China's demand for high-quality professional legal advice for international deals is increasing, thanks to a rising number of "entering China" foreign companies being attracted to a continually liberalising mainland market and a surging number of "venturing international" mainland enterprises.

Hong Kong based law firms certainly occupy a unique strategic position to provide not only local, but also regional, multi-jurisdictional legal services to meet the demand. Mainland law firms are generally strong in holding a "premium domestic position", but only a few of them have developed pronounced capability not merely in domestic business but also in international business. The task is exceptionally expensive for a mainland law firm nurtured in a market regarded as highly restrictive for foreign participation. In many cases, it involves not just the legal perspective capability, but also the skills in managing different values and business cultures from a wide range of jurisdictions. For instance, in choosing a counsel for syndicated financing, one of the decisive factors is often the firm's track record with the lead participating bank.

Hong Kong's legal sector plays a pivotal role in satisfying professional services needs associated with mainland-related investment. The special arrangements under Closer Economic Partnership Arrangement (CEPA) and simplified procedures for mainland enterprises to invest and set up offices in Hong Kong will not only boost the demand for a wide range of professional services provided by Hong Kong law firms, but also speed up the pace of internationalisation of mainland enterprises.

The Required Skills

Foreign Companies "Entering China"

China is the world's hottest spot for foreign investment interests, its attraction is to rise with the continual liberalisation of its services sectors. Foreign investments in sectors like banking and telecommunications are mostly in the form of cross-border mergers and acquisitions (M&As) with important implications for the required professional services underlining those deals. Cross-border M&As by nature involve complicated transaction structures, which require the concerned professionals to have the experience and sophistication to undertake transactions across different jurisdictions.

Mainland Enterprises "Venturing International"

Spurred by a growing desire to develop new markets worldwide and facilitation due to new government policies, mainland companies' overseas investments are growing rapidly, rising by 78% in 2004. The more mainland firms that venture abroad, the greater will be their need for expert advice for a wide range of issues connected with international capital markets, M&A, commercial litigation and international arbitration, corporate law and intellectual property issues, etc.

Uniqueness of Hong Kong's Legal Sector

International Capability

Hong Kong is home to the largest cluster of international lawyers in Asia -- about 40% of international lawyers in Asia are based in Hong Kong. While China is the largest M&A market in Asia, six out of the top 10 legal advisors in Asia's M&A deals have a significant presence in Hong Kong. In the TDC survey of law firms in Hong Kong conducted in February 2005, 83% of the respondents have dealt with cross-border commercial transactions. Besides, the future looks promising. Close to 80% of the firms see good and steady business prospects from cross-border commercial transactions in the next three to five years.

International-Mainland Clientele

Investment activities in and from Hong Kong (and increasingly those targeting the mainland) count very much on Hong Kong's legal sector for support, bearing in mind that Hong Kong is the world's seven largest investor, and Asia's second largest (or the world's 11th largest) recipient of inward FDI.

Moreover, Hong Kong plays a unique role in channeling and undertaking mainland-related investment. Hong Kong is the hottest spot for mainland companies' overseas investment, absorbing 40% of the mainland FDI outflows in 2003. An overwhelming majority of the overseas-listed mainland companies have their listings in Hong Kong. Currently, over 300 mainland companies are listed in Hong Kong, ten times that listed in the US -- the second most popular place for mainland firms seeking overseas listings.

Hong Kong law firms have established a strong international-mainland business network and clientele. In the TDC survey, close to 70% of the responded law firms have served mainland clients and 70-80% of the respondents have served foreign clients in other overseas markets.

CEPA and Greater Access to the Mainland Market

The competitiveness of Hong Kong law firms and legal professionals to serve clients in the mainland market is further enhanced by the significant market liberalisation measures brought about by CEPA arrangements. In the TDC's survey, about 70-90% of the responded law firms see good and steady business prospects from various types of clients on the mainland in the next three to five years. They also see that mainland businesses will account for a rising share of their overall business activities.

Conclusion

The Chinese mainland and mainland companies are increasingly the investment targets of Hong Kong and global investors. Undoubtedly, mainland-related investment activities will be top business drivers for professional services firms. While the significant market liberalisation measures under CEPA give Hong Kong law firms greater access to the mainland market, Hong Kong's legal expertise and its local and international legal services platform are the more integral elements in satisfying the needs of mainland companies. The clustering of legal professionals and law firms with strong experience in international deals, along with Hong Kong's status as an international arbitration centre, enables Hong Kong's legal sector to offer a comprehensive range of specialised services and "total solutions" to mainland companies.

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