Stephenson Harwood has formed an alliance with one of the former PRC lawyers from its Guangzhou office shortly after closing the base.

The UK firm, which shut its doors in the South China city in September in a bid to re-evaluate its China practice, has tied-up with the newly formed firm Wei Tu, run by ex-Stephenson Harwood lawyer Xianming Lu.

The venture will see the two firms working collaboratively on China projects, but will prevent them from sharing profits or brand name.

Since leaving Stephenson Harwood, Lu has been able to reactivate his PRC practice license, allowing him to once again advise on all PRC law matters, including tax and litigation.

Two other lawyers who previously worked with Lu at Stephenson Harwood's Guangzhou base are also expected to join the firm.

Voon Keat Lai, managing partner of Stephenson Harwood in Greater China, told Legal Week that the model was more logical for the UK firm in light of the difficulties hiring and expanding in Guangzhou and the fact that much of the work is local.

"We felt there were limitations to what we could in Guangzhou as Stephenson Harwood, so we thought better to vacate that market and work with people that we know," he said.

"Guangzhou is a very large legal market but also very localised. We were having difficulty finding ways of expanding because we couldn't attract the right types of candidates – most are PRC qualified.

"It is also not a financial centre like Beijing and Shanghai. It's an operational centre where you have a lot of factories. Issues tend to be local law issues. M&A and big investment decisions not likely to be made in Guangzhou but elsewhere."

Going forward he made clear the firm would be interested in a closer relationship with Wei Tu under the 2003 Hong Kong-China Closer Economic Partnership Arrangement (CEPA), which permits a Hong Kong outfit and a China firm to formally collaborate, share office space and participate in joint marketing activities.

The rules now additionally allow firms to form a joint venture and share profits, though the PRC firm has to have the controlling stake.

The Guangzhou firm also has to have been established for one year. Hong Kong firms are permitted to have up to three partner firms in total.

"In time we would like to consider a CEPA arrangement with them, but at this moment it's out of reach," added Lai.

"[Forming JVs in China is] not easy. You have to have a firm that is pretty close to you. We want to enter arrangements with firms that we're comfortable with. We need to see changes in how the PRC law firms work for us to have comfortable relationships with them."

Stephenson Harwood currently has 19 partners across its Beijing, Shanghai and Hong Kong offices, three of whom are on the mainland.

It recently hired Clyde & Co partner Lynia Lau to manage the Beijing base, and is hoping to add four senior lawyers in Shanghai in the near future.