Following the easing of access to the mainland market under CEPA, Hong Kong's legal profession can expect a fresh round of opportunities in Pan-PRD under the latest regional cooperation initiative. Thanks to the sustained robust growth of the Pan-PRD economy, demand for legal services is set to increase continuously, creating a greater horizon for development. At the same time, the mainland market is increasingly demanding in terms of the quality of legal services. Hong Kong's legal practitioners are well poised to make a foray into China by capitalising on their own advantages.

Foothold in Key Cities to Serve Smaller Cities

The development of the Pan-PRD legal services sector is very unbalanced. In terms of the number of practitioners, service quality and scope of business, the legal sector in provinces like Guangdong and Fujian are significantly more advanced than that in the inland provinces such as Guizhou and Guangxi. Hong Kong law firms generally enter the mainland market by setting up representative offices in Pan-PRD through different channels such as appointment and cooperation. Guangzhou, Shenzhen and Fuzhou are among the most popular locations for representative offices in the region. Under CEPA, the minimum residency requirement for Hong Kong representatives stationed in the mainland representative offices of Hong Kong law firms has been shortened. More Hong Kong lawyers are therefore able to practise both in Hong Kong and the mainland. Furthermore, under CEPA, the minimum residency requirement for all Hong Kong representatives stationed in the mainland representative offices of Hong Kong law firms in Shenzhen and Guangzhou has been removed. This measure has prompted many Hong Kong law firms to set up a presence in the two cities. This, coupled with the imminent entry of more foreign law firms under further liberalisation of the sector over the next few years, the legal services market is set to become even more competitive in these cities. Yet, there is still unmet demand in the market. Take Guangzhou as an example. The city has set itself the goal of becoming a cosmopolitan city. However, a significant gap exists between the current development status of Guangzhou's modern services sectors, notably legal services, and the level befitting a regional economic centre which the city strives to become.

Compared to Guangzhou, under-supply is even more acute in second- and third-tier cities. These markets can be good entry points for Hong Kong's legal professionals.

Non-Litigation as Main Focus

In keeping with the needs of the changing market conditions in Pan-PRD, the scope of services offered by lawyers has continued to expand. Both lawyers and law firms are diversifying from their core business of litigation to a broader range of services. In particular, non-litigation services make up an increasingly bigger share of a law firm's business. Enterprises in Pan-PRD including state-owned and non-public enterprises are actively pursuing a host of reforms and economic activities which in turn generate a huge demand for legal services and high-calibre lawyers. These activities include asset restructuring, securities issuance, property transfer, increase of share capital, and adjustment of industrial structure. For instance, more enterprises in Changsha are now hiring in-house legal advisors to handle legal related matters. A survey conducted in the city has found that 64.4% of the respondents think that both individuals and enterprises in Changsha have growing demand for and reliance on lawyers. At the same time, more enterprises are in need of non-litigation services offered by lawyers such as legal consulting, preparation of legal documents, and signing of contracts for key projects.

Furthermore, the host of newly developing industries in the industrial property and intellectual property sectors such as information technology, electronic commerce, new- and high-tech industries are offering a wealth of new business resources and scope of development for lawyers. At present, apart from the traditional litigation business, non-litigation services offered by law firms in most Pan-PRD provinces are only limited to those related to finance, real estate and securities, while legal services related intellectual property rights (IPR) are practically non-existent. Patent agencies whose business is restricted to that of patent application agency service are the only intermediary organisations that deal in IPR services. These organisations have hardly launched any service in the area of IPR management, especially services required during different development stages of a technology project such as project establishment, implementation, inspection and user acceptance. Hong Kong lawyers have an edge in providing IPR services in Pan-PRD. For example, they can handle the IPR of their clients' intellectual property, and provide assessment and in-depth advice on their clients¡¦ proprietary IPR during the inspection and user acceptance testing stage of a technology project.

Networking to Tap Opportunities

Enterprises in the mainland including Pan-PRD, especially small- and medium-sized private enterprises, have growing needs for capital and many of them are actively seeking offshore listing. For most of the mainland enterprises wishing to list offshore, the Hong Kong stock market is their preferred location. In 2004, the number of mainland enterprises listing offshore continued to increase sharply. A total of 43 mainland enterprises launched their initial public offerings (IPO) in Hong Kong in 2004, up 30% from the previous year. Hong Kong lawyers are well qualified to offer mainland enterprises advice on the financing rules of an IPO as well as legal consulting service regarding the regulatory requirements of listed companies after going public.

Furthermore, amendments have been made to mainland regulations whereby the partners of a Sino-foreign joint venture may agree in advance on the applicable law to resolve their disputes and to carry out arbitration through arbitration organisations in Hong Kong or other places. With this change, Hong Kong lawyers not only can provide their services on the mainland but also in Hong Kong handling commercial cases involving mainland clients. Although lawyers are available in large numbers in Pan-PRD nowadays, not many of them are familiar with international business. By comparison, Hong Kong lawyers enjoy a definite advantage because they have developed an international perspective over the years, and are well versed in World Trade Organisation (WTO) rules and other international practices. The prospects are very promising for Hong Kong lawyers to provide mainland enterprises with services such as drafting of foreign-related contracts and settlement of foreign-related IPR disputes. Since WTO accession, China has actively participated in the globalisation of the world economy and its external trade has continued to expand rapidly. In 2004, the total imports and exports of the nine Pan-PRD provinces amounted to US$433.33 billion, accounting for 37.5% of the country's total. In the first quarter of 2005, eight out of the nine provinces (Hainan being the exception) posted export growth, with Yunnan and Jiangxi as top performers netting increases of 46.9% and 40% respectively. In value terms, the imports and exports of the nine provinces rose by 14.2% year-on-year to top US$101.51 billion during the first quarter of 2005, marking a strong upward trend on the back of a robust 27.5% annual growth achieved in 2004. Among these, exports were up 22.2% at US$56.44 billion. The sharp increase in exports inevitably has aggravated trade friction which in turn triggered greater demand for legal services in the areas of anti-dumping and anti-subsidy investigation, settlement of international trade disputes, and protection of international IPR. Hong Kong legal practitioners with expertise in international trade regulations should find a host of emerging opportunities. 

Both Hong Kong companies and multinational companies (MNCs) are active investors in Pan-PRD. Because of their in-depth knowledge of Chinese laws, Hong Kong lawyers have an edge over their foreign counterparts and can play a vital role in the investment process of their clients from negotiation, contract drafting through to arranging syndicated loan and financing. Hong Kong lawyers are well poised to provide a high level of legal services in line with international practice to Hong Kong companies and MNCs investing in Pan-PRD.

Promoting the Pan-PRD Model

Under CEPA, Hong Kong lawyers and law firms may offer legal services in Pan-PRD through the following channels:

Working as employees at mainland law firms. Under CEPA, Hong Kong permanent residents with Chinese citizenship may sit the legal qualifying examination in the mainland and engage in non-litigation legal work in the mainland after passing the examination. This channel offers the opportunity to provide legal service in an individual capacity.

Setting up representative offices in the mainland. Hong Kong law firms may establish representative offices and sign cooperation agreements with their counterparts in Pan-PRD. Under this arrangement, the Hong Kong law firm may be appointed by its mainland partner to handle foreign-related cases while at the same time it may appoint its mainland partner to handle mainland-related cases. The key advantage of this form of cooperation is that the Hong Kong law firm may develop a mutually beneficial and stable business relationship with its mainland partner. For instance, both parties will give priority to each other when they need to appoint other law firms to handle certain legal matters.

Operating in association with mainland law firms. Under CEPA, Hong Kong law firms with representative offices in the mainland may operate in association with mainland law firms. According to the Measures for the Administration of Associations Formed by Law Firms of the Hong Kong Special Administrative Region or Macau Special Administrative Region and Mainland Law Firms, law firms of Hong Kong or Macau may not operate in association with mainland law firms in the form of partnership or corporate association. Hence, association in the form of contract, with its flexibility, will become the main direction for cooperation between Hong Kong and mainland firms. Under the association model, resource sharing and complementarity between the law firms in the two places will facilitate the exchange of professional expertise in offshore investment, international trade, IPR, environmental protection and other areas thereby improving the quality of service. Operating in the form of association, the two law firms may maintain their independent legal status, operate separately in their own name, keep their own books, and bear separate civil liabilities. Such form of cooperation can also increase opportunities for Hong Kong law firms as they may capitalise on the network of their mainland partners. Operating in the form of association is therefore the recommended mode of operation for small- and medium-sized law firms of Hong Kong which are eager to tap the mainland market.

Points to Note for Hong Kong Legal Practitioners

Under CEPA, Hong Kong law firms (especially small and medium ones), professionals and residents enjoy easier access to the mainland legal services market. While CEPA aims to lower the entry threshold for Hong Kong's legal sector, it is not meant to offer a special privilege. Hong Kong permanent residents with Chinese citizenship may sit the legal qualifying examination in the mainland. This is an advantage Hong Kong lawyers have over their foreign counterparts. However, as the running pass rate of the highly demanding examination is 7% only and articleship is required before commencing legal practice, the path to becoming a practising lawyer in the mainland remains very challenging.

More cooperation and contact with mainland and foreign law firms should be sought. As some representatives of the representative offices of Hong Kong law firms in Guangzhou point out, even though they may be allowed to handle domestic legal cases in the future, they would still concentrate on providing legal advice on Hong Kong laws and deal with cases related to Hong Kong for their mainland clients. This is mainly due to several constraints such as language, source of cases, understanding of Chinese laws, and understanding of how law is enforced in China. Meanwhile, they will further strengthen cooperation with mainland and foreign law firms. For example, some representative offices of Hong Kong law firms have established a network of case referral with mainland and foreign law firms operating in different cities. They reckon this is an effective way of securing a long-term, steady source of cases. Besides, the efficiency of handling referral cases by the representative offices, mainland law firms and foreign law firms can be enhanced and the quality of service can be guaranteed.

Efforts have to be made to raise professional standards. Generally speaking, the service quality of multinational law firms is higher than that of smaller firms from Hong Kong. Small and medium Hong Kong law firms wishing to establish a foothold in Pan-PRD must be able to offer services on a par with international standards and charge fees that are competitive compared with the large players. Hong Kong lawyers wishing to tap the Pan-PRD market should acquire a good understanding of China and Chinese laws which is a prerequisite for providing a high level of service. As high-tech sectors and the economy as a whole continue to grow at a break neck pace, demand for more sophisticated legal services is on the rise. Team work involving lawyers with different professional expertise is increasingly sought after. It is therefore very important for Hong Kong lawyers to pursue personal professional advancement on an on-going basis.