Under Guangdong FTZ and the Greater Bay Area Initiative, South China legal market is gaining momentum and witnessing great changes. 

As early as 2005 the Bay Area 9+2 city clusters were raised in China’s urban system planning for the Pearl River Delta. The Framework Agreement on Guangdong-Hong Kong Co-operation and on Guangdong-Macao Co-operation was signed respectively in 2010 and 2011. Based on this, the Greater Bay Area (GBA) adds the integration of Hong Kong and Macao and, instead of Guangdong government, it is National Development and Reform Commission (NDRC) that drives the GBA. This is a clear message that South China legal market ceases to be a regional issue, but an essential part in China’s strategy. 

Seen in this light, the repositioning is a must. South China is the core part of one of the other three bay areas around the world. With immense growth of about $1 trillion, it is time to reimagine the business opportunities and the future for law firms. 

A lens on Guangzhou against the GBA

“It is a long way for Guangzhou to achieve the gross revenue of 3 billion yuan from 2 billion yuan in legal service market. The past three years saw a galloping growth of 1 billion yuan year-on-year increase to 4.7 billion yuan in 2017. Altogether 10 law firms in Guangzhou reported that they generated more than 100 million yuan in 2017,” says Lu Yuefeng, director and senior partner from Dentons Guangzhou. 

Six local firms make the top-10 list, which is partly due to the intense integration of law firms in the past three years. Many local law firms realized that moderate scale would lead to specialized work and better synergy. This will help to cope with the changes in industrial structure and the increasing competition from the offices of Beijing or Shanghai-based law firms.

Take Allbright Law Offices and Fangda Partners as an example. Allbright started its Guangzhou office at the end of 2017 and achieved more than 30 million yuan in the first half of 2018. Its lawyers’ revenue per capita is 600 thousand yuan, much higher than Guangzhou’s average 390 thousand yuan. Fangda Partners hasn’t opened any domestic offices in the past 15 years until in Guangzhou.  Its two-partners-led team is simultaneously handling three litigations of the first instance in Guangdong High Court and cross-border compliance investigations, etc.

All the interviewed managing partners told ALB that they see great potential in Guangzhou and they love the city too. Setting up offices in Guangzhou is a must. It’s all a matter of timing. These Beijing and Shanghai-based law firms are not only attracted to the business opportunities in GBA—Guangzhou in their eyes has immense benefits to offer:

• Guangzhou boasts an agreeable environment, inclusive culture and rich foundation. 
• Its legal business is inclusive and diverse, ranging from cross-border civil & commercial cases, IP, navigation, SOE restructuring, urban renewal, government fund, criminal defence, real estate, maritime disputes, finance, Internet, TMT, private banking, innovation high-tech, bankruptcy & liquidation, DR, etc. 
• Guangzhou is a big player in the GBA and it is powering its international maritime centre ambitions.
• Guangzhou is also a hub of dispute resolution with the presence of the specialized IP court, Maritime court, and Railway Transportation court. Specialized Internet court will be launched soon. A trend of centralizing the handling of certain types of IP cases is happening. 
• Guangzhou is turning into a global hub for technological innovation and is facilitating the development of emerging industries as the new generation of information technology, artificial intelligence and bio-medicine, as well as new energy and materials. 
• Nansha FTZ is an important addition to the China (Guangdong) FTZ and will focus on international finance, shipping finance and offshore finance. A land of opportunities attracts entrepreneurs from around the world. 

That said, almost all managing partners pointed out three thorny issues against a backdrop of such promising land but these thorny issues, in the meantime, offer us what to improve:

Firstly, unfair prices are rampant. Guangzhou’s markets in ABS suffer unfair prices most. Merely 100 thousand yuan can pitch such high-end businesses. 100 thousand yuan can also cover the annual fees of a governmental legal counsel, plus two issuing of sub-funds worth billions or tens of billions of yuan. 

“Unbelievable. There are no hierarchies in legal services. Regulation is badly needed and pricing guide should be adopted,” observed Wu Xin, senior partner from Allbright Guangzhou.  

“The homogeneous market breeds unfair competition among many local law firms. Many clients would rather turn to non-local firms for handling those complicated or innovative cases. Local firms perhaps are qualified for the handling but clients just couldn’t afford to fail,” says Zhang Ping, managing partner from JunHe Guangzhou.

Secondly, high-end talent is in short supply. In response, Guangzhou Lawyers Association made several attempts. A program called Guangzhou Lawyers 986 Betterment Plan was launched this April. Several talent pools were co-built up with China Lawyers Association to meet the demands from cross-border legal practice, IP, and criminal defence. “Big Lawyers” ranking also started this year. Shenzhen also suffers a critical shortage of high-end talent. Shenzhen Talent Park opened last year amid other talent-friendly policies and projects by Shenzhen government. 

“Shenzhen lags behind Beijing and Shanghai with regards to globalization of legal services. We use this motivation to reach our goals by inviting Hong Kong talents to Mainland China or by sending mainland lawyers to trainings or being seconded in Hong Kong. The GBA presents wealth of opportunities for global talent. Our concern is whether the inflow of talents could really match the gaining momentum of the GBA,” says Gao Feng, managing partner from KWM Shenzhen.  

Thirdly, the trickiest dilemma for many local firms is that their benchmark for fees is much lower than the average. Clients in different regions react to fees differently, but it is unfair to conclude that the below-average problem was due to Guangzhou’s client base or clients’ financial capabilities. In the past decades, Guangzhou has developed many big clients and produced many big and influential deals, most of which were taken care of by the offices of non-local firms or international teams.

“KWM’s Guangzhou office was set up in 2002 among the earliest settlers in Guangzhou. Its three main strategies, key account management, local business as main revenues, talent trainings, spurred the firm’s Guangzhou office into a fast-speed development since 2006. By 2017, it achieved exponential growth tens of times higher than nine years ago. In the meantime, we have developed many big key clients within 10-plus years,” says Wang Lixin, managing partner from KWM Guangzhou.

Dentons entered Guangzhou in 2001 and started its super-highway in 2010. Then it witnessed an annual growth of 20 million yuan and achieved the total revenue of over 100 million yuan in 2015. In the recent years, Dentons top the list with regards to firms’ total revenue in Guangzhou market. “Dentons Guangzhou puts more efforts on specialization and talents training with a stricter threshold. Now we boast of 33 senior partners that realized 6 million yuan revenue per capita, higher than Guangzhou’s average,” says Lu Yuefeng. 

With brand-building, global network, integration and specialization, we witnessed the speedy development of those non-local firms in Guangzhou. The fee problem that worries many local firms perhaps means a much more worrisome reality--no big-scale local law firm was ever born all these years in Guangzhou with a big brand, a global vision that could be qualified to compete with international counterparts. 

Guangzhou saw the revival of China’s legal system and witnessed many local law firms flourishing on this land: Everwin Law Office, Kingpound Law Firm, ETR Law Firm, Wang Jing & Co., Goldsun Law Firm, D&S Law Firm, Guangdong Grand & Holders Law Firm, etc.  They’re focusing on Guangzhou and radiating South China. Four local firms that well epitomizes Guangzhou’s local firms’ developments in the past three decades: 

ETR Law firm was established in 1993. The firm is a “going out” trailblazer among local law firms. Setting up offices in many cities in China and overseas is integral to ETR’s overall development strategy against the background of B&R and the GBA initiative. “We’re driven by clients’ needs to keep expanding our global footprint in a moderate manner. We are also planning new affiliated offices in London and Toronto.” The managing partners from ETR reveal to ALB.

In the same year, Kingpound Law Firm was set up specialising in criminal defence and government/SOE legal counsel. The new management decided to open two more offices in Huadu and Baiyun (in Guangzhou).

“Beijing or Shanghai-based law firms tend to cover 1st-tier cities against their national or global network while we are meeting the needs in those regions in their absence. We don’t compete but complement with each other,” says Li Gang, director of the management committee from Kingpound.

Founded in 1994, Wang Jing & Co. is Guangzhou’s only local law firm that has built its branding with success and has earned much recognition from other counterparts. It has established a great reputation in its traditional maritime legal practices and is now diversifying its business portfolio. Currently, it has accumulated rich experiences in maritime projects, overseas infrastructures, commodities futures trading and trade finance. 

“Maritime disputes keep decreasing amid the increasing regulations and the improved navigation skills. Demands for legal service will correspondingly decrease too but demands for legal service brought by the GBA and the B&R Initiative will be increasing,” says Zhao Shuzhou, managing partner from Wang Jing & Co.

Guangdong Grand & Holders Law Firm was relatively young and just celebrated its 10th anniversary this year. Its motto is focusing only on sophisticated commercial disputes. It follows Tiantong’s moot court model to conduct pre-trial practice for clients. According to Huang Shan, the founding partner, the biggest challenge is to achieve a moderate scale without sacrificing quality. Huang told ALB their new office plan in Shenzhen in view of Shenzhen’s great potential.  

“The local law service lags behind clients’ increasing demand for high-end law service but the huge potential of the market is set to explode.  Fangda Guangzhou is a pivotal point that links its three offices in the GBA. We offer seamless one-stop solution for local clients to do our part in narrowing the aforementioned gap.” says Xiao Xiao, partner from Fangda Guangzhou. 

“Meanwhile local clients are not the only targets for Guangzhou lawyers. They started reaching out to south-middle and south-west region in China. Developments are unbalanced and diversified but opportunities abound,” echo the managing partners from ETR.

A lens on Shenzhen against the GBA

As Hong Kong released its 2017 GDP, Shenzhen SEZ’s GDP has surpassed Hong Kong for the first time in history and comes in first in the GBA in 2017. However, the Shenzhen government applied a different calculation system and the result showed that Shenzhen has not only leapfrogged its neighbouring city, its economy is also gaining momentum. Shenzhen has about the same number of lawyers in total with Guangzhou but Shenzhen’s lawyers’ income per capita is higher than Guangzhou’s as Shenzhen achieved gross legal revenues of 5.7 billion yuan in 2017. 

“Revenues per capita is a comprehensive index that could tell firms’ practice percentage, client base and team capabilities,” says Zhang Ping. 

Revenues per capita also depend on Shenzhen’s economic landscape and the legal market in Shenzhen is very lucrative. Transformed from a manufacturing base of the world, Shenzhen has its sights set on becoming a global technology innovation hub with many tech giants and its PCT application rank first in China for 13 consecutive years. The Shenzhen Stock Exchange contributes a lot to Shenzhen’s robust capital market which is home to over 350 listed firms--with 140 located in Nanshan district. One-fifth of China’s registered PE fund managers come from Shenzhen. Shenzhen is also on track to become a front-runner in blockchain technology and is one of China’s top fintech hubs. Shenzhen has growing global influences in biotech, AI, genetic testing, mobile internet, and IoT. 

“All ideas will be achieved very quickly thanks to Shenzhen’s complete industrial chain. A robot can be made in less than six hours with less than 5% cost of Silicon Valley’s,” says Zhang Jian, managing partner from Dentons Shenzhen.

Shenzhen is also a centre for commercial dispute resolution. Besides SCIA, it witnessed the establishment of China’s first circuit court and the No 1 International Commercial Court. In Qianhai FTZ, the specialized IP court and the financial court was already in place last year. It was predicted that eight types of dispute resolutions are about to explode: IP, cross-border case, urban renewal, zombie companies’ bankruptcy & liquidation, banks & finance, capital market, internet innovation and employment disputes with equity disputes. Jiang Yong, founding partner from Tiantong, told ALB that they’re fully equipped with international commercial dispute resolution team and bankruptcy team accordingly. The head of their bankruptcy team used to be a senior judge on bankruptcy of Shenzhen Intermediate Court. 

Areas of overlap between Shenzhen and Guangzhou are: IP, family wealth management, urban renewal and dispute resolution. 

“Shenzhen is a pioneer city in China in the promulgation of urban renewal legislation. New opportunities come with big risks,” says Xia Weihe, director and senior partner from Dentons Shenzhen.

“That distinguishes Shenzhen from other places by its diversified and innovative economy also brought new types of legal problems. With further boosting of cross-border movements of capital, people, goods, and services within the GBA, problems and disputes would be exploding which means new demands for legal service,” says Gao Shu, former President of Shenzhen Lawyers Association and chief executive partner from China Commercial Law Firm. 

Beijing and Shanghai-based firms opening new offices in the GBA usually prefer to open first in Shenzhen. East & Concord Partners had only one office in Shenzhen. Managing partner Sun Yunzhu pointed out that, “Shenzhen’s impact on China’s development is much wider than Guangzhou. It is an illuminating window into China for the world. Its legal consumption demands increase with its growing economy.”

“There’s a trend in the new generation of start-ups that they turn to legal counsel even before starting their business. This is very typical for Shenzhen start-ups,” observes Huang Yibo, director of the management committee from Tahota Law Firm Shenzhen. 

When asked about whether East & Concord Partners aimed to open another office in Guangzhou, partner Zhang Jiachun in Bejing said that China is an obvious regional market where law firms must open offices to grab businesses. Seen in this light, law firms with national network is tantamount to an accumulation of regional offices with little integration in real sense. Today’s China has 11 FTZs, B&R Initiative, the Yangtze River economic belt, the GBA, etc. in place and this is a whole picture of China’s strategy. The growth momentum for law firms would be limited if law firms still made up plans with a single city perspective like Shenzhen or Guangzhou’s developments. Time has come for law firms to evolve in line with China’s transition.” 

Li Chun, former President of Shenzhen Lawyers Association and founding partner from Grandall Law Firm, pointed out, “Time has also come for law firms and lawyers to evolve. The strategic vision of law firms must be global-oriented and Chinese lawyers should and must be qualified to set up standards in the global arena. Shenzhen lawyers have much room to improve in this regard and they’re progressing very fast, but their responses to new practice and new knowledge still lag a bit behind the expectations and the demands.”

“The GBA involves one country two systems, three tax zones, three currencies and four core cities, which means great challenges for legal service. We thought it would drive our legal service into a higher level of professionalism,” adds Gao Tian, senior partner from Allbright Law Offices Shenzhen. 

Shuffle continues

Many managing partners predicted that the shuffle would continue in the form of integration or alliances-forming. Non-local firms like KWM regards the integration trend as a competitive advantage. 

“KWM International Centre in the GBA was set up this April, which replaced the former name ‘the GBA offices’. The Centre is built on the firm’s Shenzhen, Guangzhou, Hong Kong and Sanya offices to connect and unleash KWM’s global resources,” says Wang Lixin. 

For Dentons, besides further integration in the bay area, its Nextlaw Global Referral Network is Dentons’ wild card in this era of connection. Lu Yuefeng told ALB that many large law firms try building up their platforms thus creating a legal ecosystem. 

Alliance-forming doesn’t stay at law firms. In the case of Allbright Law Firm, they formed alliance by connecting their own B&R 100-plus lawyers with Guangzhou’s B&R enterprises consortium which was established this June. For many other firms, the further integration within the firm is still going on. 

“IT also plays a big role in this process. Investing in the IT cannot be overstated,“ says Lu Yuefeng. 

Local firms like Kingpound and G&H both aim to develop their own IT system in the coming years.