From being the delinquent of the legal world, China is transforming itself, at least as far as business and commerce are concerned, into a law-abiding citizen.

The world’s leading law firms — Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer, Shearman & Sterling, White & Case and a roll call of other leading firms from the US and Britain — are to be found in offices in Beijing and Shanghai after decades of trying to service the mainland from Hong Kong outposts.

Foreign law firms may be forbidden from practising local People’s Republic of China (PRC) law, and certain restrictions may remain on the ability to recruit Chinese nationals freely, but the skills of Western law firms are in hot demand as both inward and outward investment shifts up a gear. As a result, Chinese business law increasingly has a Western feel to it, with PRC companies able to structure local deals using the legal knowhow on joint ventures or financing garnered by international law firms from decades of experience in Europe and the US.

David Childs, a global managing partner of Clifford Chance, the world’s largest law firm by revenue, told The Times that he expected “at least to double the number of our lawyers on the ground over the next three to five years”, to about 120.

Clifford Chance opened on the mainland in 1985 in Beijing, where it has 22 lawyers, including two partners, and in 1993 in Shanghai, where it has 35 lawyers, including three partners. But even with 120 lawyers, Clifford Chance’s mainland Chinese practice would still be only the size of its Spanish presence, a country with less than one thirtieth the population of the China and whose economy the People’s Republic will dwarf over the coming years.

Clifford Chance, like other large British and American law firms, would love to grow at a far faster pace, but there is no end in sight to the protectionism that keeps PRC law the domain of home-grown firms.

“I wish I could say the Chinese market will open up to foreigners,” Mr Childs said. “But I do not see any change in the position in the short term. I am not sure, however, that it is in Chinese interest to keep international firms out.

“China is increasingly important for our client companies; we want to be where they do business. Not being able to practise PRC law is an impediment to advising clients and to us hiring in local lawyers.”

This impediment has not stopped British law firms winning some notable Chinese deals. Clifford Chance advised Lenovo’s acquisition of IBM’s PC business in the US in late 2005 for $1.25 billion, and Freshfields has had a run advising on multibillion-dollar flotations of “red chip” PRC companies.

International law firms form special relationships with a handful of local law firms, with both sides ensuring that they could never be called a joint venture, an operating structure that is forbidden between foreign and local law firms.

However, in striking contrast to India, China has allowed law firms to move in and set up shop in the first place. Obtaining a licence to practise as a law firm in China is still a difficult process, but there are ways around it.

For example, Rouse & Co International, which has three offices in mainland China, has close relationships with specific Chinese law firms in the cities in which it practises, so it is almost as good as having a licence. Strictly speaking, Rouse operates in China as a “consulting business”.

Litigation has also taken on a Western feel in China. “Until 1990 there was no legal protection of, for example, intellectual property rights in China,” Rupert Ross-Macdonald, of Rouse, said.

“But in recent years things have changed dramatically. Whereas ten to 15 years ago it was all very difficult and essentially consisted of negotiating with government officials, it is now possible to get effective remedies through the courts.”

There is now a network of intellectual property tribunals and courts in the big centres, enabling Western businesses to get redress in a way that would have been inconceivable even a decade ago. The decisive moment came when China joined the World Trade Organisation in 2001 and triggered a wholesale opening up to Western influence.

Moreover, the Chinese lawyers with whom Western lawyers work are themselves increasingly Western in outlook. Many have gone abroad, especially to the US, to gain qualifications, and they often return to China with years of experience under their belts of working for Western firms.

Exactly how this will all pan out is one of the crucial issues facing the leading Western law firms with global aspirations. The view in some quarters is that China and the Far East will be where the battle for global leadership in law will be fought out. The 64 billion yuan question is whether Chinese firms will grow sufficiently in stature to deliver the professional legal services that their clients need worldwide.

Legal requirements

- Foreigners are forbidden from owning Chinese law firms but can work in cooperation with local practices. They are also forbidden from practising Chinese law without a licence

- Major US and European law firms have advised on Chinese matters for many years but have generally worked from Hong Kong

- In recent years, a number of big firms have been granted practising licences and have opened offices in Beijing and Shanghai

- Firms generally target capital markets and M&A/private equity work but are increasingly courting Chinese corporations

- Chinese-qualified, English-speaking lawyers with experience overseas are in huge demand

- Clifford Chance, the world’s largest law firm, has about 60 legal professionals in mainland China

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