West China, a relatively low-key region compared to the more affluent eastern areas, has been in the spotlight in the past 12 months. Internationally, it has greatly strengthened its economic ties with neighboring countries like India and Pakistan. Domestically, double-digit GDP growth in the region has overshadowed the 6-7 percent growth by the cities on the eastern seaboard. Will the west become the new powerhouse of China’s economy? And how are law firms in West China looking to capitalize on this? Shangjing Li reports.

Two thousand years ago, during the Han Dynasty, the Silk Road came into prominence courtesy the pioneering explorer Zhang Qian, who brought it to the notice of the Imperial Court. Today, the Silk Road is again taking centre stage as the in a way that promises to have a dramatic impact on both economics and geopolitics.

China’s recently introduced One Belt, One Road policy, comprising the Silk Road Economic Belt and the 21st Century Maritime Silk Road, has potentially extended China’s influence to 4.4 billion people in 26 countries and regions.

The initiative includes building high-speed railroads, energy transmission and distribution networks and fiber optic networks, among others. Cities along the route can expect to see an economic development.

The Silk Road Economic Belt, which connects west China with the Middle East and Europe, aims for no less than a revolutionary change to the economic map of the world. This is expected to hugely benefit Xinjiang, Qinghai, Ningxia, Gansu and Shaanxi in the northwest, as well as Sichuan, Chongqing, Yunnan and Guangxi in the southwest.

By linking the economies of Central Asia with western China, the government hopes to bring stability and prosperity to restive and relatively underdeveloped western regions like Xinjiang, amidst abundant economic opportunities to west China in general.

“You can see that provincial governments value the policy, as well as Beijing’s efforts to create the related infrastructure,” says Chen Shoutai, managing partner of Tahota Law Firm. “And more and more lawyers in the west are seeking to benefit from this.”

West China, as officially defined by the country’s strategic Great Western Development programme, occupies some 70 percent of China’s territory and included six provinces, one municipality, and five autonomous regions. However, it contains only a quarter of the nation’s population and produces 20 percent of the economic output.

The Great Western Development Programme was introduced 10 years ago to provide a boost to the impoverished west. And now the One Belt, One Road project has once again galvanized businesses and lawyers in the region, which has so far been badly in need of policy incentives.

“Among all the provinces in west and central China, only Sichuan province and Chongqing made it to the top ten in terms of law firms’ total revenue,” says Han Deyun, the managing partner of Solton & Partners, a Chongqing-based law firm.

The overall revenue of Chongqing’s law firms was around 1.34 billion yuan ($166 million) in 2014, ranking it eighth among all the provincial-level regions in the country, with Sichuan Province ranking seventh. The first six regions mostly lie in the eastern part of the country, including the traditional leaders Beijing, Shanghai and Guangdong provinces, as well as three provinces on the eastern seaboard: Zhejiang, Jiangsu and Shandong.

Sichuan was the province with the most lawyers in Western China, boasting around 14,000 lawyers in 1040 law firms, followed by Chongqing with around 6700 lawyers across 670 law firms in the year 2014, according to the latest government data.

STRATEGIC DIFFERENCES

It would not make sense to challenge law firms based in economic powerhouses like Beijing and Shanghai directly. So for law firms in want their share of the national spotlight, what would be the best way to differentiate themselves?

Chengdu-based Tahota is one law firm targeting more growth and geographical expansion beyond its home base. As a way of doing this, Tahota withdrew from the Sino-Global Legal Alliance (SGLA) network in May, following in the footsteps of the Shanghai-based Allbright Law Offices.

Chen, the managing partner of Tahota, says that Allbright left the SGLA on May 6, and Tahota followed suit 20 days later. “We are seeking a national presence. But SGLA doesn’t allow that,” said he says.

As a legal alliance consisting of Chinese law firms across major economic regions, SGLA has chosen one law firm to represent each region. Allbright and Tahota were the firm representing the city of Shanghai and Sichuan Province respectively.

“If members of SGLA want to pursue a national agenda, they are no longer welcome,” says Han, the managing partner of Solton & Partners, who is also the chairman of SGLA.

He adds that the SGLA’s strategy is clear in that it chooses major regional law firms to form a national alliance. “If a firm itself is going out and pursuing a national agenda, it is not acceptable to us because there might be conflicts of interest.”

But west China is providing a great starting point for Tahota’s Chen, as more business interactions between west China and its neighboring countries like India and Pakistan, led to more deals being signed in the past 12 months. Now, he and his firm have set the goal of first opening offices in all the provincial capitals in west China, and then overseas offices. “I see more and more foreign companies coming to west China, and more companies in west China going abroad,” Chen says. “We have to go out.”

Indeed, expanding to other cities is one of the most conventional ways for law firms to develop. But is expansion the most appealing strategy for law firms based in the western cities? Han has something different to share.

To him, being based in Chongqing is totally different from being headquartered in first-tier cities like Beijing and Shanghai. “Except Beijing, Shanghai and Guangzhou, other major cities in China don’t radiate influence that extends to other parts of the country,” he says.

He suggests that unlike those major cities, the influence of the economic and legal markets of Chongqing is limited to surrounding areas. “If you are headquartered in Chongqing, and you aim to make your law firm a national one, it just won’t happen.”

And this explains his firm Solton’s involvement the SGLA. He says the idea of the SGLA is to maximize the advantages of leading law firms in different regions, as they only pick one in each region to avoid conflicts of interest.

“We want to connect the best regional law firms across China and help them exert a national influence,” Han says. “The legal market in most part of China will still remain region-based for quite a long time. And we believe this way is in accordance with the status quo of our overall legal market.”

DEMAND FROM THE WEST

The One Belt, One Road initiative will certainly have an impact, but maybe not too soon.

Take Chongqing as an example. The 1.34 billion yuan in revenue earned in 2014 by law firms represented a 34 percent jump compared to one year earlier. And the area that has seen the most growth is litigation.

Han says that an increasing number of disputes in the backdrop of the economic transition has led to a proportional jump in lawyers’ revenue, but there has been a negligible impact of the One Belt, One Road project in comparison.

But the potential is being recognized by foreign law firms too, like the Clyde & Co and Westlink joint law venture, which was the first formally approved joint law venture involving an international law firm in Southwest China. It opened its Chongqing office in the year 2013.

“The economic growth rate for Southwest China is still in double digits as compared to the 6-7 percent growth along the eastern seaboard cities, and GDP in West China is significantly higher than Shanghai,” says Michael Cripps, a partner with Clyde & Co. “There is increasing awareness of legal needs in the west, ranging from contract review to dispute resolution.”

However, the rosy picture of litigation demand has its limitations, given that fact that in China, the economic development, as well as legal market, has always been closely intertwined with politics and the legal awareness of governments and companies in the west have always been weaker than that of the east.

“A significant amount of the business is produced by the government. But generally speaking, the government’s legal demands are pretty low. They are not very aware of their need for lawyers” says Han.

The relatively low demand from the government side doesn’t mean a lower demand for legal services from the west overall. However, Han adds, west China’s need for legal services must be viewed in tandem with its low purchasing power, given the relatively low income on average in the west. To fill the gap, government needs to take the lead by assisting companies and individuals in utilizing lawyers.

And Han predicts the bigger law firms in western China could become bigger, while the small firms become smaller.”

In Chongqing, for example, with 6700 lawyers and 670 law firms, on average, each law firm only has 10 lawyers. This number is lower than 12, which is the national average for law firms.

Some law firms set out to deliberately remain small for tax purposes. But regardless of whether a firm is big or small, they should look to litigation as an opportunity for growth.

“Larger law firms need to try and increase their presence in both litigation and non-litigation areas. However, for smaller firms, there is very limited space in the non-litigation business, so they should focus on litigation, and be down-to-earth,” Han adds.