Limits on the Practice of Law by Foreigners
Forbidden territory for foreign law firms in China, foreign law firms cannot hire local lawyers. Hired local assistants are barred from providing China-related legal services to clients. For example, New York-based law firm A is forbidden to establish subsidiary B in the name of a consulting firm in China to provide China-related legal services, even if the subsidiary is a pure law office. Chinese law forbids foreign law firms from merging with, or acquiring Chinese law firms.
In addition, the Chinese government has erected a firewall between foreign law firms and itself. Foreign lawyers may not appear in the courtroom to make a point. They may not involve themselves with trials that have national security or stability implications. The punishment for those who dare to cross the line is severe, as such acts are perceived as endangering the legal system. If such evidence is found to threaten the national security, public safety, or social order, the involved foreign law representative may face criminal charges. Another example: if a foreign law office in China hires local lawyers, it will first receive a warning from the Chinese authority. If no correction is made by the foreign law office, its certified license may be revoked. Indeed, before trials of any sensitive criminal cases, Chinese lawyers receive messages from the government stating, “No foreign law firms should be involved,” and, “stay away from this dissident.” This standard protocol is very effective because all Chinese law firms must be registered and obey the government authority.
Foreign law firms may only address issues of international commerce and act as the representative of foreign clients to Chinese law firms. Foreign law offices have found only indirect ways to practice law in China, such as: providing clients with information on international laws, regulations, and conventions; representing foreign clients in the assignation of Chinese law firms to conduct China-related legal cases; and, signing contracts with Chinese law firms to maintain a long-term consignment relationship. Allow me to return to the aforementioned example: a Beijing subsidiary of a New York-based law firm. This office can represent its foreign clients and refer its foreign clients (often a US company in China) to a local Chinese law firm to work on the case. All open formalities and appearances are enacted by the Chinese firm. Yet, the New York firm remains behind the scenes during this exchange. Then, the two firms share the legal fees. Chinese authorities tolerate this arrangement as long as it is for a purely commercial civil case.
Present Situation of Chinese Law Firms
China’s economic growth has outpaced Chinese growth in the legal profession, leading to market inefficiencies. For instance, before economic reforms, most Chinese citizens were not allowed to own private homes and vehicles. Now, after more than 30 years’ accumulation of assets, a wealthy middle class has formed and owns not only houses and vehicles, but complicated investment properties, equities, and debts. Therefore, the legal services demand has increased for family assets, estate planning, commercial investment, technical transfer, joint ventures, properties, equities and debt.
Protection of the domestic legal industry has until now made the small number of Chinese lawyers very wealthy, but at the expense of quality, availability, and the consumer’s pocketbook. Chinese legal services are weak in quantity, quality, accumulation of assets, foreign-related legal practices, and large international deals. But if China welcomes foreign lawyers into the domestic legal services market, Chinese law firms will learn, strengthen from competition, and be able to export legal services and even political influence to other countries. In fact, China’s best strategy is to self-improve, even through piecemeal participation in the international market. Thereby, China increases the business of its legal services market. Given the success of China’s other exports and the positive result of global free trade, it is surprising that China is taking a conservative attitude, rather than proactively expanding and seeking foreign involvement for its legal services industry.
