Once one of China’s most promising cities for economic growth, Guangzhou has seen its star dim of late on the back of competition from the country’s other large cities. Shangjing Li finds out more 

Thirty years ago, when most Chinese cities were still struggling to find the appropriate model for socio-economic development, Guangzhou, the capital city of the promising Guangdong Province, was a symbol of the blooming South, full of business opportunities, innovation, pioneering spirit and economic prosperity.

Thirty years on, China is well and truly open to the world, and Guangzhou is still one of the country’s most important cities, but its advantages are diminishing.

“Those good old days will never come back,” says Wang Jing, the founding partner of Wang Jing & Co, a Guangzhou-based law firm. “Guangzhou has lost its advantages in recent years. It will never develop as rapidly as it did in the past. “

Competition from near and far 

China had more than 250,000 lawyers by the end of 2013, according to the latest official data from lawyers association. Guangdong Province has more than 25,200 lawyers, the highest among all provincial-level regions across the country. Most of lawyers in Guangdong work in the cities of Guangzhou and Shenzhen, which have 8,956 and 8,039 lawyers respectively, according to the two cities’ lawyers’ associations.

The data also indicates lawyers in Shanghai, Beijing, and Shenzhen generate the most revenue per head; with Shanghai’s lawyers earning a total of 8.9 billion yuan and 563,000 yuan per person, Beijing 9.76 billion yuan and 410,000 yuan per head, Shenzhen’s lawyers racking up 2.8 billion yuan and 34,8000 yuan respectively. 

Guangzhou, though ranked third in China in terms of overall GDP, didn’t manage to place in the top three when it came to lawyers’ revenue. 

The data explains the competition Guangzhou faces. Neighbouring Shenzhen is catching up fast, and has surpassed the capital city of Guangdong in many aspects. 

Meanwhile Beijing, as the capital city with the presence of central government, has the lawyers with the best quality, whereas Shanghai, the nation’s most affluent city has both capital and human resources Guangzhou cannot parallel. 

“Law firms’ revenue in Shenzhen has passed Guangzhou quite a few years ago,” says Wang Xiaohua, the senior partner of ETR Law Firm. “For big projects in Guangzhou, companies would approach law firms in Beijing and Shanghai.”

Meanwhile, Beijing is the magnet for resolution of regulatory issues, since bodies like China Securities Regulatory Commission and Insurance Regulatory Commission are based there. “In cases like antitrust cases, companies tend to look at lawyers in Beijing,” adds Wang Xiaohua.

In addition, China’s stock exchanges are based in Shanghai and Shenzhen, which brings a considerable amount of business to law firms in the two cities.

“The three cities have resources Guangzhou doesn’t have. There is no way Guangzhou could compare itself to them in terms of those respects,” Wang Xiaohua says.

As China has entered a phase of “new normal,” a term implies slower, but quality economic growth and a sturdier economic framework, Guangzhou’s economy has slowed down as well.

Guangzhou experienced GDP growth of 8.6 percent in 2014, missing the goal of 10 percent, Chen Jianhua, the mayor of Guangzhou said in the most recent city government conference in January. And for the first time in a decade, the city decided to lower its GDP target in the 2015 to a one-digit number of 8 percent.

But Guangzhou still has advantages. The city has long been an important harbor city boasting international trade, manufacturing quality and entrepreneurship. 

Unlike Shanghai and Beijing, which are affluent in foreign capital, “Guangzhou skyscrapers and office buildings are mostly filled with China’s private companies,” says Wang Jing. A lot of those companies are in the manufacturing industry, making clothes, furniture, and so on. 

“One thing special about Guangzhou is that more than 200,000 African people are living in the city”, says Wang Jing. “And they are here to do business and take goods back to Africa.”

So instead of doing inbound work, lawyers in Guangzhou have a lot of outbound business, assisting private manufacturing companies selling their products abroad. 

‘A star-studded sky’

Talking about the legal industry in different cities, Jeffrey Zhaohui Quan, another senior partner at ETR Law firm describes Guangzhou’s legal market as “a star-studded sky “, while referring to Beijing and Shanghai’s legal markets as “a full bright moon”.

The metaphor indicates the selling points of Beijing and Shanghai, as the capital and China biggest commercial city are as bright and obvious as the moon. But Guangzhou’s legal market is as abundant and dispersed as a sky full of stars.

Guangzhou is not the capital city; it doesn’t have stock exchanges; nor does it have many foreign companies’ presence. But Guangzhou is an open city with a mature legal market, and citizens are equipped with a better awareness of law.

They are not the ‘moon’ though. And Guangzhou needs a moon.

Seeking the moon

The biggest highlights for Guangzhou’s legal practitioners last year were the establishment of the intellectual property court, and the Free Trade Zone in Nansha New Area.

Following Beijing and later followed by Shanghai, the Guangzhou IP court was the second of the three IP courts opened last year, as the government attempts to improve the national image and protect innovation. 

The Guangzhou IP court accepts cases from all over Guangdong province, in an effort to battle patent infringements and encourage patent development in one of the most innovative areas that has one-third of the IP disputes all over the country. 

Unlike IP courts elsewhere in China, Guangzhou’s IP court does not provide administrative titles to judges and staff. The de-administration is aimed to get rid of the political hierarchy and reduce the government’s interference in court decisions as much as possible. 

Besides the IP court the Free Trade Zone in Guangzhou’s Nansha area, following Shanghai’s example, is set to bring about joy for lawyers 

The Nansha FTZ was initially approved by Beijing at the end of last year as one of the three FTZs in Guangdong province. The two other FTZs are in Shenzhen’s Qianhai and Zhuhai Hengqin New Area.

However, shortly after the approval, the Nansha FTZ was not deemed as important by many lawyers. 

“The Guangzhou Free Trade Zone won’t be as influential as the FTZ in Shanghai,” says Peter Songling Ren, a senior partner at Guangdong Guanghe Law Firm. Given that Guangdong province is already quite open thanks to many pilot policies, he thinks the FTZ needs to have really innovative policies to make an impact in the Pearl River Delta region.

But as date of commencement of operations approaching, more and more lawyers are starting to look into the FTZ’s policies, and realize the underlying opportunities.

Chinese President Xi Jinping set out his vision to revive the intercontinental land routes and develop maritime links to expand commerce last year, with $40 billion investment into its “Silk Road fund.”

The two routes, according to the state news agency Xinhua, will focus on China’s Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives of building roads, railways, ports and airports across Central and South Asia. Nansha will for sure benefit from the Maritime Silk Road initiatives, as the route passes through it.

As one of the largest harbour in the Pearl River Delta area, together with the opportunities brought by new FTZ policies and Silk Road fund, Nansha will be transformed into the center of international shipping and logistics, according to the government report. “The free trade zone is more than a normal highlight, it is a huge highlight,” Quan says.

Both the IP court and the FTZ, will be in the spotlight in the coming year. Are they going to the “moon” for Guangzhou’s legal market? The answer remains to be seen. 

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China state-backed developers take on Guangzhou's cornered 'tigers'

By Clare Jim

China's state-backed developers are making unprecedented investments in Guangzhou, as the private firms that have dominated the wealthy southern city for decades grapple with tight liquidity and Beijing's corruption crackdown.

The waning fortunes of the "Guangzhou Five Tigers" - the city's big private developers - are giving state-owned enterprises the chance to muscle in on one of China's most prestigious property markets for the first time.

"We expect there will be more opportunities going forward in Guangzhou because of a fairer environment under a change of political landscape," state-owned China Resources Land's chief financial officer Yu Jian has said.

The so-called tigers - Agile Property, Evergrande Real Estate Group, Country Garden Holdings, Guangzhou R&F Properties and KWG Property - will no longer dominate the city, Yu is quoted by a company official as saying.

Guangzhou's allure lies in its higher margins and stability. The average selling price per square metre in Guangzhou from January to June was almost twice as high as the national average recorded by Country Garden and Guangzhou R&F, according to company statements.

The capital of Guangdong province is also considered better positioned to withstand any housing correction because of its vast reservoir of demand, making it increasingly attractive to developers hit by a sharp downturn in the Chinese property market.

But until recently, state-owned firms have avoided taking on Guangzhou's established players on their home turf.

Those days are over. On Nov. 10, for example, state-backed Longfor Properties entered the city of over 13 million people for the first time, buying two sites at auction for 3.78 billion yuan.

China Resources Land, the country's ninth-largest residential developer by sales, bought two plots in Guangzhou at the same auction for 3.02 billion yuan, significantly boosting its holdings there.

Other government-backed developers such as China Overseas Land & Investment (COLI), Poly Real Estate and Guangzhou-based Yuexiu Property have also expressed interest in expanding in Guangzhou, analysts said.

COLI bought a plot in the city for 9.6 billion yuan in February, the most expensive acquisition out of 10 it made in the first half.

TYGER TYGER

Chinese developers are under intense pressure, with home prices falling for a fifth straight month in September and the economy growing at its slowest clip since the 2008 global financial crisis.

Bank of America Merrill Lynch head of greater China property research Raymond Ngai says private developers are feeling the pinch of tighter liquidity, while those with state backing were freer to expand.

"State-owned developers are keen to buy land in Guangzhou as they don't have much there. They also have the cash," he says.

President Xi Jinping's crackdown on corruption is squeezing liquidity further, as investors baulk at firms that could be exposed to damaging revelations.

Former vice-mayor Cao Jianliao is the biggest scalp in Guangzhou so far. Arrested last year, he was convicted of pocketing 270 million yuan in bribes over two decades. Former mayor Wan Qingliang and land resources official Li Junfu are under investigation for corruption and have been dumped from the Communist Party.

Unconfirmed Chinese media reports say at least one major developer bribed Cao, but no property firms have been formally implicated in the case.

Even so, investors are getting nervous and that is narrowing private developers' financing options.

"The risk makes investors more prudent," realtor Knight Frank senior director Thomas Lam says.

Already burdened with a $475 million loan due in December, Agile Property earlier revealed that its billionaire founder and chairman, Chen Zhou Lin, had been detained. While the reason for Chen's detention remains unknown, it is widely believed to be related to corruption.

Agile's share price has tumbled almost 50 percent since early last year in Hong Kong, compared with a 2.3 percent rise in the broader market.

Andy Lee, an executive with realtor Centaline, says Guangzhou-based developers are "worried about the knock-on effect" of the crackdown, and their out-of-town rivals are eager to take advantage.

"This is a game-changer for Guangzhou ... it will attract more outsiders," he says.

An executive of an unlisted property company based in Guangdong province says life was simpler when developers could bribe officials with "gift cards" of up to 600 yuan each.

"Things were much easier and faster before. If you ask me, I prefer how things were handled in the past," he said.