China On The Stage Of The Global Economy: Challenges And Opportunities

Wednesday, December 1, 2004 - 01:00

Editor: Mr. Nee, would you give our readers an overview of the years you have spent with Coudert Brothers in China?

Nee: All together, I have spent something like 25 years with the Firm in China. It all started in 1973, when I came out to Hong Kong. The Firm had opened an office there a year earlier. I was new to the Firm, but I knew something about Hong Kong, having taught at the Chinese University there during the 1960s. I stayed in Hong Kong for most of my career, except for a couple of years in Beijing beginning in 1979, when I opened Coudert's office there.

Editor: That was the first Western law office in Beijing?

Nee: Yes. This year marks Coudert's 25th year anniversary as the first foreign law firm in mainland China. In early 1979 Jerome Cohen, a Harvard Law School professor, and I arrived in Beijing and immediately attempted to find a way to stay. Our solution was to teach international law in the mornings and practice law in the afternoons.

Editor: When did the Shanghai office open?

Nee: Shanghai was opened twice. The first time was in 1984, at a time when the city was beginning to take off as a destination for foreign investment. In 1992, however, China introduced regulations that prevented foreign law firms from having more than one office in the country, so we were forced to close the Shanghai office. It was not until 2001 that we were able to obtain a second license, and I reopened the Shanghai office. As a reminder of Coudert's role as the first law firm in China, our license to practice law from the Chinese government is # 001.

Editor: How do the three offices relate to one another?

Nee: All three of our China offices work closely together. While Beijing and Shanghai handle more of the direct investment work, and the Hong Kong office deals with more litigation and finance work, most of the work - and, indeed, the 90 lawyers - are interchangeable. The three China offices also work closely with the rest of the Coudert network and practices, since we represent on-the-ground know how in China.

Editor: Needless to say, doing business in China is different from doing business elsewhere. Coudert has an enviable reputation for its excellent relations with a variety of Chinese ministries, including Commerce, Finance and Justice, as well as with the People's Bank of China. This did not just happen. Please tell us how these relationships came about.

Nee: These relationships came about at different times and in different circumstances. As a general matter, however, we have been fortunate in dealing with many of these ministries for our foreign investment clients over many years. The ministries therefore have developed a familiarity with the Firm and its work and then, when they have a need for assistance on some problem outside of China, they tend to think of us. In addition, it has been very helpful for us to have been engaged in putting on seminars for different ministries and in helping them draft legislation.

Editor: Would you tell us about Coudert's educational undertakings in China, for example, the Alexis Coudert Memorial Scholarship with the law faculty of Beijing University?

Nee: Beginning in 1994, we provided funding to Beijing University earmarked for law students in need. At the moment, we are helping some six students under the Alexis Coudert Memorial Scholarship Program, and at Fudan University in Shanghai we help three to five students each year under the Charles Torem Memorial Scholarship Program. A number of these students have joined the Firm following graduation, so it is a good recruiting tool as well as an exercise in good public relations.

Editor: Since China's accession to the World Trade Organization, it has made considerable progress in moving toward assuming a major role in the global economy. Will you give us your thoughts on how this is progressing? From China's perspective? And from that of everyone else?

Nee: In the first year after accession, there was considerable skepticism about whether China would or even could meet its obligations under the WTO. In the past two years, however, most observers have come around to the view that China is in fact honoring most, if not all, of its obligations under the WTO. More and more of the country's economy is opening up as a consequence. One thing that I should mention in this regard is that both the United States and the EU are threatening to impose safeguard measures on Chinese textiles when the multilateral textile agreement ends next year. One of the principal reasons China joined the WTO was to end the discriminatory quota system on its textile exports. Imposing these safeguards would be unfair to China - in particular because it does seem to be living up to its WTO obligations - and resented by the Chinese. I think such measures would be a step in the wrong direction and could have an adverse effect on overall compliance by the Chinese with the WTO regime.

Editor: How has accession to the WTO impacted the work of Coudert Brothers in China?

Nee: The original model involved a foreign enterprise coming to China to engage in manufacturing and then export the product, in addition to selling it within the country. That has changed somewhat. As a result of the WTO, companies are now coming to China in order to set up subsidiaries to distribute products in China - products manufactured elsewhere - and to carry on franchising, licensing and other activities that were not permitted prior to the WTO. I think this is a reflection of the accelerating integration of China into the global economy.

Editor: Would you share with us your thoughts on some of the challenges that China must address as it attempts to modernize and compete in the global arena? I'm thinking of things such as political succession, the Taiwan reunification issue and the threat of nuclear instability in North Korea.

Nee: I think China has mastered the political succession issue. The transfer of power from Jiang Zemin to Hu Jintao occurred very smoothly. China appears to have established a political system that manages the leadership transition process quite efficiently, although not with the transparency expected in the West.

What I do think is a problem in the political area is corruption, something that is influencing basic economic activity in the country on an ever increasing basis. Unless the government can exercise some control over this, it is going to be difficult for China to sustain the rate of foreign investment it has seen in recent years.

The Taiwan issue is one for which there is no easy answer. Whatever the resolution, I am hopeful that it will be a peaceful one.

Nuclear North Korea is a concern for everyone in the neighborhood, and China has acted in a very responsible way on this issue. Most recently, China managed to get the North Koreans to back off on their earlier cancellation of the six party talks. China provides North Korea with most of its food and, accordingly, is in a position to influence the discussion significantly.

Editor: How do political issues such as these affect developments such as the professionalization of the judiciary and enforcement of statutes on the books? On the rule of law generally?

Nee: The political corruption issue is one that has a direct, and pernicious, effect on both the judiciary and the rule of law. There are unfortunate realities in the local courts that prevent them from taking on matters with a political dimension. The courts are reluctant to adjudicate in cases that are entirely commercial where an official of high rank is involved. Until the judiciary develops true independence, and until judges are paid sufficiently well to be able to avoid the temptation of bribery, the rule of law in China is going to be more an aspiration than a reality.

Editor: Is China's development going to continue at the present pace, or are there areas of the economy where things are slowing down?

Nee: There are areas where the economy is slowing down, primarily the result of the government's contraction of the money supply. At the beginning of the year, the economy was growing at a double digit pace. Since then, the government has attempted to cool things down by tightening up on the money supply, bank loans and all forms of capital investment, with the result that the growth rate is down to around nine percent. Where you see a slowdown in the automotive area and in the price of housing, it is largely a consequence of government manipulation of the money supply.

Editor: Over the past couple of years considerable attention has been paid to India, as it sheds its state-controlled economy and emerges onto the stage of world competition. While China has had a head start of about 15 years, India has made enormous strides of late. Does India represent a competitive threat to China?

Nee: While I am not an expert on India, I would have to say that I do not believe that India poses a competitive threat to China. From what I have seen over the past few years, Chinese companies are investing in India, and Indian companies are investing in China. Both of these countries have enormous consumer-type economies with immense domestic markets. At the moment, there is not too much of an overlap on what each economy produces and sells on the world market. I suspect that we will see a considerable volume of two-way trade that is good for both countries.

Editor: What about the future? Where do you see China's economy in, say, ten years?

Nee: Well, I will go with all of the economists who say it will be the largest economy in the world by then. I think that it will still be growing in ten years, but at a rate of probably three to four percent, as opposed to nine percent. There will be considerable wealth in the country, and much of that is going to be the personal wealth of individuals. China will have a significant number of billionaires, in numbers proportionate to the size of the economy, as with the U.S. That will reflect the fact that any restraints on personal wealth will have disappeared by then. China's economy will be stable, and I think there is a possibility that the country's political system may well be evolving into a true democracy.

Editor: And Coudert in China? What is that going to look like in ten years?

Nee: Being the first Western law firm in the country should help Coudert maintain momentum as we move forward. That said, Coudert has a great deal of competition these days. I believe there are as many foreign law firms in China today as there are in England. In addition to the foreign firms, there are domestic firms that are growing at a rapid pace, and they represent a new source of sophisticated competition. I do think that Coudert is going to be able to grow as the market grows, however, which should mean that our present group of 90 lawyers will be up to 200, even 250, in ten years' time.