Law firms in the Yangtze River Delta region are prospering in the flourishing economic development and embracing new growth opportunities from national policies that encourage innovative industries. 

Accounting for more than 40 percent of China’s economy, the Yangtze River region has long been the most important economic engine in China. 

“Shanghai has been the financial centre of our country for centuries and the role has been strengthened recently ever since the launch of the free-trade zone. We have seen more money, from other parts of the country as well as overseas, flowing into the region, Shanghai in particular; thus, more legal services are needed from us to smooth those transactions,” says Zou Jun, a partner at Guantao Law firm. 

The Shanghai free-trade zone was officially launched in 2013 in a move to ease the environment for foreign investment and further open the country’s capital account. By June, more than 37,000 companies, including 30,000 local enterprises as well as 6,700 foreign companies, were established in the zone. During the past three years, the pilot economic zone has seen the launch of more than 1,100 cross-border investment projects, involving a US$42.4 billion injection from Chinese companies. 

In November, the Shanghai city government announced that it would issue no more than 3 billion yuan ($442 million) of municipal bonds in the free-trade zone, making it the first test bed for yuan-denominated bond trading targeting overseas investors.

Besides Shanghai, the provinces of Jiangsu and Zhejiang are two key drivers of the delta’s growth. Suzhou, a major manufacturing and industrial base in Jiangsu Province, clocked a GDP of 1.45 trillion yuan last year. The city, which is only a two-hour drive away from Shanghai, is currently home to at least 14 national-level economic development zones, such as the Suzhou Industrial Park and Taicang Port Economic and Technology Development Zone. 

“With favouring conditions, Suzhou has always been a hot spot for foreign investors. We see many world-leading enterprises set up their China headquarters in the city. Helping MNCs (multinational corporations) get familiar with the local legal framework in order to better blend into the business environment has always been a primary task for our Suzhou office,” says Zou. “For example, foreign companies emphasize labour regulations a lot, and some are not highlighted in our corporate culture. This is where legal professionals like us can help smooth the procedure and draft related contracts and documents to avoid disputes in the future.” 

In 2014, Suzhou utilized foreign capital totalling 8.12 billion yuan and now more than 150 Fortune 500 companies have invested in more than 400 projects in the city. 

DYNAMIC PRIVATE SECTOR 

Zhejiang Province, on the other hand, is very different from Jiangsu Province. The dynamic private sector is a phenomenal scene in the country. The total number of private enterprises reached 1.29 million at the end of 2015, and they accounted for about 41.6 percent of the province’s total gross industrial output in 2015. 

“There are a lot of private entrepreneurs in Zhejiang who have very sharp eyes on business and investment. They are very sensitive to changes in government policies and can always ride the wave,” says Zou. “Now they have shown strong willingness to go overseas in the midst of the whole Belt and Road Initiative, purchasing both upstream suppliers as well as downstream companies in foreign markets to grasp shares. They approach large law firms for Guantao to deal with legal issues of these transactions, particularly in those jurisdictions that they are not familiar with.” 

“Unlike state-owned companies, which usually have a committee for investment projects or larger conglomerates which now have a department such as corporate treasury, private companies in China – a majority of which are SMEs – do not have such a unit. As we observed, many local entrepreneurs in the region now have accumulated certain funds; however, they lack a sustainable scheme to optimize resources and better structure their investments. This is another area that our offices in the region, the Hangzhou office in particular, are targeting.” 

Economic development determines legal development to a large extent. Law firms in the region, including national-level law companies and foreign law firms, are much bigger in scale; they have more resources, more experience, and more advanced management strategies. 

“In Hangzhou, we’ve seen 800 to 1,000 new lawyers joining the industry and more new law offices launching here while existing ones are expanding. This is due to the leap of business driven by rapid economic growth here,” says Wang Lixin, partner at T&C Law Firm. 

Hangzhou-based T&C Law Firm, one of the rapidly growing local legal service providers, marked its 30th anniversary this year. Riding the wind of China’s economic reform and opening market, the firm has achieved phenomenal growth in the past three decades, becoming a well-known leading law firm in China, especially in the Yangtze River Delta. In 2002, the firm saw its team of partners expand from only four to about 50. By 2007, the firm had more than 100 people, and in 2013, the number doubled to more than 200. 

In 2003, the firm’s earnings exceeded 20 million yuan, and in 2005, they surpassed 50 million yuan, and topped 100 million in 2008 yuan. Last year, the firm recorded revenue of more than 300 million yuan. 

Not only local firms like T&C are snowballing; more and more law firms which used to be headquartered in Beijing and Guangzhou are making their footprints in the Yangtze River Delta region. 

“Demand for larger law firms in the Yangtze River Delta region is large because the number of complicated projects, particularly cross-border M&As, are increasing. And only experienced teams with veteran legal professionals in a wide range of expertise can handle such projects,” says Zou. Beijing-headquartered Guantao came to Shanghai in 2001 to expand into the region. 

“Even though Shanghai is in a great location, not far from both Jiangsu Province and Zhejiang Province, we felt that it is difficult to cope with various kind of demands in the whole region with only one office. So to strengthen our presence here, we opened our Hangzhou branch in 2014 and in the following year, the Suzhou office kicked off as well,” Zou adds. 

HIGHER EXPECTATION 

Looking forward, the central government has a higher expectation for cities in the region. In June, it released a blueprint for developing the Yangtze River Delta cities into a “globally influential” cluster of metropolises. 

The blueprint includes Shanghai, nine cities from Jiangsu (Nanjing, Wuxi, Changzhou, Suzhou, Nantong, Yancheng, Yangzhou, Zhenjiang and Taizhou), eight cities from Zhejiang, (Hangzhou, Ningbo, Jiaxing, Huzhou, Shaoxing, Jinhua, Zhoushan and Taizhou) and eight cities in Anhui (Hefei, Wuhu, Maanshan, Tongling, Anqing, Chuzhou, Chizhou and Xuancheng). 

By 2020, the group is forecast to contribute 21 percent of GDP and be home to 11.8 percent of the population.

While law firms, local or expanding from other regions or overseas, are riding the robust economic development and continue to blossom in the Yangtze River Delta region, they face tough competition ahead. 

“There is an increasing demand on infrastructure projects in the region due to fast development in every city as well as new policies for the integration of the whole region,” says Wang with T&C. 

Better transport will connect Shanghai and its neighbouring cities, making coordinated development within the region much easier, which has been highlighted in the new blueprint rolled out in June. 

“Public–private partnership (PPP) is one format that has been popular recently; however, there are a lot of legal issues that need to be paid attention to for both the government side as well as private parties, as the partnership is still at an early stage in our country and a lot of regulations are not that clear at present,” says Wang. “This is an area where our lawyers should gain more knowledge and get ready to help clients walk through.” 

Innovative start-ups, which have spiked due to encouragement by the central government, is another new sector that has huge potential for law firms in the Yangtze River Delta region. 

“A majority of our clients are well-developed companies, including those listed ones. We are doing quite well and are a market leader; yet, we notice that the market has reached a certain stage where it is not easy to further enlarge your shares. Meanwhile, emerging start-ups, particularly IT start-ups, are creating a new niche for us,” says Zou. 

Hangzhou is home to Jack Ma’s Alibaba Group, the country’s largest private enterprise. It fosters a friendly environment for IT talent, providing the city with an edge in technology start-ups. 

“Capital structure, intellectual property, etc., are all issues these start-ups need to look for through legal consultancy. After such early-stage issues for these young companies, law firms can be involved in all the following phases: B-round and C-round financing, getting listed on the National Equities Exchange and Quotations and China’s over-the-counter stock market, and further M&A or even issuing IPO in Shanghai or overseas stock exchanges. The earlier we work with such start-ups, the more trust is built up, and the more opportunities we see in further cooperation,” says Zou. “We are paying special attention to this sector.”