Law firms in West China are embracing opportunities as well as the fierce competition arising from national plans that include the Belt and Road Initiative and Yangtze River Economic Belt. 

“The government in western China has been especially supportive of investments under the Belt and Road Initiative, which requires plenty of input from legal professionals to structure the deals. Law firms in the western region may seize the chance and surpass other regions,” says Zhang Zhaohui, a lawyer with Zhonghao Law Firm. Headquartered in Shanghai, Zhonghao also has branches in Chongqing and Chengdu. 

The Belt and Road Initiative refers to the Silk Road Economic Belt and 21st Century Maritime Silk Road, a development strategy launched by the Chinese government to enhance the efficient allocation of resources by connecting Asia, Europe and Africa along five separate maritime and overland routes. 

Meanwhile, the National Development and Reform Commission, the Ministry of Industry and Information Technology and the Ministry of Science and Technology have jointly issued a new blueprint to set the development direction of the Yangtze River Economic Belt. It aims to make breakthroughs in innovation, industrial structure and economic growth by 2020, and to become a major engine to drive the economic transformation and upgrade of the whole country by 2030. 

Cities in western China are striving to become an essential link between the Economic Belt and the Silk Road. 

“We have the advantage of linking two grand national plans,” says Liu Xinhui, deputy head of the Chengdu planning ministry, which launched the city’s new development strategy last October. “It is the only city in western China that will have two airports and has the opportunity to become a logistic hub between the One Belt, One Road and the Yangtze Economic Belt.” 

The government of Chongqing has announced plans to invest in infrastructure projects estimated at 1.2 trillion yuan by 2020 to boost investment and trade along the Belt and Road Initiative routes. Another advantage the municipal gains is the Yuxinou railway, the main Eurasian land bridge between western China and the European markets. “Yu” refers to Chongqing, where the train departs. 

RIDING THE WIND 

Witnessing the wave of investment, lawyers in the region are expecting the legal services sector to ride the wind. 

“We expect the market to get bigger. The entire legal industry of Chongqing sees an annual growth of 20 percent in overall revenue. In terms of the legal industry in the western region as a whole, the growth shouldn’t be small either,” says Zou Xiaoli, managing director and founding partner of Solton & Partners. Founded in 1995, Chongqing-based Solton now operates four offices in the city.

For the time being, the legal services sector in western China cannot be described as a leading player compared to the cities in eastern China, where there have been open development at least one decade earlier than the west. 

“Economic development determines legal development to a large extent. Usually the law firms in eastern China, 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. For the western region, because the economic development is comparatively lower, the legal development is also lower,” says Zou. “Compared to cities like Beijing and Shanghai, law firms in western China have lower revenues on average, and the lawyers also have a lower average income. The volume of cases is not low, but the transaction value is almost always smaller, and income depends on the transaction value.” 

The way Zhang with Zhonghao Law firm sees it, the disadvantage also lies in weaker expertise, particularly in hot fields such as IPO and M&A. 

“There are more IPO cases and issues related to the stock market in Shanghai and Beijing. We do company restructuring but it very rarely involves IPO, which is a weakness for law firms in the western region,” says Zhang. 

Rapid development is expected with the national government emphasizing a shift to the western region, and the most exciting news is that the region is already seeing more foreign investment. 

“More and more foreign companies are coming to invest in Chongqing now. This is good for us because they need local law firms to help them with a lot of issues. There are very few foreign law firms here,” says Zou, forecasting that the region’s legal services sector will pick up speed.

“Foreign law firms are more wiling to collaborate with local law firms in western China rather than to expand here, as the demand for their services is still not that high. So overseas investors that need local legal advice mainly go to local law firms, and if they need help with international issues, we would work with a foreign law firm to provide the services.” 

STIFF COMPETITION 

Although the opportunities are promising, this also means that local law firms will have to brave stiff competition. 

Sichuan had a total of 15,526 lawyers, 1,130 local law firms and 65 branches of non-local law firms like Zhonghao as of 2015, according to the latest data from Sichuan Province Lawyers Association. 

Statistics from ALB show that 12 out of China’s top 20 largest law firms in 2015, namely Dacheng, Yingke, Zhong Yin, DeHeng, AllBright, Zhong Lun, Grandall, Guanghe, Tian Yuan, King & Wood Mallesons, Zhonglun Wen De and Jincheng Tongda & Neal, have set up offices in Chengdu. Seven of them, namely Dacheng, Yingke, Zhong Yin, DeHeng, AllBright, Zhong Lun and Grandall, also have offices in Chongqing. 

“The market is developing quickly and getting bigger. This means more players will come in. The competition is good for big firms like us,” says Zhang. “However, smaller firms are struggling. After a certain level of growth, many of them cannot keep going. This is mainly because they are unable to attract top talent.” 

Zou echoes her view. “We see a loss of talent to first-tier cities like Shanghai even though there are many universities and law graduates here,” he says. 

Looking forward, Zhang is optimistic regarding retaining talent in law firms in western cities like Chongqing, as they are “developing very rapidly in terms of foreign interest and economic development”. According to Zhang, the primary challenge right now is to change the traditional management of law firms.

“What law firms should pay attention to is to understand their clients well and undergo internal changes to adapt to the new developments. The traditional way has lower survival chance. Those law firms allocate work according to departments of expertise; they are less able to serve big cases and clients who need comprehensive services. Internationalization is the way forward, and we should follow the trend of demand for different legal services closely,” says Zhang. 

Local law firm Solton chooses to expand with its philosophy, which is to focus on developing regionally. It is now preparing to open its fifth office, which, same as its previous four, is also in Chongqing, but in another district. 

Solton Partners believes that the local market is large enough for firms to grow while using alliances to connect with markets outside Sichuan. The law firm believes that the region is a local market rather than a national market, as according to the firm, 95 percent of cases are closed locally and do not appeal to the Supreme People’s Court in Beijing.