Editor: Yuval, please tell our readers briefly about your background.
Yuval: I received my basic legal education in Israel at the Hebrew University, and after clerking for the Chief Justice of the Israeli Supreme Court, Idid an LL.M. and a J.S.D. (the legal equivalent of a Ph.D.) at the University of Chicago on a Fulbright scholarship. I returned to Israel where I worked for a couple years and then came to Proskauer in New York, where I have been since 1999, first as an associate and since 2005 as a partner. I am currently in the final stages of relocating to Hong Kong.
Editor: Ying, would you tell us about your background.
Ying: I am a native Chinese, having gone to Peking University where I studied law and was a law professor before I came to the U.S. to study law at Harvard. After that I came back to Hong Kong to work with several international firms for more than 14 years doing corporate and M&A transactions with a big focus on China. Recently I joined Proskauer Rose in this capacity.
Editor: I gather that Proskauer's only office is in Hong Kong, not on the Mainland?
Ying: At this point yes, but the goal is to open an office in Beijing as soon as we can and perhaps later additional offices in other cities, such as Shanghai. At this moment we have filed the application to open our Beijing office and we're waiting for the approval of the license. As with many international firms, when you expand into Asia, Hong Kong is the first place you start since Hong Kong allows for a speedier entry.
Editor: Could each of you tell me about your major practice area.
Yuval: My practice consists primarily of general corporate, M&A (public and private) and securities work. I have also developed a specific expertise in the hospitality, or lodging and gaming, sector. The hospitality work includes M&A (single or multiple property as well as sales of chains and brands) and general corporate work that is focused on this industry as well as hospitality specific work, such as hotel management agreements between hotel operators and owners.
The launch of our Asia practice is focused on three of our core practices, for each of which we have an internationally known brand name: (1) our private investment funds practice, which includes fund formation, an area in which we have one of the leading U.S. practices as well as well-known practices in Paris and in London, and also includes our significant transactional private equity practice; (2) our sports practice, which is the premiere such practice in the U.S., where we represent most major U.S. sports leagues as well as many teams. This includes representing the National Basketball Association in connection with its recently formed joint venture, NBA China; and (3) our lodging and gaming practice, a worldwide practice with clients whom we have been representing for many years all over the world, including Asia. Having offices in Asia will allow us to service our clients much better and to capture more of the work that simply can't be done from the U.S. Ying: As part of my corporate M&A practice involving China, I have been representing U.S. and European international companies entering the China market, giving them strategic advice on how to set up their businesses in China, advising them on the local regulatory issues and performing transactional work. I also help Chinese clients go public or raise funds outside of China, including listing on the New York and Hong Kong Stock Exchanges. Recently private equity has been the main focus of my work. I have an industry focus in hospitality, lodging and gaming as well. We represent international companies, either through real estate development or acquisitions or hotel management service.
And Yuval mentioned one of the other three cornerstone practices - sports law. I've been heavily involved in that - with the NBA and other sports leagues entering into China.
Because of Yao Ming and other well-known Chinese players, basketball has become very popular in China and the NBA has wide recognition. They have a plan to construct and operate arenas in major cities in China, like in the U.S., to hold all kinds of public events. This is a very popular concept here.
Yuval: The NBA project is a great example of our initial strategy which is to take our expertise in our premier practices and use it to represent our existing clients in Asia, and particularly in China. This way we are hitting the ground running with clients with whom we have worked in the past.
Editor: China has just initiated a sweeping new economic stimulus plan in the amount of $586 billion intended for major infrastructure redevelopment to counter the worldwide economic slowdown. Do you expect China to come out of the economic crisis more quickly than other nations as a result of this aggressive action?
Ying: We are living in a very difficult economic environment. China is only in a slightly better position to face this challenge. China is one of the few countries that is expected to grow materially this year with an expected growth rate of eight or nine percent.
Yuval: The fundamentals here are better because there is a foreign currency surplus, and Chinese people have been saving as opposed to overspending (as in the U.S.). The banks are not highly leveraged so they don't have the problems that banks elsewhere have. Domestic growth is robust, so China is positioned better than other countries and will probably recover faster, but one would be kidding him/herself to think that China will not be significantly affected.
Editor: What impact has the financial crisis worldwide had on foreign investment in Hong Kong and in China generally?
Ying: While transactions have slowed, things are not as bad as in the U.S. In terms of the economy U.S. investment has been shrinking with the closing down of companies in Hong Kong and China, some of which are Hong Kong companies. Some of our clients have chosen to slow down completion of projects until later. But I do have a few new clients who are inquiring about the potential for an opportune acquisition.
Yuval: Clearly foreign banks or investors who don't have the money cannot continue to invest - so that's affecting investment in China. On the other hand, investors are looking at this region and saying this is where there is growth, so a greater portion of available resources will be directed towards this region.
Editor: This past August China implemented new merger-control antitrust rules. Have these new laws had an impact on businesses looking to invest in China?
Ying: This law was in place even before the economic crisis. China is following the trend set by the rest of the world. Merger control rules are part of the national antitrust law. These laws and regulations borrowed heavily from the U.S. and European antitrust laws, so they should be familiar to us. I don't see any direct effect of this law on the economy currently, but the implementation of the antitrust merger control rule is going to be a long process in China. Having a good law is one thing, but its implementation can be very challenging since you need a lot of resources. In China it remains to be tested.
Editor: Do you think on its face the law is very positive in terms of favoring business combinations?
Ying: I think so. It's not as complicated as in the U.S. or Europe, at least in practice. I represent clients in filing the merger-control application for the review process; so far most of them can pass that review with no major problems. MOFCOM (i.e., the Minstry of Commerce) and SAIC (i.e., the State Administration of Industry and Commerce), are primarily the authorities in charge of the merger control review.
Editor: The Mainland Chinese government has historically been restrictive in terms of allowing foreign investment in certain business sectors. Which sectors are still off limits to foreign investment? Have you seen a loosening of restrictions in recent years?
Ying: The government still controls telecom. Although they claim to be liberalizing the policy, there has not been substantial improvement yet. Telecom will be divided into two categories: one is basic telecom - landline and mobile, the other is a value-added business like Internet business. In basic telecom there has not been any major foreign investment as yet, and foreigners may not control a majority stake. In the Internet-related business a foreigner may only hold up to 50 percent as in the case of a joint venture. The broadcasting media and newspapers are not open. They may be gradually opening as many international groups are coming to China to provide infrastructure services - setting up a joint-venture to provide consulting, technical or infrastructure service to the local licensed operators. Insurance is being opened very quickly: companies like AIG have been in China for some time and other big insurance companies are also coming to China. In sports-related projects foreign investors are fully encouraged by the government, allowing for control of sport-related projects such as stadium construction and operation, but for arts performance projects foreigners are limited to a 49 percent ownership.
Editor: In order to conform to WTO requirements, China is restructuring ways in which foreign corporations must conduct their operations. Has this affected business relations with the U.S. as well as Hong Kong?
Ying: Yes, along with China's joining WTO, it has liberalized many investment sectors as mentioned earlier and has had a very positive impact on its business relations with the U.S., other countries and Hong Kong in general. China is becoming more and more internationalized. While Hong Kong is still treated as an independent jurisdiction, its position is different from that of the U.S. or a European country. There are bi-lateral arrangements between Hong Kong and China such as CEPA, which gives Hong Kong investors special treatment. So when U.S. companies approach the region, they will normally do it through an intermediate company in Hong Kong in order to enter China as a Hong Kong company.
Editor: Since the hand-over of Hong Kong to China, has there been a tightening of business activity in Hong Kong?
Ying: I was in Hong Kong before the hand-over, in 1994, and I have witnessed what has happened over the past years, which I consider to be quite positive. After the hand-over, Hong Kong is allowed more direct relationships with China. In the current situation they probably get greater preference from China in terms of economic relationships than any other country. From a political point of view, Hong Kong is very important to Mainland China. One country - two systems. Mainland China has to let Hong Kong be successful. So far the policy is working well.
Yuval: With the existing economic situation, the world is focused so much more on China and Asia in general. As a result, there is a lot more interest in doing business in and with China. One would think companies will be encouraged to be here because it's a win/win for everyone.
Editor: With the summer Olympics the Chinese government was openly trying to win over Western approval for more liberal policies. Do you expect this attitude toward greater liberalization of opportunities for Western governments will continue?
Ying: Yes, definitely. I was in Beijing during the Olympic period, and there was a substantial improvement in conditions - the environment, the traffic, and the convenience offered by all services. That was the impact of the Olympics. In terms of foreign investment or activities within China, it is encouraging that China is becoming a more open society. The WTO commitments put in place more laws and regulations. But there is another feature, not directly related to the WTO or the Olympics. China is restricting foreign capital from coming into China to speculate as in the past. Right now China has enough money but needs foreign technology and management. The focus of the foreign investment policies have quietly changed. In the past, if you put hard currency on the table, they would give you whatever favorable terms and conditions in contracts that you wished. Now they can negotiate and be more selective about the investors coming in.
Yuval: And that's why Proskauer is here. We're marrying our core competencies with the opportunities and expanding market in China.
Ying: As a high-end law firm, with this change in the environment we can do more sophisticated work, which is required by both international and Chinese enterprises.