1. INTRODUCTION
Globalization is rapidly changing the landscape of law practice around the world.Footnote 1 China is no exception to this historic transformation of the legal profession, particularly its corporate sector. Since the country joined the World Trade Organization (WTO) in 2001, China has witnessed the massive growth of its corporate law firms in number and size,Footnote 2 the gradual expansion of its in-house counsel from state-owned enterprises (SOEs) to foreign and private corporations,Footnote 3 the state-led internationalization of its system of legal education,Footnote 4 the shifting balance between its inbound and outbound investments, as well as the recent rise of public interest lawyering.Footnote 5 While socio-legal researchers have written on some of those topics, there has been little scholarly effort to provide an integrated theoretical framework for analyzing China’s corporate legal sector as a whole.
It is the task of this article to offer such a theoretical framework, not only for studying China, but also potentially for studying other emerging economies, such as Brazil, India, Russia, and South Africa (i.e. the “BRICS” countries). Our research originates from a large comparative study of the impact of globalization on the legal profession in Brazil, India, and China, namely the Globalization, Lawyers, and Emerging Economies (GLEE) Project. The GLEE Project examines how globalization is reshaping the market for legal services in important emerging economies, studying how these developments are contributing to the transformation of the political economy in these countries, their connection to the broader world economy and the institutions of global governance, North–South engagement and competition, evolving South–South collaboration, and the development of the increasingly globalized market for corporate legal services. With research teams in Brazil, India, and China, the GLEE Project has conducted empirical studies in those three countries on various topics such as domestic and foreign elite law firms, in-house counsel, legal education, cross-border transactions, capacity-building in international economic law, legal process outsourcing, public interest lawyering, professional regulation, and so on. This article reports on GLEE’s work in China.
From 2011 to 2016, the GLEE China research team, consisting of 15 legal scholars and social scientists based in China and the US, has closely examined different aspects of China’s corporate legal sector and produced a number of academic papers to be published as an edited volume. While it is not the task of this article to summarize all the findings of the ongoing GLEE China research, we seek to provide an overview of what the GLEE researchers have found in China and use it to outline an ecological approach that was adopted in our studies of the Chinese corporate legal sector and its impact on lawyers and society.
In the rest of the article, we first provide a brief overview of the major research questions and contributions of the GLEE Project. Then we propose an analytical framework for studying the corporate legal sector in China from an ecological perspective. The next three sections of the article present the preliminary findings of the GLEE China research team, reported at a conference held at Harvard Center Shanghai in August 2015. We classify the GLEE China research into three segments: (1) the corporate core of elite law firms and in-house legal departments; (2) the international linkages through China’s WTO accession as well as its inbound and outbound investments; and (3) the domestic contexts of legal education, bankruptcy reform, public interest lawyering, and professional regulation. The conclusion discusses the theoretical and policy implications of the GLEE Project for understanding the globalization of China’s economy and its legal profession, as well as the similarities and differences between China and other emerging economies.
2. THE GLEE PROJECT: A CROSS-NATIONAL STUDY OF LAWYERS AND GLOBALIZATION
Originating from the collaboration between Harvard Law School’s Center on the Legal Profession and a number of research institutions in Brazil, India, China, and the US, the GLEE Project focuses on studying activities and dynamics at the intersection of globalization (G), lawyering (L), and emerging economies (EE). It studies major emerging economies, such as the BRICS countries, whose economic performance is likely to affect the performance of the global economy and whose active and passive domestic policies are likely to generate substantial spillovers beyond their borders.Footnote 6 While the GLEE Project initially focuses on Brazil, India, and China, it intends to expand to capture other emerging economies in Africa and the Commonwealth of Independent States (CIS) of the former Soviet Union in future research.
Globalization, as understood in GLEE, refers to
“the closer integration of the countries and peoples of the world, which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders.”Footnote 7
As globalization both formally and informally redraws state boundaries, it challenges one of the key aspects of the legal profession—its traditional restriction to geographic jurisdictions.Footnote 8 Globalization also makes the nature of lawyering more mobile and interconnected, which requires a more processual perspective for analyzing how lawyers, their firms, and other legal institutions move around the globe and, in this dynamic process, construct the profession’s expertise, jurisdictions, and regulation.Footnote 9
Until the GLEE Project, the globalization of the legal profession in the BRICS countries had remained underexplored largely because of the slow progress in the opening up of their legal services markets, as well as seemingly low globalization potential of the domestic legal industry due to the nature of regulatory differences between markets and the paucity of truly global legal products. However, as the balance of the global economy shifts towards the emerging economies, especially after the 2008 global financial crisis, the legal professions in emerging economies are poised to reshape the scholarship on lawyers and globalization.
Corporate lawyers are at the forefront of three globalization processes: globalization of firms, globalization of markets, and, to a lesser extent, globalization of regulation.Footnote 10 They have helped create new international rules and institutions, assisted in the revision of national laws in ways that facilitate integration, and transformed corporate structures. Until recently, this work has largely been carried out by lawyers from advanced economies and legal elites in developing countries who are closely allied with them.Footnote 11 To the extent that emerging economies seek to reshape the rules of global economy in ways more favourable to them, the emergence of a strong domestic corporate legal sector, as well as its overseas expansion, could facilitate global regulatory reform, including the introduction of new intellectual frameworks, new corporate practices, new legitimacy chains, and new transnational legal orders.Footnote 12
While the management of law firms and the regulation of the legal profession have substantially globalized in recent years,Footnote 13 the markets for legal services in the three countries that the GLEE Project studies still display a low level of global integration: China and Brazil place significant limits on foreign lawyers and India has formally excluded them from its market, although, as members of the GLEE team have shown in other research, international law firms nevertheless still play a significant role in the Indian corporate legal market.Footnote 14 As efforts through the WTO and elsewhere to liberalize trade in services proceed, the BRICS countries are to play an increasingly important role in defining the extent to which legal services will be liberalized. While scholars in advanced economies debate the end of traditional lawyers and the demise of the big law firms,Footnote 15 emerging economies are facing the growth of an indigenous corporate bar in the form of increasingly large, complex law firms, and sophisticated in-house counsel.Footnote 16 As these domestic service providers compete with the rapidly globalizing foreign law firms that want to capture the markets in emerging economies, both domestic and foreign law firms are experimenting with new organizational forms and new ways of hiring, training, and developing lawyers. Furthermore, legal professions in emerging economies are exercising a growing influence in national markets and politics. Corporate lawyers are becoming the new legal elites that form, sustain, and propagate their conceptions of law as social engineers, state law-makers, business entrepreneurs, market brokers, and spokespersons for the public.Footnote 17
The boundaries of the legal profession are increasingly tested in developing countries as well as in the Global North, as technology influences the commoditization of legal services,Footnote 18 and there is an increasingly strong push to educate and hire “globally competent” lawyers.Footnote 19 Boundary work, the social process by which actors construct and negotiate their social boundaries, is widely observed between foreign and domestic law firms, between different sectors of the bar, between law firms and in-house legal departments, and between lawyers and their regulators.Footnote 20 In the BRICS countries, the state is a leading actor in defining and shaping these professional boundaries. In China, the state plays the dominant role in regulating the profession. In India and Brazil, the bar is more important but, in these countries as well, state action directly and indirectly affects professional roles and boundaries. However, the boundary processes between lawyers and clients, as well as between different types of lawyers, are also significant for understanding the changes that globalization has brought to the legal professions in emerging economies.
The GLEE Project not only contributes to our understanding of globalization and the legal profession, but also engages with the scholarship on law and development.Footnote 21 Brazil, India, and China are rapidly growing emerging economies that have been choosing their own development paths rather than aiming to duplicate developmental paths of the most advanced economies or adopt Washington consensus-based templates. They are technologically advanced, relatively capital rich, and can become active competitors in the global legal services market. Corporate lawyers in these countries are often at the centre of economic activity, engaging in practical and political actions around each country’s development policies. Some emerging economies, including China, are exploring new roles for the state in which state action empowers the private sector by stimulating entrepreneurship, subsidizing knowledge creation, and reducing risk. They are coming to see legal services as a possible growth sector and may adopt as a developmental goal modernization and enlargement of their corporate legal sector. The Chinese government’s policies for developing large corporate law firms and building WTO legal capacity since the late 1990s are good examples.Footnote 22 The exchange of power and resources between the legal profession and the state is also of vital importance for understanding professional regulation in the context of globalization.Footnote 23 Furthermore, the state often plays an even more dominant role in the global diffusion of legal education, public interest lawyering, and other legal ideas and institutions outside the corporate core of the legal profession.
3. THE ECOLOGY OF CHINA’S CORPORATE LEGAL SECTOR
The legal system is a complex, multilayered social space. In this space, legal and non-legal actors located in various positions compete for expertise and jurisdictions, struggle for dominance and legitimacy, and exchange power and resources.Footnote 24 Since Heinz and Laumann’s classic study of the Chicago bar, socio-legal scholars have long recognized that the legal profession is bifurcated into two hemispheres according to the different types of clients that lawyers serve.Footnote 25 The corporate hemisphere serves the largest and highest-status corporate clients and enjoys higher income and prestige, whereas the personal hemisphere primarily serves individual and small-business clients in ordinary litigation. Nevertheless, how the corporate hemisphere of the bar is connected to other parts of the corporate legal market, such as elite law schools, in-house legal departments, and government regulators, remains a largely uncharted territory for law and society research. The attention of researchers often focuses on elite law firms,Footnote 26 which are major players in the provision of corporate legal services, without situating these firms in the larger social spaces of national political economies and transnational legal orders.Footnote 27
The GLEE Project maps the rapidly changing landscape of this emerging corporate legal sector in the BRICS countries and examines how this sector is influencing and being influenced by other parts of the legal, economic, political, and social order in these countries, including legal education, competing elites and priorities within the bar, professional regulation, modes of economic development, and approaches to access to justice and the rule of law. The project, however, does more than simply apply theories developed in the US or other developed countries to understand these distinct segments of the corporate legal sector in emerging economies. It also advances our understanding of these distinct parts as forming an interrelated and interactional “ecology” where actions taken in one segment interact in complex ways with those taken in another.Footnote 28
In comparison to other spatial metaphors such as the Bourdieuian concept of “field,” which emphasizes power and domination, ecology focuses instead on how to position actors in the social space as well as the processes of interaction among them.Footnote 29 An ecological analysis of the legal system is not only a system of classification for the legal and non-legal actors, but also a processual analysis of the dynamics of legal change and social change.Footnote 30 For studying lawyers and globalization, in which the legal profession transforms in an interconnected and rapidly changing social process over space and time, ecology is an appealing theoretical metaphor.Footnote 31 The perspective of organizational ecology is also useful for analyzing legal organizational settings such as the rise and fall of corporate law firms, in-house legal departments, and law schools.Footnote 32 This dynamic and interactional approach fits particularly well for the case of China, a de novo case in which all the different parts of the corporate legal sector have emerged in the past two or three decades.
How to analyze the corporate legal sector from an ecological perspective? The first task is to map the spatial landscape of this emerging ecology, which is precisely the empirical focus of this article. Elite law firms, urban law schools, and in-house legal departments in large corporations usually are considered the three pillars of the corporate legal market, yet other institutions such as courts, state regulatory agencies, arbitration commissions, international trade organizations, and non-governmental organizations (NGOs) are also important sites in which corporate law is practised and contested on a daily basis. For the case of China, there are additional layers of complication for both law firms and in-house legal departments. Foreign law offices and domestic law firms are separately regulated, with mergers and personnel flows between them tightly restricted.Footnote 33 Until recently, in-house counsel in SOEs had been separately licensed from lawyers and formed a unique occupational group, namely “enterprise legal advisers” (qiye falü guwen).Footnote 34 Meanwhile, in-house legal departments in private and multinational corporations are largely unregulated, and legal professionals working in these organizational settings are not officially included in the professions of lawyers or enterprise legal advisers.
To navigate this complex ecology of the corporate legal sector is a challenging task. Consequently, the GLEE China research team has developed a refined division of labour among its researchers. For instance, foreign law offices and elite Chinese law firms were studied by four team members in two groups.Footnote 35 The study of in-house counsel covered not only large SOEs in Beijing, but also multinational and private companies in Shanghai and other parts of China.Footnote 36 To fully understand the everyday work of corporate lawyers, we also included researchers who have years of experience working in both Chinese and foreign law firms to study foreign direct investment (FDI) into China as well as China’s outbound investment overseas.Footnote 37 In addition to traditional areas of corporate law, we expanded the scope of study to bankruptcy lawyers and public interest lawyers—two rising areas of legal practice closely related to economic development and social justice.Footnote 38 For legal education, we collaborated with three law-school deans and a number of experienced Chinese legal scholars to present a comparative study of nine elite law schools that have trained the majority of China’s corporate lawyers,Footnote 39 complemented by John Bliss’s ongoing study on the transition from law students to corporate lawyers. Finally, we have four team members studying China’s WTO legal capacity, trade remedy law, and professional regulation.Footnote 40
Taken together, the GLEE China research team has covered a vast landscape of China’s corporate legal sector, most of which had been uncharted territory for empirical legal scholarship before the project began in 2010. To map these issue areas as an ecology, we have organized the GLEE China studies into three segments: (1) the corporate core, which focuses on corporate lawyers in law firms and in-house legal departments; (2) international linkages, which examines China’s inbound and outbound investments and WTO legal capacity; and (3) domestic contexts, which investigates legal education, bankruptcy law, public interest lawyering, and professional regulation. These three segments also represent the three basic organizational niches of the Chinese corporate legal sector.Footnote 41
In every segment, a number of legal and non-legal actors coexist and interact. They compete for work jurisdictions, legal talents, and organizational resources on a daily basis, but they also co-operate with one another and exchange power and resources. The next task of an ecological analysis of the corporate legal sector is to closely observe and analyze the processes of interaction among these actors in the three segments of this corporate legal ecology. Although the primary objective of this article is to map the spatial outlook of the Chinese corporate legal sector rather than to offer a full-fledged processual analysis, in the following three sections, we will use some processual concepts as analytical tools to introduce the preliminary findings of the GLEE China research team.Footnote 42
4. THE CORPORATE CORE: ELITE LAW FIRMS AND IN-HOUSE COUNSEL
The rise of corporate law has been one of the most remarkable developments of the Chinese legal profession in the post-Mao era. The Chinese government’s pursuit of economic growth and global legitimacy gave birth to the first generation of corporate law firms in China soon after Deng Xiaoping’s historic “Southern Tour” in 1992.Footnote 43 Except for Jun He, which was founded in 1989 as a “co-operative law firm” (hezuo suo),Footnote 44 most of today’s elite law firms in China were founded as partnerships in the early 1990s. Until the turn of the twenty-first century, Chinese corporate law firms remained relatively small in size—even the largest firms had fewer than 100 licensed lawyers and no more than four offices nationwide. Their most profitable areas of practice concentrated in FDI, initial public offerings (IPO), real estate, and commercial arbitration. In many of these high-end corporate transactions, foreign law offices in China took the lead and Chinese law firms merely served a complementary role, as they had neither the expertise nor the experience to provide the legal services independently.Footnote 45
China’s accession into the WTO in 2001 changed the landscape of its corporate legal sector in fundamental ways. Within five years, the number of foreign and Hong Kong law offices in mainland China increased from fewer than 100 to over 200.Footnote 46 Although the Chinese government forbids foreign law firms from practising Chinese law or employing licensed PRC lawyers, the presence of these offices put elite Chinese law firms on high alert. In the meantime, the professional expertise of leading domestic corporate firms, such as Jun He, Zhong Lun, and King & Wood, had been greatly strengthened with the active recruitment of lawyers with overseas educational and work experiences since the mid-1990s. Increasingly, these elite law firms were perceived to be business competitors to foreign law offices in China. To avoid the potential fate of being merged into large Anglo-American law firms, as happened in many countries across the world,Footnote 47 some elite Chinese law firms began to aggressively increase in size and set up offices across China.
As Sida Liu and Hongqi Wu demonstrate in their study of law firm growth in China, King & Wood was a forerunner of this wave of domestic expansion.Footnote 48 From 2006 to 2009, it opened eight new domestic offices in Chongqing, Hangzhou, Xi’an, Tianjin, Qingdao, Suzhou, Jinan, and Hong Kong. The Hong Kong office was a merger with local law firm Arculli, Fong & Ng after the two firms formed an alliance for a few years following the requirement of Hong Kong law. With its five existing offices in Beijing, Shanghai, Shenzhen, Chengdu, and Guangzhou, by 2010, King & Wood had grown into a mega-firm with nearly 1,000 lawyers in 13 offices across China. In the meantime, Dacheng and DeHeng, two other Beijing-based large corporate law firms, also greatly extended their national networks and opened even more offices than King & Wood, including offices in less developed regions. By 2015, Dacheng had set up 42 domestic offices in every province of China, including Tibet and Inner Mongolia, with over 4,000 lawyers in total. However, the fastest-growing Chinese law firm in this period was Yingke, which grew from about 30 lawyers in a single office in Beijing in 2008 to more than 3,000 lawyers in 32 domestic offices in 2015. The speed and magnitude of law firm growth in China in the past decade have been unprecedented in the world history of the legal profession, although the extent to which some or all of these rapidly growing Chinese entities constitute a single “law firm” remains to be seen.
But the ambition of Chinese corporate law firms goes far beyond the territories of China. As happened to American law firms in the late twentieth century,Footnote 49 after successful domestic expansion, some large Chinese law firms began to seek alliances overseas following their clients. Using the Swiss-Verein structure, King & Wood merged with the Australian firm Mallesons Stephen Jacques in March 2012 and then with the British firm SJ Berwin in November 2013, forming a new firm King & Wood Mallesons (KWM), the first global combination dominated by a Chinese law firm. In January 2015, Dacheng also announced a Swiss-Verein combination with Dentons, a rapidly growing international law firm, creating the world’s largest law firm with nearly 7,000 lawyers in over 50 countries. In April 2015, Baker & McKenzie entered into a joint venture with Fenxun, a boutique Chinese firm, in the newly opened Shanghai Free Trade Zone. In July 2015, Jingtian & Gongcheng, a leading IPO law firm in Beijing, formed an association with Mayer Brown JSM in Hong Kong.
These breathtaking recent developments seem to indicate a strong wave of globalization for Chinese law firms and the imminent breakdown of China’s regulatory barriers for foreign law firms, yet not all elite law firms are on board. Jun He, Haiwen, Fangda, and a few other leading Chinese law firms have kept a notably steadier pace of growth in the past decade. For these firms, maintaining their domestic lead in high-end practice areas and pursuing high profit-per-partner (PPP) are more important than expanding their size or merging with foreign firms. To some extent, they resemble elite Anglo-American law firms such as Cravath Swaine & Moore in the US and Slaughter & May in the UK, which are considered to be premier law firms in their own countries but only have a limited number of international offices.
The large variety of firms and their interactions constitute what Liu and Wu call the “ecology of organizational growth” in the globalization of Chinese law firms.Footnote 50 Challenging the tournament theory of law firm growth,Footnote 51 they argue that law firms coexist and interact in an ecology consisting of other law firms. These firms occupy different ecological positions and generate various processes of interaction with one another. In their organizational growth, Chinese law firms have differentiated into four species: global generalists (e.g. Jun He, King & Wood, Zhong Lun), elite boutiques (e.g. Haiwen, Fangda, Han Kun), local coalitions (e.g. Dacheng, DeHeng), and space rentals (e.g. Yingke, which operates like a rental company that provides office space to lawyers). Based on their various positions in the ecology, these firms have engaged in a variety of social processes with one another, including competition, symbiosis, accommodation, assimilation, purification, and proletarianization. As a result, some firms become “big but brittle,” whereas others remain “small but beautiful.”Footnote 52
While Chinese law firms have grown significantly larger in recent years, most foreign law offices in China have remained small in size. Rachel E. Stern and Su Li provide the first comprehensive study of the full spectrum of these offices. They find that the vast majority of foreign law offices in China adopt a single organizational form—that is, “an outpost office with a median size of eleven lawyers responsible for less than 5 percent of global revenue.”Footnote 53 In their sample of 80 foreign law offices, only eight offices employed more than 20 lawyers in 2013. Furthermore, many offices barely make any profit, even including the offices of some top-tier global law firms. Competitions among foreign law offices, as well as between foreign and local law firms, often drive down the price of their services in both inbound and outbound transactions. As a result, most foreign law offices in China remain a marginal component of their firms’ global operation.
What factors determine the size of foreign law offices? Using a regression analysis, Stern and Li demonstrate that first-mover advantage, global reach, and localization are the three variables that significantly influence the size of a law firm’s China office. Firms that have longer presence in China and firms that have higher proportions of offices outside their home countries are more likely to have larger China offices. In addition, firms that have higher percentages of partners with a Chinese surname also tend to have bigger offices in China. Bilingual ability and multicultural capacity are of vital importance for foreign law firms’ expansion in the Chinese corporate legal market. Nevertheless, owing to their lack of profitability, the regulatory barrier for practising Chinese law, and the availability of Chinese law firms that provide “a welcome source of flexible labor,”Footnote 54 most foreign law offices in China remain relatively small until today.
The small outpost offices of foreign law firms make a sharp contrast to the precipitous growth of Chinese law firms in the early twenty-first century. There is no doubt that the balance of power in the Chinese corporate legal market is shifting towards the increasing dominance of elite Chinese firms. Although many foreign lawyers blame the Ministry of Justice’s restrictions on foreign law offices for their disadvantageous positions, it also reflects the rising importance of Chinese clients, especially large SOEs, for both foreign and domestic corporate law firms in China.Footnote 55 While inbound FDI from foreign corporations constituted much of high-end corporate legal work from the 1990s to the mid-2000s, after the 2008 global financial crisis, the outbound investments of Chinese companies have become a lucrative business for both elite Chinese law firms and their international collaborators.Footnote 56
In addition to the proliferation and expansion of both domestic and foreign law firms, the last two decades have also seen an important growth in the size and sophistication of in-house legal departments in both domestic Chinese corporations and foreign multinational companies (FMCs) operating in China. These changes in internal counsel are both more recent and less advanced than the changes in corporate law firms described above but, if the US experience is any indication, they could prove to be even more important in shaping the ecology of China’s emerging corporate legal sector. Thus, in the last two decades, the lawyers heading corporate legal departments in the US and in many other mature economies in the Global North have gone from a position of marginality and subservience—“house counsel”—to being the “General Counsel” (“GC”) or, even more grandly, “Chief Legal Officer” (“CLO”), overseeing all of the company’s internal and external legal needs. Indeed, many US GCs also oversee a number of other related functions such as human resources, public relations, government affairs, and compliance. And virtually all GCs in major US companies now play a key role in the company’s strategic decision-making on a par with the chief financial officer and other senior corporate officers.Footnote 57
This “in-house counsel movement,” as the American legal scholar Robert Eli Rosen aptly labelled this transformation to signal the key role that internal lawyers themselves were playing in furthering their growing economic power and professional standing, has been fuelled by three interlocking claims: (1) an economic argument that taking work inside saves costs; (2) a substantive justification that, because of their proximity to the business, the advice inside lawyers give corporate managers is likely to be better than the advice given by outside counsel; and (3) a professional argument that, because they are the guardians of the company’s long-term interests and reputation, GCs are better able to fulfil the gate-keeping role than their counterparts in large law firms, who (so the argument goes) have largely abandoned this role in the pursuit of short-term profits per partner.Footnote 58 These arguments, in turn, have helped to spur six important changes in the organization of internal counsel offices in the US—and the relationship between these offices and other key constituents both inside and outside the organization—that are consistent with the basic tenets of the inside counsel movement: (1) size; (2) credentials and identity; (3) control over the legal function; (4) expanded responsibility and membership in senior leadership; (5) professional status; and (6) influence over public policy.Footnote 59
In his contribution to the forthcoming GLEE volume, David B. Wilkins examines whether some version of this in-house counsel movement is coming to China with respect to the structure, operation, and functioning of internal legal departments in various Chinese corporations and FMCs.Footnote 60 As Wilkins makes clear, the diffusion of this particular element of the Anglo-American model is neither inevitable nor likely to be straightforward. As Kathryn Hendley’s research on Russia underscores, long after sophisticated corporate law firms (both domestic and foreign) were a part of the Russian corporate legal ecology, the in-house legal departments of even large Russian companies continued to bear little resemblance to the Anglo-American structures and practices described above.Footnote 61 Indeed, even in Western Europe, where the Anglo-American mode of the production of law now clearly dominates the corporate legal ecosystem, notwithstanding an initial period of resistance, both regulatory barriers and cultural norms that have left many in-house lawyers without full professional standing or access to the attorney–client privilege have prevented a full diffusion of the in-house counsel movement in these jurisdictions. The fact indicated above that Chinese internal lawyers, like their counterparts in Russia and some Western European jurisdictions, have traditionally had a distinct—and distinctly inferior—professional credential, and that China has had little or no tradition of “independent” lawyering, particularly within SOEs that are often controlled or closely associated with the state, means that the process of diffusion and mimesis is likely to be even more complex and hybridized in the Chinese context than it has been elsewhere.
Nevertheless, Wilkins finds evidence that a version of the in-house counsel movement is coming to China, albeit with distinctly Chinese attributes. Using unique and unprecedented data from both an in-depth survey of general counsels working in both Chinese and foreign corporates, as well as a number of in-depth interviews and focus groups, they document an important increase in the size, sophistication, and functioning of many in-house legal departments in China. This growth has been driven in part by expressly global factors, such as the presence of FMCs, particularly from the US, looking to import the model of internal lawyering to which they have become accustomed in order to facilitate uniformity across their global platform and reduce risk. Similarly, the increasing number of Chinese companies who need cross-border, multidisciplinary, and business-focused expertise of the kind promised by the in-house counsel movement, particularly as they expand to markets outside of China, has also contributed to the model’s spread. But aspects of China’s growing domestic corporate legal ecology have also played an important role, including the rapidly escalating rates charged by domestic Chinese law firms, and the growing amount, complexity, and formality of domestic regulation to which companies operating in China are now subject.
Important differences still remain between in-house legal departments in China and those in the West—even with respect to FMCs that are headquartered in the West. These differences can be seen most clearly in China’s SOEs, where enterprise legal advisers had been separately licensed from lawyers until recently and even the highest-ranking adviser may not have legal training, and is often still more of a government official than an independent professional.Footnote 62 But even many formally private Chinese companies have general counsels whose power comes more from their connection to the state and the party than to their legal training or skill. Indeed, in an inversion of the fourth criteria for assessing the in-house counsel movement identified above, even in some US companies operating in China, the company’s chief legal counsel reports to the head of government relations instead of the other way around, signifying that these entities understand that the real power to affect corporate profits continues to reside in Beijing.
Whether these existing patterns remain as China’s economy continues to expand and focus outward, as Wilkins makes clear, remains to be seen. Even the Chinese government has realized that developing more sophisticated internal legal counsel in SOEs is in the state’s self-interest. Thus, the government has instituted a second three-year plan to upgrade and modernize this function in order to minimize the number of spectacular failures of Chinese companies, particularly those operating in Western markets, which ultimately must be paid for by the state. Similarly, trade organizations such as Association of Corporate Counsel and the International Bar Association are increasingly coming to China with the express intent of spreading the gospel of the in-house counsel movement to Chinese corporates and FMCs. Needless to say, there are important forces moving in the opposite direction, most notably the government’s recent crackdown on the work of all NGOs operating in the country as part of a general effort to reduce foreign influence and strengthen government control. But, even if those aspects of the movement directed primarily towards increasing the status and power of internal counsel within the company and vis-à-vis the state, Wilkins concludes, it remains likely that in-house lawyers in both Chinese and foreign companies will increase their efforts to control outside counsel as a means of reining in legal costs and increasing their own power and status. In the meantime, consistently with its pattern of promoting “national champions,” the Chinese government may also instruct (or strongly imply) that Chinese companies should use Chinese law firms when doing business abroad. Collectively, these changes could have an important impact not only on the ecology of the corporate legal sector in China, but as Chinese outbound investment continues to grow, on the global legal services market as a whole.
5. INTERNATIONAL LINKAGES: INVESTMENTS AND WTO LEGAL CAPACITY
For emerging economies, globalization is a two-way street. It includes not only the creative destruction of national barriersFootnote 63 and the restructuring of the indigenous legal profession, but also the outward expansion of local law firms and their clients onto the global stage. In the case of the Chinese legal profession, as its corporate core grows in recent years, its international linkages are also expanding rapidly. This section discusses four aspects of such linkages, namely outbound mergers and acquisitions (M&A), inbound FDI, WTO legal capacity, and its manifestation in trade remedy law. These international linkages not only connect the Chinese corporate legal sector with the global legal services market, but also create opportunities to facilitate the integration of China’s business enterprises into the global economy and the liberalization of China’s government policies on international trade.
Chinese business enterprises started to make outbound investments as early as the 1980s but, until China joined the WTO in 2001, both the number and the scale of outbound M&A transactions remained limited. Paul Weidong Wang’s study shows that, from 1992 to 2001, the annual total values of China’s outbound M&A deals were in the range of 101 million to 1.28 billion USD, with no significant increase over time. Since the mid-2000s, however, this statistic has been increasing at a stunning speed: from 9.59 billion USD in 2005 to 42.1 billion USD in 2010 and then to 66.9 billion USD in 2012. The number of outbound M&A transactions also increased from 126 in 2008 to 272 in 2014. While SOEs accounted for most of the transactions in the early years, by 2014, investments from Chinese private enterprises increased to nearly twice the deal volume and more than half the deal value of investments by SOEs. Financial or institutional investors have also emerged as a new category of major players in China’s outbound investments.Footnote 64
Despite China’s recent economic slowdown, this trend of rapid growth in outbound investment is likely to continue in the near future. Paul Wang argues that the abundance of capital in both Chinese SOEs and private enterprises, coupled with a lacklustre domestic investment environment, makes investors actively seek return in foreign markets. Since joining the WTO, the Chinese government has also taken a series of legal and political measures to encourage Chinese companies to invest abroad, including signing numerous bilateral investment treaties with potential host countries. Furthermore, the improvement of the Chinese financial market in recent years has made it easier for private enterprises to access funding, such as public financing, bonds, and loans, which has facilitated the growth of their outbound investments. As of 2014, the most popular sectors for Chinese overseas investments included telecommunications, energy and mining, real estate, technology, and media.Footnote 65
What is the role of lawyers in these M&A transactions? Traditionally, foreign law firms dominated the legal services for Chinese companies’ outbound investments because of their mature expertise in cross-border transactions and extensive global service network. However, with the rapid growth and international expansion of Chinese law firms, Chinese lawyers have played a more substantive role in recent outbound investment projects. Gail Hupper’s case-study on the 2013 Shuanghui–Smithfield transaction offers a detailed account of how Chinese and foreign law firms collaborate in such a M&A project. In this case, the Chinese company Shuanghui made a 7 billion USD acquisition of the US company Smithfield, the world’s largest pork producer as of 2013. In order to complete the transaction, both Shuanghui and Smithfield retained the services of a number of law firms, including Los Angeles-based Paul Hastings and New York-based Simpson Thatcher & Bartlett as the two leading counsel. But the parties also retained Fangda and Tongshang (Commerce & Finance), two leading Chinese firms, and a number of other law firms in Virginia (where Smithfield is incorporated), Amsterdam, the Caymen Islands, and the British Virgin Islands.Footnote 66
The large variety of law firms indicates the complexity of this cross-border transaction. Hupper argues that the two major roles that lawyers performed in the transaction are transaction engineering and translation.Footnote 67 In transaction engineering, lawyers in multiple jurisdictions worked together to optimize the transaction’s legal structure, including identifying and securing governmental approvals. Meanwhile, they also managed at least three types of risks (deal certainty, operating risk, and enforcement risk) and drafted the agreements and other legal documents. While transaction engineering is the standard practice for most M&A deals, translation is a more culturally sensitive process. This work, as Hupper underscores, goes well beyond literally translating documents from one language to another—a task that Chinese law firms have been doing for their foreign clients for decades. Instead, Hupper’s analysis demonstrates that the parties in the Shuanghui–Smithfield transaction required a much broader range of “translation” services given that they not only did not speak the same language, but also had little in common in their management structure or corporate culture. To facilitate the transaction, the lawyers involved, particularly those serving Shuanghui, used their “localized expertise” on Chinese law and its market and regulatory environments.Footnote 68 For example, as Hupper suggests, one important reason that Shuanghui retained Paul Hastings as its leading counsel was that the firm’s Greater China practice chair, Raymond Li, was exclusively educated in mainland China, had known Shuanghui’s CEO since the 1990s, and provided services for the company’s restructuring project in 2010–12.Footnote 69
Paul Wang’s interviews with 20 lawyers in both Chinese and foreign law firms also confirmed the importance of localized expertise in China’s outbound investment projects.Footnote 70 Chinese law firms often provide services on legal due diligence (usually in China) and government review and approval, with increasing roles in drafting and negotiating documents and post-merger integration. In comparison, the services provided by foreign law firms focus on drafting and negotiating documents and closing the transaction, including legal due diligence outside China thanks to their wide geographical coverage. The only service that foreign law firms cannot provide is government review and approval in mainland China, which is monopolized by Chinese law firms. Foreign law firms have notable advantages in cross-border transactional experience and familiarity with the local culture of investment destinations, whereas Chinese law firms benefit from their stronger relations with Chinese clients and more familiarity with Chinese language and culture. Although there is occasional competition between the two types of law firms, at present, it is through their exchange and co-operation that cross-border transactions such as the Shuanghui–Smithfield deal are completed smoothly. With the rapid increase in both the global coverage of Chinese law firms and their expertise in cross-border transactions, however, it is possible that the dominance of foreign law firms in China’s outbound investments will become less significant in the future.
Indeed, this trend has already occurred in inbound FDI into China, which is an area in which foreign and Chinese law firms have been in direct competition since the 2000s.Footnote 71 Ke Xu’s study compares the services of the two types of law firms in FDI projects and suggests that, while Chinese law firms have weaknesses in loyalty to the clients owing to their political embeddedness with the state,Footnote 72 they have notable advantages over foreign law offices in China in at least two aspects.Footnote 73 First, their larger size and unrestricted practice areas make Chinese firms more capable of providing the full range of services in inbound FDI and M&A deals and more flexible in their service style. Second, Chinese firms have closer connections with powerful central government agencies such as the Ministry of Commerce (MOFCOM) or the National Development and Reform Commission (NDRC). The advantages in work capability and government relations, complemented by their competitive hourly rates, have made Chinese law firms more appealing choices for many inbound FDI projects than foreign law offices. This is another reason why most foreign law offices in China remain small outposts, as Stern and Li found in their research.Footnote 74
In addition to inbound and outbound investments, another key international linkage between China’s corporate legal sector and its global institutional environment is through the WTO. Gregory Shaffer and Henry Gao trace China’s efforts to build its trade law capacity before and after its WTO accession. In order to join the WTO, China agreed to open its economy to greater trade competition, to overhaul its laws across levels of government, and to significantly liberalize services. It also made deep tariff commitments for imports and committed to stringent intellectual property protection. In the meantime, China also started to build its trade law capacity in government, academia, and law firms. WTO law soon became a popular subject in elite Chinese law schools, and leading domestic law firms such as King & Wood, Zhong Lun, and AllBright began to develop their expertise in WTO practice in order to serve the MOFCOM in China’s WTO disputes. Nevertheless, until today, China still relies heavily on foreign law firms for its defence against the complaint from other WTO members, with Chinese law firms playing merely a complementary role in most cases.Footnote 75
As a result of this state-led effort of WTO capacity-building, China’s trade remedies law, which allows companies to bring claims before administrative agencies for unfair trade practices and obtain relief, has shown a notable trend of convergence to those of advanced economies. Mark Wu argues that China’s initial attempt to develop trade remedies law was driven primarily by protective self-interest, as it sought to equip its domestic producers with the same legal tools against unfair trade practices as those in advanced economies. By the time China acceded to the WTO, however, this legal instrument, which was once used mainly against China, had been transformed into a double-edged sword. While Chinese exporters continued to be targeted aggressively overseas by foreign trade remedies litigation, the Chinese government more openly tolerated a competitive system in trade remedies law, with rules and adjustments made in response to WTO judgments.Footnote 76 As compared to many other areas of Chinese law (e.g. criminal procedure or environmental law),Footnote 77 in which global diffusion often faces strong local resistance, after 15 years of China’s WTO accession, the substance and practice of trade remedies law more closely resemble those found in Western legal regimes.
From the discussion in this section, it is evident that actors in the corporate core of the Chinese legal profession, such as elite (foreign and Chinese) law firms and the in-house counsel of their clients, play a crucial role in developing the international linkages for China’s rapidly growing economic and trade activities. These corporate lawyers work with both Chinese and foreign corporations, as well as a variety of government agencies and international organizations, to ensure that their clients’ transactions are executed smoothly. It is through these transactions and trade activities that China is globalizing its economy, and that the new generation of elite corporate law firms and in-house legal departments maintain their status in the Chinese legal profession. Although even the most prestigious Chinese law firms still generate much of their revenue from domestic work, it is the dominance in international work that distinguish them from their domestic competitors. In other words, the corporate core and its international linkages mutually shape each other and transform their social structures in the same social processes of competition and co-operation, assimilation and hybridization, boundary work and exchange.Footnote 78
6. DOMESTIC CONTEXTS: LEGAL EDUCATION, PUBLIC INTEREST, AND PROFESSIONAL REGULATION
Creative destruction, or “the reconstruction of an existing jurisdiction through the diffusion of a particular set of norms and practices,”Footnote 79 is an important mechanism of globalization. In the previous two sections, we have demonstrated that both the corporate core of the Chinese legal profession and its international linkages have been reconstructed in fundamental ways after China’s WTO accession. Although this is as much a process of boundary blurring and hybridization as a process of institutional diffusion,Footnote 80 globalization does have a spillover effect from the corporate core to its domestic contexts in the state, in civil society, and in the higher-education system. This section examines how China’s elite law schools, bankruptcy lawyers, public interest lawyers, and their state regulators respond to pressures of global institutional diffusion.
Unlike the short history of China’s corporate law firms, legal education in China has experienced strong international influence since its foundation in the late nineteenth century under the Qing Dynasty. The main sources of influence, however, changed from Japan in late Qing to the coexistence of civil law and common law in the Republican era and then to the dominance of Soviet-style legal education in the Mao era.Footnote 81 After the Cultural Revolution, which devastated the Chinese educational system, legal education experienced a period of steady growth in the 1980s to 1990s, yet the total number of law schools remained under 200 by the mid-1990s. Since the turn of the twenty-first century, however, legal education in China exploded. Driven by the state-led expansion of higher education, the number of law schools rapidly increased to over 600 by 2006, and the total number of law graduates also surged from 31,500 in 1999 to 208,000 in 2008.Footnote 82
The “great leap forward” of Chinese legal education led to unintended consequences to elite law schools at the top of the educational hierarchy. Zhizhou Wang, Sida Liu, and Xueyao Li argue that this expansion not only crowded the law-graduate job market, but also intensified the inter-school stratification and ranking competition among elite law schools. Accordingly, these schools began to internationalize themselves in the early twenty-first century. In their analysis of the faculty recruitment, study-abroad and exchange programmes, English journals, and other institutional reforms of elite Chinese law schools, Wang et al. find that the most actively internationalizing law schools are the newly established schools in elite universities traditionally specializing in science and engineering studies, such as Tsinghua University and Shanghai Jiao Tong University (SJTU). By contrast, traditional elite law schools outside Beijing and Shanghai, such as Jilin University and Wuhan University, are notably less international in the orientations of their research and teaching.Footnote 83
What explains this difference in the internationalization of elite Chinese law schools? While there is a state-led push for top Chinese universities to become “world-class universities” across the country, elite law schools in Beijing and Shanghai are also driven by the rising demand for global-oriented law graduates from the corporate bar. To prepare their students for jobs in foreign and domestic corporate law firms, as well as in the legal departments of domestic and foreign corporations, law schools that send a high proportion of their graduates to these organizations (e.g. Peking, Tsinghua, and the University of International Business and Economics (UIBE) in Beijing, Fudan and SJTU in Shanghai) have made more efforts to internationalize their faculty, curriculum, and studying-abroad programmes. Furthermore, owing to their “liability of newness,”Footnote 84 Tsinghua, SJTU, and other newly established law schools in elite universities have explicitly used internationalization as a competitive strategy to compensate for their disadvantages in expertise and resources in the domestic system of legal education.Footnote 85
It is still too early to fully assess the consequences of the internationalization of Chinese legal education, but the evidence of global diffusion is clearly observed in the ways elite law schools actively recruit new faculty members with law degrees from both the Continental and Anglo-American jurisdictions, send their students for LL.M. degrees and exchange programmes in Europe and the US, and launch new English journals aiming to strengthen the international influence of Chinese legal research. Nevertheless, it is important to note that these efforts of internationalization are mainly driven by elite law schools’ concerns for their status in the domestic educational hierarchy and the job placement of their students into the corporate bar. In other words, creative destruction is only possible when it meets the demands of dominant local actors and institutions, including the state.
The local conditions of global diffusion are also clearly observed in the diffusion of public interest law into China. While pro bono has become an institutionalized practice for US law firms,Footnote 86 as well as increasingly in other emerging economies such as Brazil,Footnote 87 it remains a new and foreign concept for most Chinese lawyers. Even the word “pro bono” has no standard Chinese translation and it is often equated with legal aid or even non-legal charity work.Footnote 88 Legal aid programmes are often directly administered by the justice bureaus and most lawyers who participate in such programmes do not work in the corporate sector. Nevertheless, there is evidence that a few elite Chinese law firms have embraced the term “pro bono” at least in their discourses, in part precisely because it is “Western” and therefore can help them gain legitimacy in the global market-place. For these global-oriented firms, pro bono is not so much about “cause lawyering,”Footnote 89 but more closely connected to the routine pro bono for individuals done by many US law firms, or more generic “corporate social responsibility” such as donating money for schools and community groups.
Jin Dong’s study in Shanghai examines Chinese lawyers’ perceptions of pro bono work and the institutional factors that account for the variations in these perceptions.Footnote 90 Using a survey of 1,154 lawyers in Shanghai and follow-up interviews, Dong shows that pro bono education and practice during law school (e.g. legal clinic) have a positive effect on lawyers’ attitude towards pro bono after starting their practice. However, lawyers working in large law firms are significantly less likely to favour pro bono than small firm lawyers or solo practitioners. This not only reflects the vast social distance between China’s corporate legal sector and its public interest law, but also suggests that most elite corporate law firms do not regard pro bono as an essential component of their practice. They often pay more lip service to the ideal of pro bono for the sake of global legitimacy than asking their lawyers to participate in actual public interest work. In this case, the route of global diffusion seems to be from Chinese law schools to the personal sector of the Chinese bar, with only a symbolic impact on the corporate legal sector.
Another interesting case of global diffusion is observed in China’s bankruptcy law reforms. Zhizhou Wang’s study examines the history of China’s bankruptcy reforms from the 1986 Enterprise Bankruptcy Act (EBA) to the 2006 EBA and discusses the rising role of lawyers in corporate bankruptcy.Footnote 91 In the first decade after the 1986 EBA, lawyers only played a marginal role in bankruptcy proceedings. From the mid-1990s, however, bankruptcy lawyers in China began a “professional project”Footnote 92 aiming to establish market control and enhance the status of bankruptcy work. Zhizhou Wang argues that, although accountants and liquidation specialists are also permitted to provide services for bankruptcy administration under the 2006 EBA, lawyers have gained the dominant position in the jurisdictional conflictFootnote 93 with them in recent years thanks to their proximity to the judiciary and the active participation of elite law firms. In this case, the global diffusion of bankruptcy law into China is accompanied by the emergence of a specialized and increasingly dominant group of bankruptcy lawyers, who have benefitted greatly from both the institutional reforms of enterprises initiated by the Chinese state and their newly acquired expertise in bankruptcy law.
The interaction between global forces and state policies in shaping the legal profession is also evident in the development of regulatory regimes for Chinese lawyers. John Ohnesorge traces the historical transformation of lawyer regulation in China from the late nineteenth century to the early twenty-first century and demonstrates that the liberalization and integration imperative was on the rise in both the Republican era (1911–49) and the post-Mao reform era (1978–present), though, in both periods, the state showed a strong commitment to maintaining its control over the legal profession by precluding the self-regulation of the bar and limiting the practice of foreign lawyers.Footnote 94 Partly owing to its WTO commitments, the Chinese government has permitted the increasing boundary blurring between foreign and domestic law firms in recent years, such as the KWM and Dacheng Dentons mergers and other forms of strategic alliances in Hong Kong and mainland China.Footnote 95 Nevertheless, whether or not these signs of further liberalization will lead to the full opening of the Chinese legal services market or a self-regulating Chinese bar remains an open question.
In sum, the globalization of the legal profession consists of a set of complex social processes that include both institutional diffusion and hybridization, and its domestic impact goes far beyond the profession’s corporate core. The state-led internationalization of legal education, the uneven diffusion of public interest law and bankruptcy law, and the ongoing struggles over lawyer regulation all indicate the strong local discontents in the creative destruction of the Chinese legal profession by the global forces. Only by taking these local roots of globalization seriously and by connecting different segments of the legal profession can socio-legal researchers fully capture the dynamics of interaction in the construction of lawyers’ expertise, jurisdictions, mobility, and regulation.Footnote 96
7. CONCLUSION
The corporate legal sector is a complex ecology in which corporate law firms, elite law schools, in-house legal departments, state regulatory agencies, and other professional groups and international organizations coexist and interact with one another. To understand the emergence of China’s corporate legal sector, in this article, we have examined its corporate core, international linkages, and domestic contexts using the preliminary findings of the GLEE Project. Globalization has arguably generated profound changes in all those three organizational segments since the 1990s. It has produced some of the world’s largest law firms, a number of actively internationalizing law schools, increasingly sophisticated state regulatory regimes, and, most importantly, thousands of Chinese lawyers with growing expertise in corporate transactions and international trade working in law firms, in-house legal departments, and government agencies, both in China and abroad. As the Chinese economy gets increasingly integrated into the global market, it is likely that China’s corporate legal sector will continue to grow, differentiate, and play a more prominent role not only in the Asia-Pacific region, but also in the global market for legal services.
The impact of globalization, however, can only be fully explained by examining the social processes occurring at the global–local boundaries of the corporate legal sector. The competition and collaboration between foreign and domestic law firms, the inbound and outbound investments of Chinese and multinational corporations, the uneven diffusion of trade remedies law, public interest law and bankruptcy law into the Chinese legal system, and the mobility of law students and lawyers between Chinese and international law schools are all good cases in point. These complex social processes not only assign the various legal and non-legal actors to their respective positions in the three segments of the corporate legal sector, but also make the three segments of the ecology emerge and transform in interconnected ways. The forthcoming GLEE China volume will provide a more comprehensive picture of the dynamics of interaction in the ecology of the Chinese corporate legal sector.
In many ways, the Chinese story echoes that in Brazil and India. GLEE’s studies of lawyers in these three major emerging economies have shown that globalization has both disrupted traditional forms of legal practice and organization, and served as a stimulus to growth of new types of professional organization and new lawyering styles. We have seen how the corporate sector in all three countries has grown rapidly in size, capability, and influence. Yet there are significant differences. First, because the legal profession was largely demobilized in the Mao era, there was less to “disrupt” in China when globalization began to take hold and less tension between old ways of lawyering and the new forms that emerged as China came into contact with the West. Second, while, in all three countries, large domestic law firms have emerged to handle the needs of a globalized economy, the scale and reach of these firms in China exceed anything found in the other countries. Third, while, in all three countries, the state has shown an interest in expanding the corporate legal sector, the Chinese state has played a more active role than have either the Indian or Brazilian regimes in facilitating or resisting the changes generated by globalization. Finally, while the organized bar plays the lead role in regulating the Indian and Brazilian professions and influences the boundaries among legal actors, in China, the state role is more dominant and the degree of professional self-regulation remains low.
The first stage of the GLEE Project is nearing completion: our studies of each of the three initial target countries are done and will be published in the near future. As we look ahead, the project hopes to learn more from systematic comparisons among these three countries as well as possible expansion to other parts of the world. By further analyzing the similarities and differences among these three legal professions and their domestic and international embeddedness, and by adding other “national cases” to our database, we hope to develop a fuller understanding of the interaction among globalization, lawyers, and emerging economies.
