When China started opening-up through the 1980s, the legal community in Guangdong Province pioneered the development of the country’s legal services. Three decades later, however, the legal services landscape across the country has changed as more businesses focus their efforts on Beijing and Shanghai. Law firms in Guangdong Province have been left playing catch-up and looking for new and innovative avenues for growth. 

The amount and scope of legal services available in any market are normally tied to the amount of economic activity there. Guangdong has had the highest regional gross domestic product (GDP) in China for 28 years. Its GDP in 2016 topped 7.9 trillion yuan ($1.15 trillion), growing 7.5 percent year-on-year, according to the Guangdong Bureau of Statistics. 

Ma Xingrui, the province’s newly elected governor, told the Provincial People’s Congress that the goal this year is to achieve GDP growth of at least 7 percent.

However, despite the ongoing level of growth, the country’s legal sector has failed to keep pace with the economy. 

A case in point is a comparison between the provincial capital of Guangzhou and other top business and legal centres in the country. According to the Guangzhou Lawyers Association there are some 557 law firms and 9,817 registered lawyers in the city, far fewer than in either Beijing or Shanghai. The Beijing Municipal Justice Bureau says there were 2,249 law firms and 26,953 registered lawyers in the capital by the end of 2016. Shanghai, in turn, had 1,409 law firms and 18,360 lawyers. 

At the same time, the Guangzhou association said that the number of registered lawyers in the city grew 8.5 percent last year while the number of law firms rose 7.5 percent –passable figures compared to the average growth of the legal sector across the country.

“It is a geographical anomaly,” says Wang Jing, senior partner at Wang Jing & Co. Law Firm in Guangzhou. “Most state-owned enterprises (SOEs) and multinational companies (MNCs) are headquartered in Beijing and Shanghai.”

There is plenty of potential for continuous rapid economic development in the province and the Pearl River Delta region around it. Both are undergoing widespread restructuring. Guangdong is home to innovative technology and financial firms while manufacturing plays a big role in the economy. 

“It means that while we see a lot of big names, SOEs or MNCs in the province, most of them are either the branch offices or manufacturing plants. The decision-making lies in their HQs,” said Wang. “Clients in Guangdong prefer to find a Beijing or Shanghai law firm to deal with their business for better and efficient communication with their management team.”

And the geographic advantage that Beijing and Shanghai have over other cities, including Guangzhou, goes even further. Those two cities are also home to a lot of institutions and authorities, especially finance-related ones, such as Ministry of Commerce, the Securities and Futures Commission and the People’s Bank of China.

“Companies feel more comfortable directly working with law firms that are physically near policy makers. This is easy to understand as information clusters around the source centre.”

All the above makes it difficult for a Guangzhou-headquartered law firm to get more business in practice areas generally seen as “high-end” such as anti-trust, initial public offerings and M&As, said Wang. 

“Even if the company decided to go with a Guangdong (law firm) nearby, the choice usually would be a Beijing or Shanghai-headquartered firm’s Guangzhou branch.”

At the same time, equity markets currently generate the largest share of revenue for law firms that provide comprehensive legal services. Not having the upper hand in this field can narrow down the growth opportunities for local Guangdong law firms.

NEW MANDATES

Zhang Ping, charging partner for JunHe’s Guangzhou office, has observed a similar situation. As one of the top Chinese law firms based in Beijing, JunHe first launched a Shenzhen office, and then in 2011 it opened a second branch in Guangdong province in Guangzhou. 

“We seldom come across local Guangzhou law firms bidding on projects as we mainly focus on (M&A), capital markets and cross-border investment. Our main competitors are large domestic firms and foreign law offices, which are usually represented by their Hong Kong branches,” said Zhang. “Financing projects, such as IPOs, bond issues or asset restructuring require loads of resources and a strong team of experienced lawyers is a necessity.”

While geographic realities mean that mandates associated with equity markets are less accessible to Guangzhou firms, Zhang believes the Guangdong legal service community could further develop in a wide range of other areas. 

“The legal awareness of companies is rising which means demand for legal services is growing overall,” says Zhang. “The whole sector is expanding, and even though there is not much room to get involved in the equity market business as compared to Beijing or Shanghai, there is still a lot of work that firms here could explore.”

Intellectual property, for example, is one practice area that Guangdong law firms are looking at, particularly as innovation grows within the province’s outsized manufacturing sector.

“Both central and provincial governments are encouraging innovation and we see more manufacturers are turning to hi-tech or adding hi-tech ingredients. In that context, patent and trademark strategy is very critical and legal professionals’ suggestion would make things much smoother,” says Zhang. 

Overseas investment-related legal services could be another growth area in Guangdong, particularly when fostered by the national One Belt, One Road policy. 

“Previously, we mainly saw SOEs stepping out to foreign markets. Now more and more private companies or even SMEs are riding the OBOR initiative and are dipping their toes in the water, and a lot of them are from Guangdong. This opens a new market for local Guangdong law firms,” says Zhang.

Observers say law firms may need just one or a handful of particularly strong practice areas to maintain sustainable levels of growth, rather than passively look for business left by others.

Wang Jing & Co. is an example of a firm cultivating a strong focus. It is known as a top-notch law firm in areas related to maritime insurance.

“Although we are headquartered in Guangzhou, we are not constrained physically here. We keep a long client list, not only including industry leaders across the country but also world’s leading ship-owners and insurance companies,” says Wang, who is also the founder of the law office. He has been practicing in the shipping sector for almost three decades. 

“Following our clients’ footprint, we set up our offices in Beijing as well as coastal cities in China, including Shanghai, Qingdao, Tianjin, Xiamen, Shenzhen and Nansha. We’ve also landed in Hong Kong and New York to explore further potential clients overseas. Currently, almost 60 percent of our business is not local Guangzhou work,” he adds.

“Our expansion, though, is not only aimed at meeting some figures; it is coping with the demand of our clients and to build up such a high-end clients profile is due to our dedication to the industry and our experience. It is a virtuous cycle,” Wang notes.

Looking ahead, JunHe’s Zhang says he is optimistic about the development of legal services in Guangdong. 

“Guangdong is the pioneer when it comes to developing legal services,” he says Asian Legal Business. “Large law offices established in the province 30 years ago.”

The problem was some partner-led firms did not actively look for new growth drivers after separating from state-owned firms. 

“The landscape would be much different if we started to reform ten years ago; but it is not late now,” Zhang says. “We’ve seen some more mergers as small-size local firms are looking to join larger firms with better platforms as well as collaboration between small ones. The reshuffling is a trend.”