International Law Firms Are Finding Opportunity in China

BEIJING — When Liu Chuan-zhi started a personal computer business in 1984 off "Swindler's Alley," Beijing's electronics black market, he could never have imagined it would one day buy IBM Corp.'s PC business.

Similarly, the firm of Clifford Chance, which handled the Lenovo-IBM deal, would have had little idea that within 20 years of becoming the first European firm to set up shop on the mainland it would be acting in 65 jurisdictions on such a significant deal for a company based in the People's Republic of China.

The IBM-Lenovo deal is a powerful symbol of the opportunity that is developing for international law firms in China. Although much of the work handled by foreign firms still relates to inward investment, or Chinese companies listing on the Hong Kong stock exchange, the development of Chinese companies into dynamic global entities is exciting for lawyers.

Often young, entrepreneurial and with global ambition, such companies are a refreshing alternative to former state-owned organizations. More important, they are willing and able to behave like conventional multinational law firm clients.

For example, Chinese companies tend to be aggressive on pricing in their home markets. But this was not an issue for Clifford Chance acting for Lenovo. "Happily, we were able to persuade it about our value proposition," said John Healy, one of the U.S. partners on the deal.

The Chinese legal market is reflecting the rapid changes taking place in the economy and society as a whole. Most Chinese law firms focus on the domestic market, although they are increasingly sophisticated and developing fast. Many lawyers at these firms have foreign training and experience. Chinese firms also tend to have better networks than foreign firms as well as better government connections.

However, the Chinese legal profession, which has been allowed to exist properly only since 1979, and to form non-state-owned partnerships since 1996, is still young.

"We are like teenagers compared to the international law firms," said Jungfen Wang, managing partner of China's largest law firm, King & Wood.

All the same, multinational companies are becoming more comfortable about dealing with Chinese law firms directly instead of going through their international advisors.

According to Lucille Barale, a partner at Freshfields Bruckhaus Deringer, another firm with a long history in China, companies are increasingly knowledgeable about doing business in China. They know the need for transparency, careful due diligence and government approval.