“Shanghai is the financial capital of China, and Shenzhen is the capital of entrepreneurship." So says Peter Fuhrman, chairman of boutique investment bank China First Capital, giving a good reason why his firm is based in Shenzhen instead of Shanghai. "Shenzhen is an original entrepreneurial success story for China, and remains the most open and flexible place in the country. It also has an established market economy, so it's a good place for us to be," says Fuhrman, whose bank focuses on serving China's privately-owned small and medium enterprises (SMEs). 

Built by entrepreneurs, Shenzhen continues to produce multinational corporations like Huawei, ZTE and Ping An, and national industrial leaders such as China Merchant Bank, Tencent and Vanke. The boom town's vibrant market and dynamic SME sector continues to attract more investors, and private equity funds too are currently pouring in.

The city's entrepreneurial spirit has also been witnessed in its law firms. RayYin & Partners' founder and managing partner Zhou Yi is an entrepreneur himself. Previously a lawyer with Shenzhen firm Jingtian, Zhou returned to the city and founded RayYin in 2005 after having obtained an LLM from the University of London.

A few years later, the firm extended its national and international reach by merging with a Beijing firm and joining the international independent network of law firms, Lawyers Associated Worldwide, as the first PRC member. In 2008, RayYin set up its own IP agency to meet the increasing demand for IP services in Shenzhen. This year, the firm established a Shanghai branch to tap the opportunities in the Yangtze River Delta Region.

In May, Zhou became a registered foreign lawyer with Hong Kong firm Christine M Koo & Ip to better advise clients on Hong Kong-related matters.The firm primarily focuses on counselling clients and investors from these industries in business, transactional and intellectual property matters.

"Shenzhen has been transformed from a manufacturing hub to a high-tech innovation centre. The shift has led a number of other industries such as finance, IT, real estate and funds to flourish," Zhou says. "Opportunities arising out of these important industries lay the foundation of growth and success for Shenzhen law firms."

On the rise
The growth of Shenzhen's legal industry is best illustrated by the industry's revenue figures in the past five years. In 2004, revenues of Shenzhen firms totaled RMB1.1bn and by 2008 this figure had doubled to RMB2.2bn. Ideally placed in Shenzhen, Guanghe law firm took the top spot in ALB China's 2008 Fast Growing Firms ranking, with an impressive growth of 98%.

However, the opportunities emerging in Shenzhen are not exclusive to local law firms. On the contrary, local firms are facing increasing competition from Beijing and Shanghai rivals - particularly in the high-end segment - work on major public offerings and large M&A transactions, for example.

A recent transaction involving two Shenzhen-based companies shows Beijing and Shanghai firms' strength in the market. In Ping An Insurance Group's US$3.2bn acquisition of Shenzhen Development Bank, three non-local PRC firms were involved. Beijing's DeHeng Law Offices worked alongside DLA Piper advising Ping An, Haiwen acted for Shenzhen, and Shanghai's Fangda and Freshfields represented the seller, TPG's Newbridge capital.

 The vast pool of potential clients and its strategic location has increasingly driven firms to set up shop. Beijing firms Dacheng, Jingtian & Gongcheng, Zhongyin and Zhongtian are some of the newcomers, while US-based JD Global is soon to open an office in Shenzhen. "The demand for legal services in Shenzhen is burgeoning, but the major challenge for local firms lies in competing against big brands from Beijing and Shanghai that are well-established and have proven track records in working on major deals," says Lai Weiwen, the managing partner of China Commercial Law, with more than 142 lawyers and 41 partners one of Shenzhen's largest firms.

Over the past year, the impact of the financial crisis has intensified competition. Some local firms observe that large Beijing and Shanghai firms have had to lower their charge-out rates, sometimes even lower than leading local firms, to win more instructions from the mid and small-cap market and keep their business afloat.

"To win more market share, local firms really need to integrate client resources firm-wide and seek business opportunities among existing clients across all principles and practices," Lai says. "In addition, they have to leverage their local knowledge to come up with creative legal solutions and innovative services." Competition aside, China Commercial's projected 2009 revenue will post a 20%-30% growth over the previous year - not a bad result given current circumstances.

For Shenzhen Bar Association's president Li Chun, competition is part of what makes a market thrive. "Currently, more than 60% of the industry's revenue is generated by 20% of the firms. The top-notch firms will continue to dominate the market, a trend that I don't expect to change any time soon," Li says. "It's a competition pattern that resembles that of other more developed markets, such as Beijing, Shanghai and Hong Kong."

Li is also executive partner of Grandall Legal Group, who founded Grandall's Shenzhen legacy firm TangRen Law Firm. He now manages the group's Shenzhen and Hong Kong offices and expects the Shenzhen office to achieve 20-25% revenue growth by the end of 2009.

Major active legal advisors in Shenzhen ۸
Firm	Partners	Lawyers (incl. partners)	Managing partner	Year established
China Commercial 华商	38	150	Lai Weiwen 赖伟文	1993
Commerce & Finance 通商	2	8	Lu Xiaoguang 陆晓光	1998
DeHeng Law Offices 德恒	5	84	Yu Xiufeng 于秀峰	2002
Grandall Shenzhen 国浩（深圳）	16	49	Zhang Jingqian 张敬前	1994
Guanghe 广和	87	266	Tong Xin 童新	1995
Jingtian & Gongcheng 竞天公诚	6	20	Xu Sanqiao 徐三桥	2007
Jingtian 经天	12	34	Chen Xueming 陈学明	1994
Jun He 君合	5	19	Yao Wenping 姚文平	1999
King & Wood 金杜	15	73	Wang Rongkang 王荣康	1998
RayYin 瑞英	2	8	Zhou Yi 周翼	2005
SD Partners 晟典	42	83	Yu Junfu 余俊福	2002
Shu Jin 信达	18	51	Yin Gonggu 尹公辉	1993
Sincere Partners 星辰	22	84	Guo Xingya 郭星亚	1993
Zhong Lun 中伦	20	75	Lai Jihong 赖继红	2002
Zhongying 中银	3	27	Peng Zhangjian 彭章键	2009
۸ Note: Firms are listed in alphabetical order and this table does not purport to be exhaustive Source: partners and lawyer numbers were according to the website of the Shenzhen Lawyers Association, as at 30 September 2009

Shenzhen’s legal industry development
Year	Revenue (RMBbn)	Number of lawyers
2008	2.20	5,100
2007	2.19	4,600
2006	1.61	4,100
2005	1.37	3,500
2004	1.08	3,100

Beijing, Shanghai and Guangzhou legal industry – 2008
City	Revenue (RMBbn)	Number of lawyers
Beijing	8.45	18,600
Shanghai	4.58	9,600
Guangzhou	1.68	5,200

 NEXT: Vision 2020

Vision 2020
Shenzhen's legal market is regarded as in the top four in China, after Beijing, Shanghai and Guangzhou. It's arguable whether Guangzhou's legal development is ahead of Shenzhen, but obvious that Shenzhen is lagging far behind Shanghai. At the end of 2008, Shanghai had 9,600 lawyers who generated RMB4.6bn revenue in that year; by those measures Shanghai's legal industry is twice the size of Shenzhen's.

Nevertheless, an entrepreneurial spirit looks set to lead Shenzhen and its legal profession to greater success, as the city sets a vision for its long-term development. Among the measures and policies included in the city's blueprint for the period up to 2020, the vision of developing the Hong Kong-Shenzhen metropolis is of particular interest.

Under the plan, the Hong Kong-Shenzhen close cooperation agreement will cover such matters as financial services, hi-tech and high-end R&D, transport, environmental matters and ecology. The Shenzhen-Hong Kong metropolis could reportedly be the third largest in the world in GDP terms by 2020, behind New York and Tokyo.

Sharing the same vision of what the city strives to become, the Shenzhen Bar has set out its own roadmap for the legal profession, both to facilitate and to benefit from the plan's implementation. Developing closer ties between the legal professions in the two cities has been one of the first steps adopted by the bar.

"The Hong Kong Bar and Shenzhen Bar have been meeting on a monthly basis and some arrangements have been achieved, including plans to provide training to lawyers from both sides, seeking different ways for Hong Kong and Shenzhen firms' cooperation and promote cross-border services," Li says. "Closer cooperation is beneficial for the legal markets in both cities. It will also prepare both sides' legal professions to participate in the increasing amount of cross-jurisdiction infrastructure projects, such as ports, railways and bridges, as well as project finance transactions."

Shenzhen's 2020 blueprint includes the construction of a 29 kilometre bridge linking Hong Kong, Macau and the Pearl River Delta, the construction of 3,000 kilometres of highways in the region by 2012, and rail expansion of over 1,000 kilometres by 2012 and 2,200 kilometres by 2020. With the expectation that the pan-Pearl River Delta region (PRD) will rise to the fore in the global economy, many law firms have also been forming new strategies.

SD & Partners has recently revealed its plan to set up a national legal group that would encompass local firms in all of the country's important economic centres. The firm has already signed a memorandum of understanding (MOU) with a leading Shanghai firm, taking the first step towards its goal. "The legal market is developing so fast that a firm has to constantly change for the better or it will vanish," says Yu Junfu, the executive partner of SD & Partners.

"Although the short-term outlook is still challenging for Shenzhen firms because of the GFC impact and the increasingly competitive market, we are very positive about the long-term prospects of the local legal industry."

Yu was appointed by the Shenzhen Bar to lead a study on the profession's development planning up to 2020. The study predicts that Shenzhen will have over 30,000 lawyers by then, with client demand and growth expected to soar for IP, finance and securities, and practice areas related to shipping and logistic sectors. China Commercial's Lai Weiwen is as bullish on the long-term prospects as Yu, and aims to lead in the PRD region with the Sino-Global Legal Alliance (SGLA), which China Commercial founded with nine other firms (including Lovells) in 2007.

"Members of the SGLA have decided to seek greater and closer cooperation with each other. We are striving toward operating as single-brand national firm," Lai says. That also explains why China Commercial has no plan to open branches of its own outside Shenzhen.

Growth plans
While the government's 2020 plan paints a grand picture for the future, Shenzhen's newly launched Growth Enterprise Board (GEB) is the immediate focus of all participants, offering Shenzhen firms a tangible opportunity. "We've been particularly optimistic about the GEB. Among all the companies that are eligible for a GEB listing, about 50% are based in Shenzhen," Yu says. "It offers law firms a brand-new pool of potential clients. More importantly, the GEB will enable start-ups and SMEs to raise much-needed capital to grow and eventually create an even stronger innovation economy and greater legal market in Shenzhen."

Already among the leaders in advising on SMEs listings, Grandall's Shenzhen office continues to beef up its capital markets group. The office has added 10 new partners and recruited 30 more legal staff this year. "We expect the capital markets to regain strength and resume rapid growth in the near future, so we need to strengthen our human capital reserve for the anticipated increase in demand, especially after the GEB takes off," says Li.

Although the business has not yet recovered to its previous lofty levels, Li sees this as a great opportunity to recruit legal talent. "Now is a good time for us to recruit the best and brightest lawyers, because we have the right amount of time and a bigger pool of candidates to select from."

The GEB launch will not only boost the demand for corporate legal services, but more importantly, will provide a valuable opportunity for law firms to establish a long-term relationship with the fast-growing startups that may become tomorrow's industry leaders. "If a law firm has acted for the issuer in its IPO on the GEB, it usually will have a better chance to be sought out by the company again for future transactions, such as follow-on financings, M&A or transferring to the main board," says Zhang Jiong, a partner of Shu Jin, winner of the 2009 ALB "Shenzhen Law Firm of the Year" award.

"It takes time and effort for a client to know their legal advisors and place trust in them. The preparation of an IPO provides a great course to establish trust between a client and legal advisor." As the city's future vision crystallises, entrepreneurs in Shenzhen law firms will continue searching for change, responding to and exploiting those opportunities as they arise. ALB