Partners say domestic changes are essential to unleash market forces, writes Elizabeth Broomhall

International law firms with offices in China have broadly welcomed the country's latest attempts at economic reform, but remain sceptical about their immediate impact on the legal industry.

The plans, which were recently approved at the four-day third plenary session of the 18th CPC Central Committee, set out a string of policy changes aimed at transforming China's economy. 

The Chinese Government says it wants to create a more Western-style, consumer-driven market and open up the country to new forms of investment in a bid to counter a worrying slowdown in economic growth. For Western law firms and other businesses, important initiatives include plans to boost private sector participation, relax restrictions on foreign investment into the country and steps to liberalise the market.

Most significantly, China is looking at ways to increase private sector access to capital and improve the management of state-owned enterprises (SOEs), while saying that it wants to end monopolies.

But despite this potential shift towards market liberalisation, law firm partners insist the reforms will have a limited impact on dealflow in and out of China in the near future. Some believe that the immediate impact is more likely to be felt by local practices.

"For English or New York lawyers, all we're interested in really is the cross-border work and the key point for that is continuing deregulation of capital controls," says Andrew Malcolm (pictured), head of Asia capital markets at Linklaters.

"Most of these reforms are concerned with reform of the domestic economy, and that isn't of itself going to throw off work of a cross-border nature."

That said, Malcolm does acknowledge that a knock-on effect from those domestic reforms could be a welcome boost to cross-border deals in the longer term. In addition, a handful of more far-reaching proposals, particularly those connected with opening up control of the SOEs, could incentivise outbound investment by private companies more quickly.

"China has continuously been reforming its capital account over the past three years, tied in with the internationalisation of the renminbi," Malcolm says.

"But that's going quite slowly [because] the domestic economy just isn't ready to release capital controls completely. So domestic economic reforms are essential to provide for full capital account convertibility in the future. The reform package also continues to commit to [some] capital account deregulation in the shorter term and I think that will generate more work. 

"We'll see more Chinese companies being able to issue bonds in the offshore market… and generally more relaxation, so that Chinese companies will have a higher quota to make overseas investments and overseas M&A transactions will increase."

Alan Wang, an M&A partner at Freshfields Bruckhaus Deringer in Beijing, agrees that the outlook is generally positive, but is unlikely to spawn radical change in the near future, either to workload or the way in which mandates are won. 

"It's not immediately obvious that it will have any direct impact on the legal industry, but you can see that the direction is towards allowing market forces to play a decisive role in regulating economic activity. As for the procurement of legal services, this is still a very small part of what an SOE actually does, so at what stage the [SOE] reform will trickle down to that is hard to say. 

"But I would expect Chinese companies to adopt an approach that is more in line with international standards in terms of the procurement process. So they might select external lawyers based more on expertise, costs and other factors, and less subject to intervention by regulators."

With the reforms still in a nascent state, Simmons & Simmons Asia managing partner Paul Li says he is adopting a "wait and see" approach until more information is available. 

"It's not immediately obvious that it's going to make a difference. We're waiting to see what the detail is. Saying the market economy is going to be a key driver is obviously a welcome statement. But without the substance of what that means in practice, it is difficult to say [how this will affect the market]."