中，金融改革一直是重点。允许设立外资银行、民营银行和合资银行以及融资租赁公司等金融机构；允许开展部分离岸金融业务；以及允许资本项目可自由兑换等都是讨论得最多的可能领域。

“所有这些新业务都需要法律服务。例如，设立新的银行将肯定让律师忙得不可开交。”管律师说。“自贸区内的规则将与自贸区外截然不同……许多限制将被取消，经济活动也将以当事人之间的合同和协议为准，而不是政府的法规和指令。”

截至目前，中国政府一直用“正面清单”制度来管理投资和其他经济活动。在该制度下，一个项目除非被列入“允许”名单，否则默认“被禁止”。但自贸区的一项关键改革就是“正面清单”将被“负面清单”取代，政府将只规定部分“禁止”事项，所有其他事项都将被视为合法。

观察人士认为，这一变化意味着政府试图将部分权力下放给市场，以提高效率和鼓励创新。

 “过去，甚至没有必要聘请律师，因为政府对许多类型的交易都有明确的指引。但在自贸区里，如果当事人希望他们的合同没有瑕疵，律师将不可或缺。”管律师说。

公司法实践也将大不相同。政府的登记和审批手续将会简化，以与国际标准接轨，这意味着将不再需要某些法律服务。但另一方面，尽职调查和其他合法性调查将更加重要。

“无论通过行政手段还是法律手段，市场始终需要被监管。而我们律师代表着法律。”管律师说。

管律师补充说，随着贸易增长带动物流和跨境结算，航运、海事和国际贸易等领域的律师将会迎来遍地机会。“专业律师将会非常吃香，以帮助保护当事人的权益。”

<小标题>挑战接踵而来

而另一面，显著扩大的自由空间、过去各种严格限制的取消和一些监管内容的消失将带来巨大的不确定性和风险。管律师称，尽管为客户解决每个可能的风险是律师的职责，但由于没有明确的界限，这些风险甚至可能被转嫁到律师头上。因此，律师必须在每项新的法规和政策出台后尽快为客户制定可行的相应解决方案。

自贸区启动随之将带来的另一个挑战是引入一个更加国际化的经济和法律环境。一些中国律师将不得不快速学习如何遵守新的游戏规则 — 他们对此可能还不太熟悉 — 因为部分业务将会面临前所未有的升级。

例如，随着愈发复杂的跨司法管辖区的投资结构、衍生工具和其他创造性的金融产品被更多地使用，金融交易将变成一个难度更高的执业领域。

“它要求律师从细节和整体两方面透彻理解交易。综合全面的知识成为律师的必备条件。它直接挑战律师的专业能力。”管律师说。

实际上，上海可能一直拥有中国国际化程度最高的经济，至今为止上海律师也以具备领先全国的能力而自豪。

“上海的政府行政标准和法治水平在中国都是‘领头羊’，律师的执业水准也非常接近国际同行。”中伦文德律师事务所上海分所的林威律师表示。

甚至在形式上，上海法律界似乎也在中国显得与众不同。上海市律师协会此前的一份提案敦促所有出庭律师穿着律师袍，而在中国其他地区，大部分律师仍然不愿穿戴这一被保守的中国人认为太“洋化”的装束。协会还效仿西方法律界，为初级律师主持宣誓仪式。

部分人士表示，在自贸区外，上海律师已经在和国际法律巨头的赛跑中取得了很强的竞争力。

“在增长趋势、员工数量、收入、人员和利润增速等方面，上海的中资所一直领先于国际所。外国律所的发展速度相对较慢，甚至为负增长。”上海通力律师事务所管理合伙人俞卫锋表示。

“一个原因是中资所正变得更加强大。另一个原因是近几年来，除中国对外并购外，资本市场等大部分其他跨境业务都还不是最佳状态。”

看起来，部分外资所的上海办事处相比五年前正在规模上萎缩，目前只剩少数几名律师驻守。今年7月，专注于能源行业的文森•艾尔斯律师事务所在上海经营8年后，宣布关闭其上海代表处。

“这是个竞争激烈的市场，外资所想要扩张并非易事。但我们拥有自己的优势领域或专长，即以行业为重点，并专注中国企业的“走出去”业务。”美国科文顿•柏灵律师事务所上海合伙人李唯实称。

但自贸区在此当口开幕，又可能会改变这一局面。随着自贸区的启动，外资所将不仅能够保持在中国对外并购等领域的优势，还会显著受益于更友好的政策。

“外资所更容易适应开放自由的市场。”管律师说。“中国律师对此有一定的知识和经验，但肯定不如外资所。”
在目前已发布的负面清单中，投资法律咨询仍受限制，外国律师事务所只能设立代表处。然而，尽管尚未得到证实，但据称政府正在考虑此方面的部分灵活机制。除竞争跨境交易外，外资所还可以通过与中资所设立合资律所来执业，管律师表示。

“这可能使中资所和外资所相互受益。”管律师说。“外资所能在中国境内获得更大的空间，而我们中资所则可以学习它们的经验并在全球范围内展开合作。”

<小标题>箱子里的球

上海一直欢迎来自国内外的竞争。与北京和深圳等其他大城市不同，上海对来自其他省份的律师没有准入限制。

上海市律师协会的统计数据显示，从2009到2012年期间，上海大约有15,000名律师在1,150家律师事务所工作，处理超过520,000宗案件，营收223亿元人民币（36.3亿美元）。

尽管上海律师事务所的总量基本保持不变，但竞争的性质已发生了剧变。

“市场空间正变得越来越小。”俞律师称。

他将法律市场比作一个装满球的箱子。少数大球占据了大部分的空间，但大球之间仍然空隙。

“要继续填充，则需要较小的球，更小的球，越来越小的球，最后必须用沙。”他说。

他的理论说明两极分化的趋势越来越强。所谓的20-80现象在上海非常明显，即排名前20%的律所占据80%的市场份额。

“在上海，几乎是10比90。”俞律师说。“我的结论是以争夺市场份额为目的的战略扩张仍然有用，但边际效应将会逐渐下降。”

这也意味着律所之间的竞争已经升级到了新的高度。因此，专业化、实践业务能力和互补性合作最为重要。
中伦文德律师事务所合伙人兼上海分所负责人林威表示，上海律师在前两个领域做得相当不错。上海律师更为细心，与宏观感觉强的北京同事相比，细节执行力则更为更出色。

他们还拥有独特的诉讼技能，诉讼被认为能够全面展现律师基本技巧和能力。上海律师则有自己独有的一套有效方式与法官沟通。

“但许多上海律所往往各自为阵，缺乏资源共享和优化。”林律师说。

俞律师补充道，另一个发展方式是把整个箱子做大，即扩大整个市场。实际上，近年来上海法律产业的增长一直超过GDP增速。这部分得益于信息充分的客户对法律服务的需求上升。

“普遍认为，过去几十年来，上海的客户已经成熟。部分客户已经拥有了国际水准的内部法律顾问。”林律师说。

但推动箱子扩大的主要动力来自整个经济的增长 — 自贸区可能带来的影响正是一个很好的例子。

“我乐观地认为，上海自贸区是中国对外开放并融入世界的必要步骤。它也对未来十多年国家的发展有重要意义。”管律师说。

“成功的自贸区也将为完善中国的法律法规体系树立典范，鼓励中国律师在世界舞台上合作、竞争并取胜。”

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