Cablegate: Foreign Law Firms in China: Take Your Shoes Off and Stay

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ZNR UUUUU ZZH
R 120938Z JUL 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6251
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
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UNCLAS GUANGZHOU 000788

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SENSITIVE
PACOM for FPA

E.O. 12958: N/A
TAGS: PGOV SOCI ECON EINV CH
SUBJECT: Foreign Law Firms in China: Take Your Shoes Off and Stay
Awhile... For Now

1. (SBU) One year after the Shanghai Lawyer's Association petitioned
for greater restrictions on foreigners practicing law in China,
foreign legal experts in South China say the government has not
imposed any new restrictive measures on foreign law firms.
Nevertheless, protectionist sentiment may rise as local law firms
grow; promoting more local staff may be the best long-term
safeguard. End Summary.

Law Firms: Conflicting Views
----------------------------

2. (SBU) The Shanghai Lawyer's Association circulated a memo just
over one year ago which called for a crackdown on foreigners
practicing law in China. The memo accused foreign firms of
exceeding their permitted activities by participating directly in
the Chinese law relating to investment negotiation and litigation
preparation. According to Dan Harris, one of the memo's recipients
and managing partner of Harris & Moure PLLC, the government has not
instituted any changes in response to the memo. He said that
officials are wary of cracking down on foreign law firms because
they do not want foreign investors (who prefer foreign law firms) to
leave.

3. (SBU) One foreign legal expert in south China, whose firm just
received an unprecedented third license, believes that the
government will enforce restrictive measures on foreign firms as
more local Chinese become legally qualified. In his opinion, the
foreign firms which survive will be the ones that possess the
necessary regional expertise to maneuver through the local
regulatory climates, particularly in areas like south China, where
local interpretation often diverges from national standards. At the
moment, however, several lawyers at Chinese and U.S. law firms in
this area said they believe the only tangible effect of the memo has
been to make foreign firms increasingly secretive about who is doing
the work.

Regional Issue
--------------

4. (SBU) Foreign law firms in south China have not been as affected
by the recent wave of protectionist sentiment as their counterparts
in Beijing and Shanghai, according to observers. Maarten Roos,
senior legal consultant for Wang Jing Law Firm, which has offices
throughout China, attributes this to several factors. First, large
multinational clients typically use Hong Kong law firms because of
proximity. Second, Guangdong has numerous jurisdictions, each with
its own distinct legal authority. Thus, many clients choose
domestic firms because of their local expertise. Still, Roos
recognizes that an expansion of foreign firms within the region is
likely not far off the horizon, a threat which he believes, once
made aware to Chinese firms, will spark a similar protectionist
movement in the South.

Accounting Firms: A Model for Success?
--------------------------------------

5. (SBU) Foreign accounting firms faced similar protectionist
sentiment several years ago, following a scandal involving one of
the large accounting firms operating in China. According to Alfred
Leong, regional partner with PriceWaterhouseCoopers, the situation
has vastly improved since foreign firms began to hire more domestic
personnel. The lesson, according to Leung, is that foreign firms
operating in China's bourgeoning legal and accounting service sector
will likely find permanent homes only by promoting more local
talent.

6. (SBU) However, the legal sector differs from the accounting
sector in several important respects. For one, foreign law firms
remain extremely hesitant to promote local Chinese attorneys to
partner status. Among the major foreign law firms located in
Guangzhou, only one currently has a Chinese national working as a
partner. Additionally, Chinese law requires all Chinese lawyers to
forfeit their legal licenses when working for foreign firms. While
this has not been a source of animosity yet, many expect that south
China's burgeoning foreign investment will bring with it more
foreign law firms, which in turn may spark renewed hostility over
the issue. According to Chun Hua Li, chief representative for
McCandlish Holton PC, animosity is likely to fester until firms are
either permitted, or choose of their own accord, to promote more
local people beyond the title of "glorified paralegals".

GOLDBERG

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