Lawyers welcome plans to allow HK firms to operate in China through tie-ups with mainland outfits

Hong Kong law firms are set to discover whether they will be permitted to advise on PRC law in China in a new special economic zone under development in the south of the country.

The Law Society of Hong Kong has submitted proposals to the mainland authorities asking for Hong Kong firms to be allowed to advise on the ground in China by setting up joint ventures with mainland outfits in the new Qianhai Special Economic Zone (SEZ), which is due for completion in 2020. It is expecting a decision within the next two months.

The proposals state that Hong Kong firms should be allowed to tie up with mainland Chinese firms based in the Guangdong province to form new joint entities, which in turn could offer a one-stop shop for legal services for Chinese clients.

The new rules, if accepted, would also apply to the local branches of most international firms operating in the region. In order to set up a local base, partners are required to be Hong Kong qualified with a minimum of two to five years' post-qualification experience in the city.

Acceptance of the proposals would be a huge step forward in the liberalisation of the Chinese legal market, which currently bans foreign law firms from advising on PRC law on the ground in China. The rules have so far prevented international firms from fully tapping into the world's second largest economy, despite there being no such restrictions on Chinese law firms in the US and Europe. 

"We've not had the green light from the Government yet, but we have our fingers crossed," said Stephen Hung, vice president of the Law Society.

"Hong Kong firms could not work alone – [the proposal is that] a Hong Kong firm and a mainland firm merge and set up a new office where they will share expertise. And it would have to be a firm in Guangdong."

The Qianhai SEZ is a $45bn (£30bn) project under development near Shenzhen, adjacent to Hong Kong in the south of China. The zone is one of several purpose-built areas aiming to boost trade between Hong Kong and mainland China, and to test the liberalisation of the PRC market. 

Should the new rules be approved, Hong Kong lawyers can expect to receive training on PRC law through continual professional development courses, taught in modules. It is currently unclear when or where the training would take place, but it is expected that Tsinghua University in Beijing, which is a partner in the scheme, could play a role through its affiliate school in Shenzhen. 

In addition to relaxing restrictions on law firms, the SEZ is also expected to enable Hong Kong banks to lend renminbi directly to mainland companies, a practice also currently not permitted.

Partners at international law firms have embraced the move to open up the China market. 

Freshfields Asia managing partner Robert Ashworth said: "We have been closely following developments in relation to the Qianhai cooperation zone for some time and believe that the proposals, if implemented in the manner expected, could present a valuable option for providing legal services on the mainland.  Once the rules come into effect we would certainly explore what opportunities this could offer us." 

Baker & McKenzie Hong Kong, PRC and Vietnam managing partner Paul Tan said his firm would also look at tie-up opportunities as and when the rules come into law. 

"If PRC law capability were permitted, global firms would be able to take a more holistic approach and offer clients legal advice that meets international standards while complying with local regulations. The overall legal costs to the clients are also likely to be reduced. We will certainly explore any opportunity within the framework permitted by law."