China: at the golden gates of wealth

As Clydes makes its China move, free trade zones clear way for deeper law firm links

Clyde & Co did a ground-breaking deal in China last week. Through its Hong Kong arm the firm has established a joint venture with Chongqing-based West Link under the Mainland and Hong Kong Closer Economic Partnership Arrangement (Cepa).

China has strict rules barring foreign firms in the country from entering into formal associations with Chinese firms. However, the Cepa framework lets Hong Kong firms enter into associations with their mainland counterparts as long as both sides fulfil certain requirements.

Bird & Bird is another to have taken advantage of the framework. In 2009, its Hong Kong office set up an association with Beijing IP firm Xiang Kun.

However, a Cepa association or joint venture does not allow a sense of true integration and the structure is not attractive enough for most foreign firms to take the plunge, even though some have fully localised Hong Kong offices.

But, for firms hoping to tie up with locals, new opportunities are on the horizon.

The Shanghai Free Trade Zone (FTZ) and Shenzhen’s Qianhai zone are schemes to watch as both have policies that permit foreign firms to set up formal joint ventures with Chinese counterparts.

The FTZ is expected to lead the way to broader financial reform in the country. The government has vowed to introduce measures to further open up the service sector in the zone, including exploring joint ventures.

The Qianhai zone, which is trying to rival the FTZ on financial reform and innovation, has also announced plans to allow Hong Kong firms to partner with PRC firms, permitting them to share equity and profits.

The only catch is that the Chinese government is known for taking a long time to formulate rules for its policies. Detailed rules on how firms can go about striking a deal in these zones are still in the making, and foreign firms need to show just a little bit more patience before their day finally comes.

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