Baby Steps in the Land of Begin Again

With the recent region-wide rallying cry to go forth into China, has come the call for the Singapore's legal service industry to enter and tap China's market to stay competitive - no different a call from that by the governments and bar associations of Hong Kong, Australia or elsewhere.

Nothing new in the call, repetitive as it may be, given that with a population of 1.3 billion, and the ramifications of a changing environment, having come into the global stage in December last year, with its accession to the World Trade Organisation, liberalisation of almost every sector of the economy has been a necessary theme in the world's largest market.

Nothing new, too, in seeing history come full circle from the time our Chinese forefathers ventured south to seek their fortunes, to the present where a bridge is being built from Nanyang back to the mainland, with Singapore's trade with China having expanded by some 32% from S$5.4bn in 1991 to S$21.6bn in 2000, making us China's fifth largest trading partner since 2001, behind USA, Malaysia, Japan and Hong Kong. In fact, early this month, a local daily carried a headline that said Singapore investors are now finding their niche in China's 'second tier' cities, having made some inroads in her major capitals.

Senior government officials here have expressed in unison that China's access to WTO membership holds the promise of a better future for us, and has opened 'a whole slew', as one graduate puts it, of business opportunities for investors, hungry for a bite of China's vast market, and now with Olympics 2008 in Beijing, accompanied by a thrust and thirst to learn English.

One such sector is the legal services sector, where at present foreign law firms are only allowed to have its representative office in a major city, but such territorial restrictions see relaxation come year end.

But have our legal firms seized the opportunities that China has offered to the world?

The answer: a tentative 'Not quite'.

In contrast, the mega legal firms from the USA, the UK and Europe have already set up representative offices in all first-tier Chinese cities, mainly Shanghai and Beijing; Australian and HK law firms have also already entered the market place. According to the Xin Hua News Agency, there are some 104 foreign law firms and 28 Hong Kong law offices which have set up branches in the Chinese mainland. However, only a handful of Singapore law firms have based themselves in the major Chinese cities, and several of these law firms have posted negative growth or just held an even keel.

So why have Singapore law firms not pushed themselves into China more vigorously? Perhaps it is an unknown territory, or not being able to give formal opinions on PRC laws or the prohibition against engaging in litigation work within China, which somewhat impedes the scope of foreign law firms' work, the Chinese authorities being firm on this.

Others see the issues as being more general in nature, and not just specific to the legal services section. Indeed, many say 'the lack of trust dogs China business' (see The Straits Times, 16 April 2002). Others declare that China has great business opportunities, but there are 'minefields of irregularities'. Many others have cited one of the greater problems as being the question of connections that one must have in China: it is termed 'guanxi' and a necessary evil to protect one's back when doing business in China.

Furthermore, although laws do exist in China, many see its enforcement as being an acute problem, and it pays to have the right connections, and with giving out 'pocket money' as a necessity. The labour pains in China have also made headlines.

In all, the cynics say that it is short-term profit, low-level business ethics, and wholly inadequate implementation of the laws that will hog the country.

But is the picture as bleak as is painted out to be? Many are beginning to say 'No'.

The Professional Services Mission in late March 2002, led by our Solicitor General, Mr Chan Seng Onn, with representatives from our five - by and large - biggest law firms, together with representatives from MinLaw, the Law Society, SIAC, IE Singapore, a financial planning company and an accounting firm, shed some light on our future. I was there in my capacity as President of the Law Society. But still a nagging doubt seemed to remain with our firms' investment in China. Arising from this 'China Visit', the Law Society is making an earnest bid to bond with Chinese legal firms and bar associations in a mission of our own.

Some areas and opportunities identified for legal firms here are as follows:

• to help Chinese companies to list in the Singapore Exchange or to set up affiliate companies in Singapore, to help them to raise funds from Singaporean or international financial organisations;
• to assist Singaporean investors to set up business in China, or take over companies or buy assets, or to seek potential partners or projects in China - as Singapore has attracted many multinational companies for its tax preference; such companies may choose Singapore as their headquarters in Asia and make China as the production base and market;
• to provide services in international trade disputes and IP cases, now with the increase of transnational trade and investments;
• to assist Singapore's real estate developers to invest in China, China having opened the sector of common residence buildings (in the 'encouraged' category of altogether seven areas outlined in two regulations, jointly formulated by the State Development and Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Co-operation, which took effect on 1 April 2002); and
• to handle cases which originate from China in the Singapore International Arbitration Centre; to this extent, according to the contract laws of China, Chinese laws should be the governing law in respect of Sino-foreign equity joint venture contracts, Sino-foreign co-operational joint venture contracts and Sino-foreign co-operative exploration and development of natural resources, including energy, to be performed within the territory of China. Pro tanto, Singapore lawyers can research Chinese laws in such categories of cases or seek assistance from Chinese lawyers.

But these services are not without difficulties for our law firms to set up business in China. As previously stated, we cannot practise Chinese law; that remains the domain of Chinese law firms. Our firms, however, can start a representative office, strike up a formal alliance with Chinese law firms, exclusive or non-exclusive, or simply bond with a reputable Chinese legal firm. To this end, there are already some 10,000 Chinese law firms in China. The Straits Times (9 July 2002) reported the All-China Lawyers Association placing its lawyer population at 110,000, up from a mere 200 attorneys, two decades ago.

Indeed, in the long run, many predict China will open its legal sector by permitting Sino-joint ventures. Those of our legal firms who have set up a representative office in China will have a head start, and will facilitate joint ventures with their Chinese counterparts. Indeed, quite a number of foreign firms have chosen to set up a consultant firm in China as an outpost.

The Chinese government is indeed expanding its initiatives to become part of a global hub; its arbitration centre is just one, handling the most number of arbitrations in the world.

Singapore, said our Solicitor General, can become a key legal services hub in the Asia-Pacific region as the incidence of cross-border legal disputes rises in tandem with global trade.

The writing appears to be on the Great Wall for firms preparing to take on the rattle and hum of changing China. With the enormous amount of investment pouring into China, in particular Beijing and Shanghai, Singapore law firms can no longer ignore China as a market. Many of our businesses are already there, and are more likely to turn to a familiar Singapore law firm, as has been my experience whilst in China, to use their services.

Of course, in true Singaporean fashion, pragmatism is usually the order of the day, but in the business world, this can be a boon or a bane. It can be said that you have to be cautious, very cautious, before thinking of setting up a representative office in China; but as in all matters of ventures and adventures, risk identifiers as we are, baby steps will have to be taken.

The Law Society's mission this September to China is just a first step; an intended Memorandum of Understanding with our counterparts in Shanghai is just another step to help bolster relations with the legal associations there. Our Law Faculty has also tied up with the East China University of Law and Politics in Shanghai; more such tie-ups are in the making. Much can be done and is being done to help us understand the Chinese system. An irade by the government on tax reliefs for such of our legal firms in China can further help provide the fillip for more interest in that direction.

In the long run, it seems that even the toddlers are heading in the right direction, and a piggy-back ride with a Chinese firm or as an international firm, legal or multi-disciplinary, may be just right and bright.

Palakrishnan, SC
President
Law Society of Singapore

Your President Listens Members of the Law Society will continue to have the opportunity to meet Mr Palakrishnan, SC, President of the Law Society, at his fortnightly Saturday sessions at the Law Society's premises between 10.30am and 12noon. The sessions for next month will be on 3, 17 and 31 August 2002.