Ties That Bind - Bay Area Council Economic Institute

Bay Area-China Trade: Behind the Numbers
the lead investors in Focus Media’s $172 million IPO, represented Chinese medical device manufacturer
Mindray Medical International in its $270 million NYSE IPO, represented a Japanese
photovoltaic cell maker being acquired by Chinese photovoltaic cell producer Suntech Power,
and represented a Morgan Stanley-led consortium purchasing $1.3 billion in non-performing
loans. Foreign law firms are following their investor clients beyond Beijing, Shanghai and
Guangzhou into northern China and the interior.
Competition Intensifies
At first glance, there would seem to be a glut of foreign lawyers flocking to China, but in terms
of specific commercial expertise and relationships there may actually be a shortage. The August
2005 breakup of Coudert Bros. prompted a rush among firms to lock up the approximately 50
Hong Kong, Beijing and Shanghai lawyers comprising Coudert’s China practice. Orrick, Herrington
& Sutcliffe eventually prevailed over rival bidder Baker & McKenzie in acquiring the
three offices, with other firms pursuing specific Coudert lawyers. Wilson Sonsini Goodrich &
Rosati, meanwhile, responded to pressure from major Chinese clients and lured back its lead
China attorney, who had moved to a Wall Street firm in 2005, to head a new Shanghai office.
Foreign and Chinese lawyers currently have a complex relationship of cooperation and competition.
They frequently work together in situations where the foreign firm’s client is involved in a
court proceeding or requires an opinion letter based on Chinese law. And, as the experience and
skills gaps between foreign and Chinese attorneys have narrowed, they more often pursue some
of the same China business.
Cost pressures add to the tension. Chinese clients commonly demand fixed fees and discounts,
and select law firms primarily on price. Experienced lawyers are in short supply and charge a
premium. Office rental and staffing costs, particularly in Beijing and Shanghai, are high by global
standards. These and other factors have prompted foreign firms to seek out higher-end client
work in areas such as IPOs or intellectual property protection and licensing. To manage workload
and control costs, many have recruited Chinese law school graduates and lawyers willing to
surrender their Chinese law licenses in order to obtain global practice experience and enhance
their resumes. Foreign firms may pay Chinese staffers one-third the salary of a home country
counterpart, but that still amounts to three times the salary at a Chinese firm.
A trade group of Chinese lawyers in Shanghai has publicly complained that these non-licensed
Chinese lawyers are unofficially drafting contracts, rendering opinion letters, preparing applications
and registrations with government agencies, and directing litigations and arbitrations—
work reserved under current rules for Chinese lawyers. The government issued a warning to
foreign firms but otherwise has yet to act on the complaint.
Song Zhu, a Chinese-born, U.S.-educated attorney with Squire Sanders in San Francisco who
also has an engineering background and specializes in patent law, sees continued opportunities to
assist U.S. firms entering the China market with IP protection and licensing, regulatory compliance
and meeting technical standards. Down the road he sees Chinese companies branching out
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