VZCZCXRO0423
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0788 1930938
ZNR UUUUU ZZH
R 120938Z JUL 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6251
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS GUANGZHOU 000788 
 
SIPDIS 
 
SIPDIS 
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