China - Law Firms The Chinese Economy: A Wealth Of Opportunities For Lawyers

Thursday, December 1, 2005 - 01:00

Editor: Mr. Nee, would you tell our readers something about your background and professional experience?

Nee: I started my career as an associate in Coudert Brothers' new Hong Kong office in 1973. I had lived in Hong Kong, having taught as a Princeton in Asia Fellow at the Chinese University. Since then I have spent approximately 25 years in China, most of it in Hong Kong, but three years of that time in Beijing and four in Shanghai.

Editor: Your experience of practicing law in China spans many years. Will you share with us your thoughts on the development of a legal system in China from the initial early opening of the Deng Xiaoping era to the China of the World Trade Organization?

Nee: At the time Coudert began practicing in China there were no laws. The joint venture law, which was adopted in July 1979, was less than five pages long. It constituted the basis on which foreigners were expected to risk their money in a state-planned economy. Since that time, China has developed a comprehensive set of laws, and its civil law system is as extensive as any country in Asia, including developed countries such as Hong Kong, Singapore and Japan. This has been a slow process, however, and the opening of the country has been gradual. China's accession to the WTO in 2001, after a fifteen-year negotiation, has served to greatly accelerate the pace. Today, most areas of business are open to foreign companies operating through a subsidiary. There are areas that require joint ventures, but those are becoming fewer as time passes.

Editor: Orrick Herrington & Sutcliffe and Coudert Brothers recently concluded an agreement for the transition to Orrick of a substantial portion of Coudert's China practice. How is this proceeding?

Nee: Orrick opened its new office in Hong Kong in November using the Orrick Coudert name. The joint name will be used as a statement that Orrick intends to grow its China practice by building on Coudert's strong legacy. Orrick plans to open offices in Beijing and Shanghai as soon as the Ministry of Justice completes the approval process. In Hong Kong we have five partners and 15 associates, and the transition to Orrick has been seamless. That office has just completed an IPO for a major media company. The partners and associates in Beijing and Shanghai who will be joining Orrick continue to work under the Coudert Brothers name. Needless to say, they continue to handle their client matters with the same high standards as always.

Editor: What are the principal practice areas involved in this transaction?

Nee: It is still principally a foreign investment practice. The representation of foreign enterprises investing in China, either through subsidiaries or with a Chinese partner in a joint venture, constitutes about 60 percent of the total work of the Hong Kong, Beijing and Shanghai offices. We also handle licensing arrangements, intellectual property protection and franchising.

Another aspect of the practice involves securities offerings for Chinese companies that go to the foreign securities markets, such as Hong Kong or New York. This is quite an active practice area.

Finally, we represent Chinese companies that encounter problems outside of China. Some of this is litigation work, some concerns Chinese investment abroad.

Editor: And your China-related practice in New York? Please tell us about the projects you expect to be handling on Orrick's behalf.

Nee: What I do in New York is similar to what occurs in the China practice in Asia. And it involves the same clients. The practice has always been run as a unified group, and technology helps us to deliver the same level of service wherever it originates.

Editor: I understand you are publishing a treatise on practicing law in China. When will this appear? Can you provide us with an overview?

Nee: It has just been published. It is called Shareholder Agreements And Joint Ventures In The People's Republic Of China, and the publisher is Sweet & Maxwell Asia. It represents a compilation of 25 years of experience in doing joint ventures in China. While joint ventures are not the most popular form of investing, certain industries must use this vehicle if they wish to enter the market. The book is for practitioners and students that are interested in the investment regime in China.

Editor: One of the themes of our publication concerns the rule of law. Would you share with us your thoughts on how this discussion is proceeding in China?

Nee: In the IP area, as but one example, China today has intellectual property laws as good, if not better, than those of most countries in Asia. Enforceability is another matter, and the Chinese authorities admit that the judicial system has failed to rigorously enforce what is on the books. Nevertheless, the situation is improving. The driving force for improvement is coming from the Chinese companies that, for the first time, are engaged in R&D work that they wish to see protected by these laws. As we have seen elsewhere, particularly in Malaysia and Taiwan, IP protection will improve quickly once the domestic players are the ones pushing for reform.

Editor: What about the handling of disputes between a foreign corporation and a Chinese party, particularly where the latter is a governmental agency?

Nee: The reform movement in China has tried to move the ministries and governmental agencies out of the business arena and into the regulatory side. That is a difficult thing to do when the platform is a state-planned and -owned economy. Nevertheless, the trend is encouraging. With an increasing number of state-owned enterprises being sold through public offerings and with increasing foreign investment through subsidiaries and joint ventures, truly independent companies are emerging in China. At the same time the ministries and government agencies are moving towards becoming regulators as opposed to profit-makers.

However, if a foreign company were to be engaged in a lawsuit against a Chinese party in a Chinese court, there is no question but that the domestic party would have an ability to influence the outcome today. This will change in time, and it is the clear objective of both the Ministry of Justice and the Chinese government as a whole to achieve this result.

Editor: What about arbitration vs. recourse to Chinese courts?

Nee: The Chinese courts are getting better at handling commercial disputes, and increasingly we are seeing such disputes being taken to the courts. The general rule remains, however, that a foreign investor should try to include an arbitration clause in its contracts.

Editor: Is there a choice to be made between CIETAC arbitration and arbitration in an international forum?

Nee: Over the years CIETAC has put in a great deal of effort into establishing a reputation for independence and even-handedness. CIETAC suffers somewhat from the fact that it requires that arbitrators be chosen from a CIETAC panel - the majority of whom are Chinese nationals - and this requirement may create the perception that there is a bias against the foreign party. Our experience with CIETAC, however, has been quite good in both investment and commercial transactions. We find their arbitration awards to be fair, based on the facts, and relatively easy to enforce within China.

Editor: As China's position in the world's economy becomes increasingly important, if not dominant, is there a risk that the rule of law might come to prevail in the commercial arena but not elsewhere? I am thinking of two parallel legal tracks, one for Chinese and foreigners doing business in China and the other for the Chinese in their civil and domestic capacities. Any thoughts?

Nee: In my opinion that is an unlikely development. There is more liberalization in the economic sphere than in the civil justice sphere. That is intentional. The Chinese have taken a long, hard look at what occurred with the collapse of the Soviet Union, where economic and political reform were implemented at the same time. The reason that two separate systems of justice will not be a permanent feature in China, in my view, is the fact that today China turns out more lawyers than the United States. These are idealistic young people, and they are well trained. I have found them determined to see the law enforced, whether in a civil or a criminal matter. Over time, that is going to make the difference.

Editor: In doing business in China, how important is having access to governmental authorities?

Nee: The authorities in China play a more significant role in the economy than their American counterparts. They are the regulators. In my experience, they have a practical, straightforward attitude toward their responsibilities in the foreign investment sphere, but being connected, and staying connected, with them is important.

In my view, it has never been necessary to have special connections. All of the governmental agencies have Internet sites that list their telephone numbers. It is possible to reach them, and if they have an answer to your question they will give it. Contacting high level officials on questions of policy is more difficult, but then that is true everywhere in the world.

Editor: How about facility with Mandarin? Is this increasingly important?

Nee: A great number of Chinese speak English. If you are going to do business in China, however, knowing Mandarin is an essential qualification. It serves to avoid misunderstandings, among other things. Most of the younger generation of lawyers, whether foreigners or overseas Chinese, have a facility in Mandarin.

Editor: What about the future? Where do you see the Chinese economy going?

Nee: Assuming that there are no disruptive political events, I believe we will see continued high levels of growth in China for the next ten years. They seem to have managed to properly allocate capital to projects through the market mechanism. This is resulting in higher levels of production. At the same time, they have an enormous reserve of population in the countryside which serves to keep the cost of production low. It is hard to imagine a country that will be able to compete with China because of its efficient use of capital and its endless sources of inexpensive labor.

Editor: Where would you like Orrick to be over the next few years?

Nee: Over the past decade, Orrick experienced a remarkable transition from being a regional firm in California to one of the world's most dynamic global firms. Just this year the firm has opened offices in Moscow, Taipei and Hong Kong. The London and Tokyo offices have doubled. The firm has a vision of being a place where clients can be served on the types of transactions most important to them in the markets that are most vital to them. That includes financial centers like New York, Shanghai, Hong Kong, London and Tokyo, as well as the world's most active and growing commercial centers, including Paris, Los Angeles, Moscow and San Francisco. Germany has been targeted as the next likely location for expansion.

With regards to China, I would like to see the firm grow at the speed of the Chinese economy. If we can do that, I will be more than satisfied.