The legal market in the Yangtze River Delta (YRD) region has undergone significant change in the past year. While last year many MNCs ceased investment interests, China’s domestic companies also saw opportunities to venture forward. 2009 also witnessed the birth of many new firms and branch offices in the region, as it remains crucial to the development of many firms.
Firms in the leading cities are recognising the need to make drastic changes to stay ahead of the game. Some have ventured onto foreign ground through undertaking new legal practice areas. Others are working on their internal structures to gear up their professional standards. With the re-entrance of international conglomerates and the continued international aspirations of many domestic companies, the YRD region is beginning to offer up a new class of wealth for lawyers and law firms.
Zhejiang
ZHEJIANG LEGAL MARKET - HIGHLIGHTS:
• Hangzhou’s legal community is forecasting the emergence of demand over a broader spectrum and in higher-end practice areas, including capital markets, insurance and real estate
• Zhejiang launched the region’s first legal services centre in Hangzhou in 2009, boosting confidence in the market outlook for 2010
• More domestic firms from first-tier cities are entering the Hangzhou market
• Ningbo firms are also diversifying into other areas of practice including insurance and capital markets
• More Ningbo companies are venturing overseas after the financial slowdown, foreshadowing a healthy increase in domestic legal matters
• Ningbo port is planning a US$1.0bn dual-listing in Shanghai later this year
Hangzhou
Hangzhou firms are gearing up for the emergence of new practice areas in 2010. More specifically, lawyers foresee the rise of legal demand in niche sectors and are prepping their teams beyond the traditional work areas. Brighteous, with 19 partners focusing on litigation matters, is one of those firms. It saw revenue growth of 20% over 2009 and has flourished with mandates from over 200 long-term clients, including Youngor, Guangsha Construction and Zhejiang Daily.
But the firm has greater ambitions. “The GFC brought along an increase in litigation matters, due to disputes between international and domestic companies. In order to move forward we need to look at what 2010 has to offer, and I think it’s time to take on new practice areas,” said the firm’s partner Cui Haiyan.
But the firm has greater ambitions. “The GFC brought along an increase in litigation matters, due to disputes between international and domestic companies. In order to move forward we need to look at what 2010 has to offer, and I think it’s time to take on new practice areas,” said the firm’s partner Cui Haiyan.
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“We want to balance the work ratio of our non-litigation work to that of our litigation matters” Cui Haiyan, Brighteous |
She left Xingyun Law Firm in 2006 to set up Brighteous, having identified a gap in the market for high-end specialist legal services. “We want to balance the work ratio of our non-litigation work to that of our litigation matters. At this stage, we are looking to extend (but not limited to) PE and capital markets,” added Cui.
More firms are also recognising Hangzhou’s market potential. The city saw five new law firms flock to the legal community, including DeHeng Law Offices which hired AllBright lawyer Wu Lianming to head up its office. The firm focuses on three practice areas – capital markets, real estate and M&A – and currently houses five partners and 10 lawyers. “Hangzhou offers great business opportunities for DeHeng Law Offices, especially with the rising demand for capital markets legal services and the growing enterprise base,” Wu said.
The hopes held for Hangzhou’s business horizon legitimised when it launched the region’s first legal services centre in Xiaoshan, the most economically developed administrative district of Hangzhou. Founded by the Hangzhou Bureau of Justice in August last year, the centre is intended to facilitate the provision of legal services to businesses and provide reliable information so they can choose the appropriate legal services provider.
The centre utilises more than 120 registered lawyers from 27 firms, including Rosen, Havins & Gu from the US, Woo Kwan Lee & Lo and Robertsons from Hong Kong. The other firms are leading local firms, such as Zhong Lun, Grandall and JT&N. With a formalised legal service directive, the hub, home to many high-tech and innovative companies like Alibaba Group and Wahaha Group, promises those lawyers practicing in the region an almost certain ability to expand their firms’ business.
For example, L&H Law Firm’s success in 2009 reflects this opportunity. The firm is one of Hangzhou’s leaders, serving mostly medium-to-large companies. It has enjoyed a 30% increase in mandates –albeit having taken a blow to its debt restructuring practice. “Post GFC, our clients are placing more importance on being able to withstand risks, they also have stricter requests and higher demand for quality legal services,” said Zheng Jindu, a partner at the firm.
“This mindset brings about more work in due diligence since our clients (Fortune 500 companies) require stringent regulations,” L&H is focusing on capital markets, real estate, and the insurance sectors this year. “In 2010, we want to push our deal value up to US$90m, from US$80m in the previous year. We also hope to attract more business from SOEs,” said Zheng.
Ningbo
Ningbo has one of the largest ports in China and offers great opportunities for many shipping firms in the region. Grandall Legal Group affirmed Ningbo’s vitality when the firm opened its tenth office last year in the important port city. Opening in Ningbo gives Grandall three offices in the YRD region, with Shanghai and Hangzhou being the other two. Managed by Li Daofeng, who served as a judge in Ningbo’s Maritime Court, the Ningbo office was established to provide advice regarding shipping, property and insurance matters. The firm also offers general corporate and international trade legal support.
However, Ningbo companies have also been venturing into regions outside of Zhejiang. “This globalising trend continues to be very promising. Given that Ningbo has the second- largest dock in China, the region brings many international investors and these major companies demand a very niche area of legal service,” said Li.
Grandall’s Ningbo office has surpassed the Shanghai office for networking and is building its maritime practice over the next three years. It will also be responsible for allocating resources for offices in the YRD region and building up the development, training and internal structure for its YRD counterparts.
In Ningbo, the demand for legal services has also increased. “The GFC caused a lot of disputes between and within businesses. International companies in Ningbo and its domestic associates have all turned to legal advisors to resolve their issues,” Li added.
With top logistics and shipping companies such as Maersk, MSC, and Lloyd Triestino operating in the region, the success of Ningbo’s shipping sector has propelled the city beyond its own expectations. For example, the American Bureau of Shipping launched a Ningbo office in April last year; and an increase in the entry of internationally recognised companies has helped the city’s shipbuilding sector expand in an overseas market.
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“In the past no one was really interested in listing criteria, but you will now see companies taking the initiative to ask questions like what are the differences between listing in Ningbo and Hong Kong? [Listing] has matured significantly and has now become a springboard to success for Ningbo firms” Li Daofeng, Grandall Legal Group |
Apart from shipping and maritime business, Grandall also recently launched its capital markets practice and beefed up its insurance sector. “Capital markets is [a sector] doing well above our expectations. We only recently launched [the] sector and [we] are already dealing with current IPOs and listings. In the past no one was really interested in listing criteria, but you will now see companies taking the initiative to ask questions like what are the differences between listing in Ningbo and Hong Kong?” said Li.
“It has matured significantly and has now become a springboard to success for Ningbo firms. This is good news also because very often, apart from listing, these clients also require other legal advice like restructuring.”
In the insurance sector, the firm gained clients like Chinese insurance conglomerates Pingan and Taiping last year. Grandall is confident about its prospects and plans to recruit 20 lawyers during this year to boost its branch resources. The firm also wants to expand into a further four practice areas later this year.
Jiangsu
JIANGSU LEGAL MARKET HIGHLIGHTS
• Nanjing companies reportedly have increased confidence in domestic firms’ competence for providing higher-end legal services
• Nanjing firms are gearing up to boost their practices handling niche practice areas; real estate and IP are among the other practice areas to look out for in Suzhou
• Capital markets has had the most significant growth over the past 24 months
• Local firms are increasingly building relationships with firms from first-tier cities which have a presence in Suzhou
Nanjing
NANJING DEAL HIGHLIGHTS
• ARA Asia Dragon Fund acquired Nanjing International Finance Centre for US$234m. ARA was represented by Baker & McKenzie and the sellers were advised by Lovells
• Nanjing Iron & Steel Union issued US$36m worth of corporate bonds and was advised by JC Master
NANJING LISTED COMPANIES - BREAKDOWN
At the end of 2008 there were a total of 48 listed companies based in Nanjing, consisting of:
• 34 companies listed in China ‘A’ share market
• 1 company listed in China ‘B’ share market
• 8 companies listed in Hong Kong
• 2 companies listed in the US
• 2 companies listed in Singapore
• 1 company listed in London
Legal work is flooding into Nanjing from all directions as international companies reignite their interest in the region. Domestic companies have also now mustered the courage to venture forward, with lawyers in Nanjing optimistic about the 2010 legal market in the region. They are eagerly waiting for an outburst in legal demand and many have already launched expansion plans and strategised their objectives, in accordance to their predictions and deal flows.
In the past when international companies were looking to invest into Nanjing, they’d most likely approach firms in Beijing, Shanghai or even Hong Kong because it seemed that only first-tier cities were able to handle higher-end legal matters. But as Nanjing firms continue to evolve, international enterprises are learning to entrust their concerns to local firms.
2009 marked a shift in Nanjing in demand, towards high-end and niche legal services. Firms in the region are quickly beginning to appreciate the need to facilitate work in the top end. For example, seven partners left FD Yongheng to pursue their ambitions in the niche sectors, by setting up Yongheng Partners in May last year.
The firm currently houses 12 partners and 60 lawyers and has enjoyed mandates from major companies like the Bank of China (Jiangsu branch) and the Agricultural Bank of China. Yongsheng Partners has structured teams of lawyers for its predicted sectors of importance – outbound investment, debt markets, finance, capital markets and insurance.
Jing Zhong, who is a partner at the firm, explains these predictions. “The capital markets moratorium was the biggest challenge for Nanjing firms in the past 12 months, but while that was the case, the finance sector was burgeoning with bank loan transactions. And while international PE firms went silent in that time, domestic PE firms saw their opportunity and flourished.
Jing Zhong, who is a partner at the firm, explains these predictions. “The capital markets moratorium was the biggest challenge for Nanjing firms in the past 12 months, but while that was the case, the finance sector was burgeoning with bank loan transactions. And while international PE firms went silent in that time, domestic PE firms saw their opportunity and flourished. Today these sectors continue to hold great potential as there are many more small- and medium-sized enterprises which have survived the GFC, now looking to get listed and raise funds.”
Few would argue on the importance of these sectors, especially in the debt markets. “Debt markets have done very well over the past year as domestic companies venture overseas, while their international competitors are being beaten down by the GFC. These companies turn to bank loans because they need the funds to move forward,” said Henry Tang, a partner at Co-far Law Firm.
“Debt markets have done very well over the past year as domestic companies venture overseas, while their international competitors have been beaten down by the GFC. These companies turn to bank loans because they need the funds to move forward” Henry Tang, Jiangsu Co-far Law Firm
“Nanjing lawyers have also scored significant work regarding regulatory checks and business restructuring during this time, as small- to medium-sized clients were struggling to hold their ground. This will continue in 2010 because these companies now appreciate the importance of compliance,” Tang added.
While the focus is now on boosting capabilities to serve niche areas of work, Nanjing firms have not lost sight of their future. Both Co-far Law Firm and Yongheng Partners have pledged strategic loyalty to the YRD region, as their expansion plans at this stage will not go beyond these regional borders.
Suzhou
| SUZHOU DEAL HIGHLIGHTS • Poly Development Holdings acquired both Zhengzhou Dafang Co and Suzhou Dafang Vehicle Co for US$263m |
According to ZhuHui Law Firm, legal services demand in Suzhou is accelerating alongside other cities in the YRD region, especially in the capital markets sector where demand flew through the roof over the past 12 months.
Aside from capital markets, Suzhou identifies slightly different important sector areas to that of the other cities. Real estate and Taiwanese investments are on the list. “The real estate sector is set to prosper to an extent that it might be on par with the values in Shanghai and Beijing. The outbound Taiwanese investment, I foresee, will also do well past Shenzhen and Guangzhou,” said Zhu Wei, a partner at ZhuHui.
ZhuHui has plans to launch other offices to link its practices across Suzhou, Wuxi and Changzhou. Other notable sectors that performed well during the financial slowdown were the firm’s bankruptcy, debt market and business restructuring practices. The firm advised on Ke Hong’s bankruptcy, which was one of the biggest bankruptcy cases in China.
Another prominent position Suzhou adopted in 2009 was its position on fighting the country’s piracy problem. In October last year, a district court in Suzhou sent four men to prison and ordered them to pay RMB1m in fines for infringing Microsoft’s copyright. The decision was widely regarded as a milestone in China’s efforts to crack down on software piracy.
It will prompt the legal community to re-think the possibilities that IP law can offer them. “Suzhou has a very concentrated hub of companies and its one of the top-three business regions in China, so legal services demand will undoubtedly continue to rise,” said Zhu.
Recognising the increasing importance of Suzhou connecting to the YRD region, in January 2008 King & Wood launched an office there with three partners and six supporting staff. The Suzhou office focuses on the areas of restructuring and private placements, securities, M&A, FDI, litigation, arbitration and labour laws. The opening, alongside its Shanghai and Hangzhou (launched in 2006) offices, affirms the potential of the YRD region.
Since the establishment of its Suzhou office, King & Wood has formed friendly working relationships with local firms like New Talent. The firm’s three offices in the region share resources and provide support to each other when needed.And the communication and cooperation between firms and offices is bound to be more extensive if the predicted 2010 business outlook eventuates. ALB