It is public knowledge that an increasing number of international law firms are pursuing their own Chinese law capability in one way or another.  Here our Partner Shawn Chen discusses the different options available to law firms and also highlights some crucial points for international firms to consider if they are thinking about a tie-up in China.

Despite Chinese regulations forbidding mergers between Chinese and foreign law firms, a number of pioneers have successfully managed to bring together east and west. These firms and tie-ups differ from each other in the following aspects:

Market influence 

(a) Size – a tiny Chinese firm or new start-up to cater for the business or strategic needs of a far larger foreign firm; a boutique niche practice or a full-service corporate Chinese law firm to join an international brand; or the combination of two mega firms.

(b) Quality – a well-regarded Chinese practice featuring good quality lawyers and top-end clients/business, or an average local Chinese firm (either very large as a result of a quasi franchise structure or ‘incapably’ small) to join together with a mid-market foreign law firm or a really top international legal practice.

Legal formality

(a) Alliance – a combination of two names in the initial stage with a view to integrate further in future, or a much more serious cooperation where the Chinese firm is financed, staffed and managed by the foreign firm.

(b) Joint Venture – a few international law firms are CEPA qualified in Hong Kong, so they are legally qualified to set up a Joint Venture with a Chinese law firm.

(c) Swiss Verein – the easiest way to bring two firms together, which is also legitimate according to the Chinese law – on the condition that regular and proper communications with the relevant authority were made in advance.

Some representative tie-up firms are listed here.

So, as an international law firm should you seek to bring on board your own Chinese law firm? The answer is, it depends.

– If your firm’s China business has generated enough local work which you do not want to refer to another Chinese law firm and lose the revenues (and even the client), then you should really look at the option of getting your own Chinese law firm.

– If your firm just does not want to lose the ‘future opportunity’ and needs a Chinese law firm for strategic purposes, the answer could be either yes or no – it depends on how strategic your international and local management and partners believe a Chinese law firm or the China market is in your global business as a whole.

– There are some other firms, both Chinese and international ones, who place too much hope on quick financial returns from a mega tie-up deal. What they actually get may be just a one off publicity blitz and marketing campaign for their firm brands, plus some unexpected negative outcomes such as (star) partners exiting, brand dilution and considerable post-transaction headaches consuming significant management time and resource.

The senior management of western law firms should be cautious when considering a tie-up with a Chinese law firm, irrespective of the proposed structure that this may take, not least as the regulations may continue to change. SSQ China has successfully assisted foreign and Chinese law firms to navigate this challenging topic and is working on a number of active matters in this area. We are well acquainted with the potential opportunities and challenges and welcome your enquiries as to whether and how you should pursue such an initiative.