Chapter Twenty-four Legal Services

Chapter 24 Legal Services

Recognizing the importance of legal services in modern services industry, China liberalized part of the legal services as early as 1992. After the entry into the WTO, China has been further promoting the internationalization of its legal services as part of the efforts to meet its commitments.

People providing legal services in China are made up of lawyers, accountants, auditors, tax lawyers, forensic professionals, price analysts, patent agents, trade mark agents, and copyright agents who have professional qualifications and credentials related to law. Currently, legal services are administered by different government bodies. Since 1979 when the practice of law was restored, legal services have been developing rapidly. The number of lawyers and law firms in China now stand at 130,000 and 10,873 respectively, compared with a few dozen firms and 212 lawyers in 1979. While business income of these law firms has grown to over RMB8 billion, the professional level of lawyers as well as the competitiveness of the law firms is also rising steadily, no longer a neglected sector in the services industry.

One year after acceding to the WTO, China removed geographic and quantitative restrictions on foreign law firms. At the same time, relevant laws and regulations were drafted and promulgated, such as the Administrative Regulations on the Representative Offices of Foreign Law Firms in China, providing foreign law firms with an easier access to the Chinese market as well as a legal guarantee of a sound business environment. The signing of CEPA with Hong Kong was a breakthrough in further liberalizing the industry for special administrative regions like Hong Kong and Macao. More and more provinces and cities (including those in western regions) are getting ready to embrace lawyers from Hong Kong, Macao, and foreign countries. So far, out of 50 leading international law firms (in terms of scale and income), more than half have set up representative offices in China. These offices are providing legal services with enthusiasm in China, covering trade and technical cooperation conducted by more than 20 countries and regions in China. In 2002, China approved 17 foreign law firms and offices and 18 representative offices of Hong Kong law firms. Among them, 16 were the second representative offices set up by foreign law firms and 5 were the second representative offices by Hong Kong law firms. By 2003, 104 foreign law firms and 28 Hong Kong law firms have rep. offices in china, making Shanghai the priority business location for first-class international and domestic intermediaries. Of the top 100 global law firms, 21 have rep. offices in Shanghai, 7 of them ranking among top 10. Besides, most of them are famous law firms either in the Wall Street or in the City of London. Shanghai is now home to 68 subsidiaries of renowned domestic law firms, 62 representative offices of foreign law firms, and 10 rep. offices of Hong Kong law firms. The number of firms, already 45% of the country’s total, has secured Shanghai No.1 position in China.

Over the past three years since accession, there has been a substantial growth in legal services. In 2003, there were 538 law firms, 5602 certified lawyers in Shanghai, representing a 9-fold and 8.7-fold increase respectively over that of 1990. Total income in the sector reached RMB1.64 billion in 2003, up 20.6%. Business scope has been extended greatly in that some law firms are offering more comprehensive services while others are becoming more specialized. Reputation of some of the firms is also growing. Take the GRANDALL Legal Group for example. The group was co-founded by the law firms in Shanghai, Beijing, and Shenzhen to pull their advantages together. Other law firms such as ALLBRIGHT, JIN MAO, LLINKS, FANGDA, DUAN & DUAN, JIANWEI have also achieved certain scale in offering specialized or comprehensive services.

However, what is worth noting is that the legal services in China is far from being sophisticated compared with that in developed countries, with 100,000 people sharing 8 lawyers only in 2001. This figure is not only far below that of the developed countries but also lower than some of the developing countries and regions. As far as international legal services are concerned, there is still a lot to be desired for domestic lawyers in terms of quantity and professional level. The largest law firm in China employs not more than 200 lawyers. There is no domestic law firm with annual income exceeding RMB40 million. In contrast, the top 50 law firms in the world employ about 800 people on average while the top 10 employ an average of 1300 with the No. 1 law firm employing 2700 lawyers. From the global perspective, there are about 20 firms with annual earnings exceeding USD10 billion. Compared with these global giants, China’s legal services still lag behind. As Shanghai is working towards the goal of becoming an international economic, financial, trade and shipping centre, it is imperative for the city to improve legal services. The major tasks ahead for the sector is to expand further in scale, tap its potentials, adjust the services structure, and aim at the upper market. In doing so, efforts will have to be made to improve relevant rules, set up brand image, actively participate in international competition, and further liberalize the sector.

Box 24.1 China’s entry commitments regarding legal services (CPC861, excluding the practice of Chinese law)

I. Market access:

1. Cross-border supply: no restriction;

2. Consumption abroad: no restriction;

3. Commercial existence: Foreign law firms can set up profit-making representative offices in Beijing, Shanghai, Guangzhou, Shenzhen, Haikou, Dalian, Qingdao, Ningbo, Yantai, Tianjin, Suzhou, Xiamen, Zhuhai, Hangzhou, Fuzhou, Wuhan, Chengdu, Shenyang and Kunming. The total number of representative offices shall be no less than the number at the time of China’s accession to the WTO. Besides, one foreign law firm is only allowed to set up one representative office in China. The above quantitative and geographic restrictions shall be lifted one year after China’s accession. Business scope of foreign law firms is subject to the following restrictions: a) Foreign law firms are only allowed to offer consulting services to clients regarding the laws of the countries or regions to which the firms are entitled as well as international conventions and practices; b) when entrusted by a Chinese law firm, a foreign law firm can provide legal services within the scope of the entrusting firm; c) Foreign law firms are allowed to represent foreign clients and entrust Chinese law firms with practice related to Chinese laws; d) Foreign law firms can enter into long-term entrustment contracts providing for close working relationship with firms practicing Chinese law; 4) They are also allowed to provide information regarding the implications of the legal environment in China. Agreement is allowed between the foreign and Chinese parties to allow entrusting foreign office to have direct contacts with lawyers in the entrusted Chinese firm. The representatives shall be practitioner lawyers and members of lawyers’ associations in WTO member countries and have practiced for no less than 2 years outside China. The chief representative shall be a partner or equivalent (for instance member of a limited liability law office) and have practiced for at least 3 years outside China.

4. The movement of natural persons: no other commitments have been made than the measures regarding the entry and temporary stay of the following types of natural persons:

a) Managers, senior executives and experts of companies in WTO member countries which have already set up rep. offices, branches or subsidiaries in the People’s Republic of China, due to the internal transfer made by their companies, shall be allowed to stay in China for three years at the initial stage;

b) Managers, senior executives and experts of companies in WTO member countries, when employed by foreign-invested companies in the People’s Republic of China, shall be given long-term residence permit or short stay for an initial period of 3years according to relevant employment contract, subject to the period which is shorter;

c) Service promotion personnel, that is , people engaged in business related to a foreign services provider in China or representing the services provider on the negotiation of the sale of services, shall be allowed to have a temporary stay of 90 days maximum, provided that such sales or promotions will not be conducted directly to the public and services will not be supplied by the promotion personnel.

II. National treatment:

1. Cross-border supply: no restriction;

2. Consumption abroad: no restriction;

3. Commercial existence: All representatives shall be stay in China no less than 6 months each year and shall not be allowed to employ CPAs licensed by Chinese authorities.

The movement of natural persons: same as that of market access.

Box 24.2: The Breakdown of legal service by CPC

861 Legal services	法律服务
8611 Legal advisory and representation services in the different fields of law	不同法律领域内的法律咨询和代表服务
86111 Legal advisory and representation services concerning criminal law	与刑法有关的法律咨询和代表服务
86119 Legal advisory and representation services in judicial procedures concerning other fields of law	其他法律司法程序中的法律咨询和代表服务
8612 Legal advisory and representation services in statutory procedures of quasijudicial tribunals, boards, etc.	在法定准司法程序中的法律咨询和代表服务
86120 Legal advisory and representation services in statutory procedures of quasijudicial tribunals, boards, etc.
8613 Legal documentation and certification services	法律文书和证明服务
86130 Legal documentation and certification services
8619 Other legal advisory and information services	其他法律咨询和信息服务
8619 Other legal advisory and information services