CLB April 2012 by Yvette Chiu

Devil in the details: The amended Criminal Procedural Law 刑诉法修订：细节决定一切

april2012 WWW.LEGALBUSINESSONLINE.COM

亚洲法律杂志 - 中国版 CHINA

ALB INTELLECTUAL PROPERTY RANKINGS

2012 ALB 知识产权排名

ONLINE UNION More M&As in the TMT sector? 视频网络洗牌时代？

PAGE 14

OFFSHORES AT THE GATE A look at offshore firms’ China strategies 离岸律所中国战略

PAGE 16

PEARL RIVER DELTA

INSIDE

Preparing for opportunities amidst an economic crisis 应对危机，备战未来

n Deals SPOTLIGHT

PAGE 24

n THE BIG STORY

n LAW FIRM LEAGUE TABLES

n SUNDRIES

LOOKING FOR A CHANGE?

POST YOUR CV ONLINE AND LET YOUR NEW LIFE COME TO YOU

CONTENTS

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“Being in China is helping us build our profile. I believe more firms will be following us into the market because certainly, our findings for China clearly show this as a growth area for offshore. We are here where our clients need us.” Kristy Calvert, Ogier

REUTERS/China Photos

COVER STORY ALB IP Rankings 2012

The first of our brand new rankings with enhanced methodology and greater transparency; these rankings identify the best intellectual property firms across Asia.

36 NEWS

FEATURES Online union The sudden merger of Youku.com and Tudou.com may bring the ongoing litigation between China’s top two online video sites to an end, and create a market leader with about one-third of the total market share. Now, lawyers are ready for more M&A news in the competitive internet video market of some 450 million netizens, finds Liu Zhen

Offshores at the gate With two key offshore firms on the ground in China now, the rest of the market players are monitoring their experiences and reanalysing strategies. Although for now, most of them are satisfied with their offerings and are looking for alternate opportunities to shore up business, including tapping into the growing sophistication of clients and riding the waves of wealth planning and aircraft financing. Candice Mak reports

Pearl River Delta: Renaissance amidst crisis The Pearl River Delta has cradled the birth and the growth of China’s legal business over the past 30 years with its pioneering economic opening and reform. In the global economic gloom, in which the highly exportdependent manufacturing industries were damaged, law firms find their chances to prepare for the next boom, reports Liu Zhen

Malaysia focus An in-depth look at the nation confirms that the environmental, banking and energy sectors are steadily bringing in increasing levels of foreign interest, solidifying Malaysia as an investment hotspot for 2012, write Seher Hussain and Ranajit Dam

DEALS

BRIEFS

LEAGUE TABLES

APPOINTMENTS

INDEX

SPONSORED UPDATES — International Tax AzureTax — Singapore Loo & Partners — Shanghai Victory Legal Group

Sponsored Profile

泰和泰律师事务所

泰和泰房地产业务走向全国邓国林, 高级合伙人, 泰和泰律师事务所房地产部主任

泰和泰律师事务所地址: 中国四川省成都市鼓楼南街 117号世界贸易中心A座25 、27楼邮编：610015 电话: 028 8662 5656 传真: 028 8676 1128 (25th Floor) 028 8662 6637(27 Floor) 邮件: attorneys@tahota-lawyer. com 网址: www.tahota-lawyer.com

泰

和泰律师事务所房地产部成立于2000年，历经12 个春秋的历练和发展，现已成为泰和泰律所金牌业务部门，其中多名房地产专业律师更是行业内当之无愧的精英和领先者，并以其专业、优质、高效兼具创意性、前瞻性的法律服务源源不断地吸引了和吸引着众多高端客户的青睐和肯定，使泰和泰律师事务所成为国内目前拥有房地产开发类客户最多的律师事务所之一，拥有包括香港和记黄埔、新鸿基、新加坡仁恒置地、凯德置地、城市发展公司、大陆的中海、万科、华润、保利、富力、绿地、花样年、龙湖、万通、蓝光、置信、万华、雅居乐、等近500余家房地产开发企业客户（多为总部或地区性总部），市场覆盖率达到80%以上。泰和泰房地产律师一直以来以团队服务+针对性服务的专业法律服务模式被广大客户肯定和赞许，成功完成了数百余项房地产项目收购等投融资业务，收购中的多个尽职调查报告和方案设计被以严谨著称的香港、新加坡、英国同行视为经典；泰和泰房地产律师从企业拿地、开发、销

售各个环节，在住宅地产、商业地产、工业（含总部基地）、旅游（含休闲、主题公园等）、文化地产（含文化创意产业、养老、医疗等）、城市综合体、城市新城、城乡统筹等每一个业态都有涉足，并连续两年获得ALB中国房地产律师事务所大奖。此外，泰和泰房地产律师还受邀担任政府房地产管理部门法律顾问，多次就政府制定的本地房地产管理法规、规章及相关政策进行论证和咨询。过去十年，是中国房地产业高速蓬勃发展的十年，随着“ 房地产业应由经济支柱转换为社会民生支柱”趋势的演进，房地产业和房地产法律服务将面临更多的挑战和机遇，泰和泰房地产业务部及律师将不断审时度势、精益求精，用最专业、最准确和最全面的法律服务通过北京、重庆、大连、深圳、成都、香港六地分所和分支机构为国内外房地产行业客户保驾护航。

大成律师事务所海事海商部

Commercial and Maritime Law Services Our Offices One of the first and largest partnership law firms in China Has a long history of representing clients in international trade and maritime cases

Our Team Intensively Experienced law practitioners with well legal education and wealth of practice Providing services for exporters & importers, bankers, insurers, various carriers, forwarders, logistics providers from around the world and across the country

Our Network Headquartered in Beijing, and extends to all of coastal ports, air gateways in China and main ports abroad As sole member of WSG, we could cooperate with partners worldwide via WGS global network expediently

LEAGUE TABLES

ASIAN LEGAL BUSINESS april 2012

CHINA ANNOUNCED M&A LEGAL RANKINGS

CHINA Announced M&A Financial Rankings

Allen & Overy

2,570.9

DEALS: 5 RANK

Credit Suisse

6,022.7

VALUE ($mln)

DEALS: 3

MARKET SHARE: 5.9

LEGAL ADVISOR

VALUE ($ MLN)

DEALS

MARKET SHARE

RANK

VALUE ($mln)

MARKET SHARE: 13.9

LEGAL ADVISOR

VALUE ($ MLN)

DEALS

MARKET SHARE 7.6

Slaughter and May

2,531.4

5.9

CITIC

3,304.8

Fulbright & Jaworski

2,500.0

5.8

Deutsche Bank AG

3,304.4

7.6

Vinson & Elkins

2,500.0

5.8

HSBC Holdings

3,048.9

7.0

King & Wood Mallesons

2,134.1

4.9

Somerley Ltd

2,531.4

5.9

Paul, Weiss

1,940.3

4.5

Rothschild

2,531.4

5.9 5.4

Jingtian & Gongcheng

1,797.3

4.2

Caitong Securities Co Ltd

2,334.6

Sullivan & Cromwell

1,640.3

3.8

UBS

1,765.3

4.1

Baker & McKenzie

1,580.6

3.7

Morgan Stanley

1,688.9

3.9

Skadden

1,256.9

2.9

Citi

1,433.1

3.3

(*tie) Based on Rank Value including Net Debt of announced M&A deals (excluding withdrawn M&A)

HONG KONG Announced M&A Legal Rankings

HONG KONG Announced M&A Financial Rankings

Allen & Overy

4,089.4

DEALS: 5 RANK

Moelis & Co

4,278.7

VALUE ($mln)

MARKET SHARE: 24.0

LEGAL ADVISOR

VALUE ($ MLN)

DEALS: 2

DEALS

MARKET SHARE

RANK

VALUE ($mln)

MARKET SHARE: 25.2

LEGAL ADVISOR

VALUE ($ MLN)

DEALS

MARKET SHARE

Slaughter & May

2,531.4

14.9

Morgan Stanley

3,617.4

21.3

Sullivan & Cromwell

1,936.4

11.4

HSBC Holdings

3,064.9

18.0

Freshfields Bruckhaus Deringer

1,275.1

7.5

Goldman Sachs & Co

2,836.2

16.7

Linklaters

533.5

3.1

Deutsche Bank AG

2,795.4

16.4

Rajah & Tann

494.0

2.9

Rothschild

2,752.2

16.2

Machado Meyer Sendacz & Opice

494.0

2.9

Somerley Ltd

2,535.1

14.9

Paul, Weiss

300.0

1.8

Credit Suisse

2,531.4

14.9

Baker & McKenzie

260.6

1.5

JP Morgan

2,003.4

11.8

Mayer Brown JSM

216.3

1.3

Citi

514.8

3.0

(*tie) Based on Rank Value including Net Debt of announced M&A deals (excluding withdrawn M&A)

ANY CHINESE INVOLVEMENT ANNOUNCED M&A ACTIVITY - QUARTERLY TREND 80

Rank Value US$ billion

No. of Deals

46.7

50 40 30 20 10 0

83.5

8.3 9.5

16.6

10.6

15.7

12.4

17.0

23.3 21.1 22.3 22.4

1,200

76.5

39.6

42.4

36.4 27.1 16.9

46.2

42.5 40.3 43.6 45.2

1,000 800 44.3 43.1

34.3

600 400 200

No. of Transactions

Rank Value US$ Billion

1Qdeal 05 list are 3Qbased 05 on the 1Qnation 06 of 3Q 06the target, 1Q 07 07 ultimate 1Q 08 3Q 08 1Q 09 parent3Q 10transaction. 3Q 10Announced 1Q 11M&A transactions 3Q 11 NOTES: League tables, quarterly trend, and either acquiror,3Q target parent, or acquiror ultimate at 09 the time 1Q of the excludes withdrawn deals. Deals with undisclosed dollar values are rank eligible but with no corresponding Rank Value. Non-US dollar denominated transactions are converted to the US dollar equivalent at the time of announcement of terms.. Data accurate as of April 18, 2012

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Sponsored Profile

GUANTAO law Firm

Added Value of Legal Service for Overseas Engineering Project

Jiang Wei, Partner

Beijing Headquarter Office A: 17/F, Tower 2, Yingtai Center, No. 28 Finance Street, Xicheng District, Beijing 100033, China T: +86 10 6657 8066 F: +86 10 6657 8016 E: jiangwei@guantao.com

owadays, for Chinese engineering companies actively responding to the â&#x20AC;&#x153;Going Globalâ&#x20AC;? Strategy advocated by the Chinese central government, risk management methodologies have become an important consideration in their efforts to expand the overseas market. For an overseas engineering project, the legal services provided by lawyers are no longer confined to the traditional realms. Aside from assistance in engineering contract drafting, review of the RFB and other bidding documents, participation in contract negotiations and involvement in dispute settlements as an attorney, the companies have shown a greater need for an experienced lawyer in helping them effectively manage various risks. Even though Chinese engineering companies are unlikely to pay expensive legal fees to local legal practitioners for an all-around report on the legal environment for one potential project, we shall not exclude the possibility that they are hoping we Chinese counsels engage in the evaluation of the legal environment in case and remind them of the relevant potential risks. These actual needs provide invaluable

opportunities for competent Chinese law firms. In fact, with mastery of the professional methods and an international cooperative network, a proficient lawyer can always come up with satisfactory legal advice to their clients. In addition, Chinese engineering companies have come to realize the crucial role risk management plays. Those companies already enjoying a fair share of the overseas market, as well as those regarding overseas expansion as a major growth driver are endeavoring to identify and control risks through effective internal administration procedures and directives. However, the aforementioned procedures and directives, if not scientific and effective, may become a systematic risk to these companies. As a result, there has been an ever greater need for our legal advices relating to the formulation of a functional risk management mechanism and the reduction of exposure to systematic risks. In our view, the expansion of overseas business for Chinese engineering companies is bound to result in the prosperity of the market for high added-value legal services as well as the increasing internationalization of Chinese local lawyers.

APPOINTMENTS

ASIAN LEGAL BUSINESS April 2012

Lateral hires NAME

GOING TO

PRACTICE

LOCATION

Davis Polk & Wardwell

Wilson Sonsini Goodrich & Rosati

Corporate, PE, FDI, M&A

Shanghai

Chi, Yongquan

Bae, Kim & Lee

Global Law Office

M&A, Real estate

Beijing

Fyfe, Tom

Clyde & Co

Simmons & Simmons

Dispute resolution, Litigation

Hong Kong

Kim, Jong-gil

Bae, Kim & Lee

Global Law Office

M&A, Fair trade, FDI

Beijing

Ligorner, Lesli

Paul Hastings

Wang, Jing

Allen & Overy

Chen, Zhan

Wang, Xiaogang (Sean)

White, Ying

Yang, Vivien

Leaving

White & Case

Akin Gump Strauss Hauer & Feld

Clifford Chance

Simmons & Simmons

Norton Rose

Shearman & Sterling

Employment, Anti-corruption

M&A

Project finance

Shanghai

Beijing

Shanghai

Clifford Chance

Corporate

Beijing

Simmons & Simmons

Corporate, Energy, Natural resource

Hong Kong

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Sponsored Profile

Shanghai Young-Ben Law Firm

Enforcement-Orientated: Key strategy for a CrossBorder Commercial Litigation or Arbitration in China

Vincent Sun, Partner T: +86 21 6148 4911 E: sunwei@young-ben.com

Fran Ye, Partner T: +86 21 6148 2997 E: yefeng@young-ben.com

Shanghai Young-Ben Law Firm A: Room 1405-1407, Fortune Times Plaza, No. 1438, North Shaanxi Road, Shanghai, 200060, PRC. F: +86 21 6148 4899 T: +86 21 6148 4900 E: info@young-ben.com

he rapidly globalizing economy in China has seen more and more Cross-Border disputes arising from international trade or transactions. Some foreign companies as well as attorneys may prefer selecting Forum or Jurisdiction in their own states or western countries, but the reality sometimes shows huge discrepancies in what they thought. Winning on a piece of paper can be meaningless. From a practical point of view, given the relative difficulty of enforcing a foreign commercial judgment or arbitral award in China, as significantly different from what it is likely to be in most western states, the key strategy for Jurisdiction or Forum selection for disputes must be “EnforcementOriented”, instead of “Forum Conveniens”. Litigation or Arbitration? It is common for an experienced attorney preparing an international commercial contract, even some attorneys who may suggest exchanging a preferred Jurisdiction Clause with sacrifices on other aspects. According to the experience in western countries, especially in the US, a Commercial Arbitration may be more preferred for the efficiency and cost-saving purpose. Would it be different if a Cross-Border dispute is involved with a Chinese counterpart? Enforcement of a Judgment from a foreign Court would be more difficult than an International Arbitration Award. Keep it in mind that China has ratified the New York Convention in 1986 which leads an International Arbitral Award to be recognized and therefore enforced in China – this being emphasized several times by the Supreme People’s Court of China. Conversely, a commercial Judgment from a foreign court will be recognized and enforced by a Chinese court ONLY if there is a bilateral treaty for judicial assistance or reciprocal relationship between China and the county where the foreign court sits. The reality is that commercial judgments from courts in most foreign countries, including US, UK, Germany, Canada, Holland, Japan and Korea, are not recognized by China, while only Judgments from Courts of a few developed countries, including France, Italy and Australia, are recognized by China according to bilateral treaties. Stated simply, most Judgments from foreign Courts have virtually no value in China. But it should be noted that, under PRC laws, domestic disputes with no foreign element, including a dispute between a Chinese party and the Chinese subsidiary of a foreign party, must have their seats of arbitration inside mainland China. Hence if you prefer Jurisdictions over potential disputes outside China and you are not sure whether a bilateral treaty exists, an Arbitration Clause shall be definitely better than a lawsuit. But even with an international Arbitration, some functional tools provided by PRC laws may still be unavailable to applicants to help ensure the outcome of Enforcement. Surrender Jurisdiction to China? Here is another issue - is it better to surrender the Jurisdiction over the disputes to a Chinese Court or Arbitration Institution? On one side, many foreign companies are concerned that impartiality will be hard to achieve in Chinese Courts

and Arbitration Institutions due to the lack of transparency and independence; and on the other side, because the crucial influence of the Property Preservation and Evidence Preservation (named “interim or conservatory measures” in some other countries) in deciding the outcome of the case and enforcement, surrendering the Jurisdiction outside China will also be troublesome if the assets for the coming Enforcement are mainly within China. If your adversary is not a giant company with sufficient assets enabling you not to worry about the Enforcement, such as some SOEs or MNCs, without Property Preservation the difficulty of the Enforcement will dramatically increase. Therefore, without assets aboard to satisfy the Enforcement of a foreign Judgment or Arbitral Award, one must be cautious in pursuing Litigation or Arbitration against a Chinese company abroad. And in fact, the professionalism of the courts in urban areas of China has greatly improved in recent years, especially in the metropolitan areas such as Shanghai, Beijing and Shenzhen. Golden Rule of “Property Preservation” Property Preservation is a Golden Rule for filing a case in China in order to have a successful outcome against a Company owning assets in China. Collection on judgments in China is improving, but due to the lack of a mature Credit Mechanism, it is more convenient for a Chinese company to transfer its assets during a long period for Litigation or Arbitration. Any Plaintiff or Applicant filing a case in local institutions is entitled to apply to local Courts for “Property Preservation”, meaning that any money, real estate, vehicle, asset, even credit from a third party owned by a Defendant or Respondent could be frozen or seized until the Enforcement stage. In addition, the “Property Preservation” will also put a great pressure on Defendants or Respondents, which sometimes forces them to make a compromise or settlement with the Plaintiffs or Applicants shortening the period for dispute resolution. Thus, Property Preservation is a great tool from the perspective of Enforcement. But it should be noted that, a deposit shall be required by the Court in order to ensure any potential compensation if there is damage caused by mistaken Property Preservation and the cost shall be considered in the planning stage. Mediation and Negotiation on the Settlement As an old Chinese proverb says “harmony creates wealth”. Keeping your flexibilities during a negotiation or mediation with your adversary will be very helpful even when you are most likely to win the case. There is a procedural requirement to have a Mediation process whether in Court or Arbitration in China. To some extent, the foreign companies are reluctant to make compromises because they believe the final decision shall be in their favor. However, without an effective Enforcement, winning on a piece of paper will be meaningless. You must also take into consideration the reality and difficulty of the Enforcement. A well designed Settlement frame will ensure your receipt of the money in months, instead of a futile search for assets. There is a high possibility of similar compromises being made during the Enforcement process as well.

BRIEFS

ASIAN LEGAL BUSINESS april 2012

REUTERS

China growth seen slower in 2012, recovery mild: World Bank By Nick Edwards

The World Bank cut its forecast for China’s 2012 economic growth to 8.2 percent on April 12, 2012 and said a rebound might not begin before the third quarter of the year as slack foreign demand and a government-induced real estate slowdown restrain a recovery. “There is the potential for growth to be bumping along the bottom for longer,” Ardo Hansson, the World Bank’s lead economist for China, told a news conference to release the multilateral lender’s quarterly update on China. The Bank’s new growth forecast for the world’s second-biggest economy would mark a 13-year low, compared with an 8.4 percent, 11-year-low estimate in November 2011. An 8.2 percent expansion would mean China’s economy was growing slightly below its potential rate, Hansson said. In economic terms, it implies Beijing has space to tweak policies to boost growth without igniting inflation.

“We see cyclical weakness continuing, but that the prospects for a soft landing remain high,” Hansson said, adding that Beijing had considerable fiscal resources available to help bolster the economy if risks to the downside accelerate. The Bank’s economics team believes that when recovery does come, most likely by the middle of the year, but possibly not before the third quarter, its shape would be somewhere between a vigorous ‘V’ and a flat ‘L’ . Though the report characterises the

bounce as mild, it is faster than expected in November, when 2013 growth was estimated at 8.4 percent compared with 8.6 percent in the latest report. The World Bank forecast China’s export growth at 9.7 percent this year and 11.6 percent in the next, with import growth likely at 12 percent in 2012 and 12.5 percent in 2013. That outcome would see external demand having a negative contribution to growth for a second successive year, with trade subtracting 0.3 percent from GDP in 2012 and adding nothing at all in 2013, according to the Bank’s forecasts. REAL ESTATE RISKS While risks to overseas demand for goods from China’s vast factory sector were seen as a key external restraint on growth in the near term, the bigger problem was domestic real estate. The report welcomed the gradual cooling of a sector that had been in the grip of a speculative frenzy before the government unveiled a slew of policies to calm it two years ago. But it cautioned that downside risks were centered on that adjustment. “Given the significance of the sector in the overall economy, continued vigilance will be required to contain negative spillover effects,” the report said. “A more amplified downturn could REUTERS/Jianan Yu have negative economy-wide impacts.” Real estate investment made up about 13 percent of China’s GDP in 2011 and directly affects about 40 different industries. Premier Wen Jiabao has pledged to keep the curbs until home prices return to what he says is a reasonable level. Prices in major cities have fallen for five straight months, but remain elevated after rising 10-fold in the past decade. China’s average home prices will probably fall between 10 and 20 percent this year, a

pace modest enough to prevent a hard landing of the economy, according to a Reuters poll in January. Hansson said that property tightening so far had not been overdone when looking at things on a national basis, though developments in specific cities might require particular policy responses to prevent wider fallout. “This is a sector that is difficult to micromanage and fine tune. There’s a lot of uncertainty about the timing of the effects after you pull the policy levers,” he said. Fine-tuning monetary and fiscal policy has been Beijing’s mantra in fighting a downturn that has put China on its worst run of quarterly sequential slowing since the depths of the 2008/09 global financial crisis and likely in for its weakest full year of growth in a decade. POTENTIAL FOR POLICY ACTION “Further monetary support would be appropriate if the economy slows down further. To support access to credit and facilitate refinancing, further reserve requirement and policy rate action would be called for,” the report said. The People’s Bank of China has cut the proportion of deposits banks must keep as reserves by 100 basis points in two moves since late 2011 in a bid to keep credit growing in the face of a recent slowdown of foreign capital inflows, which had underpinned money supply growth for much of the last decade. Analysts polled by Reuters last month expect a further 150 bps of cuts this year, though the consensus view is that the central bank will eschew outright cuts to policy lending rates. The World Bank’s revisions to its outlook for the Chinese economy come ahead of China’s official first-quarter growth report due on Friday at 0200 GMT, which is expected to show the country suffering its slowest three months of growth in three years. Economists polled by Reuters in March forecast first quarter GDP growth at 8.3 percent versus a year earlier. The highest estimate in the range was 8.6 percent, half a percentage point lower than the highest forecast in a poll taken in January. The slowing economy, though, has helped cap upside inflation pressures. The Bank forecasts full-year inflation of 3.2 percent in 2012 and 3.6 percent in 2013 and Hansson said consumer prices now appeared to be “on a controlled path.”

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Sponsored Profile

广盛律师事务所 Guangsheng & Partners

私募基金及资本市场业务助广盛再展英姿

中

刘新辉, 管理合伙人, 私募基金及上市业务负责人电邮 : jasonliu@gslaw.com.cn Jason Liu, Managing Partner, Head of Private Equity and Capital Market Practice E: jasonliu@gslaw.com.cn

国的私募基金、并购及资本市场业务近年来风起云涌，广盛律师事务所作为中国一家较早设立的大型律所，在此领域早有涉猎并已积累大量业绩。广盛私募基金及上市团队近年来表现尤为抢眼，广盛仅2011 年就协助13家私募基金完成设立（包括美元基金、中外合资基金和纯人民币基金）；代表KTB、JAFCO、赛富、鼎晖、九鼎等境内外基金完成12宗私募投资交易（包括境外红筹、合资及纯内资架构）；代表盛世神州第一家地产基金于国家发改委备案并助其完成多起地产投资；代表首创合资基金于北京第一家进行外资基金QFLP试点申请；代表美国纽交所上市公司飞鹤国际完成1.318亿美元的股权出售，并协助央企完成超过20亿元人民币的数起矿业并购。凭借于私募基金及并购业务的出色表现，广盛获清科“2011 年最佳私募基金律师事务所”提名，以及ALB 2012年度“最佳私募股权投资律师事务所”提名；获选投中集团（China

Venture）“2011年中国并购市场最佳法律服务机构（境内）”，以及汤森路透“5000万美元以下并购项目”中国区全球法律顾问排名第3名及中国律所第1名。广盛团队成员亦获得钱伯斯亚太区“ 最佳贸易法律师”、及2011和2012年度Corporate International中国“最佳反垄断法律师”。作为具有国际视野、深悉中国法律实践的专家团队，广盛多名合伙人及律师曾就职于国际律师事务所，亦具有中国中央政府部门工作经验。他们曾就多部投资法规制定提供立法建议，与中国政府部门保持良好的沟通渠道。广盛与多家国际律师事务所保持着良好的合作关系，共同寻找项目、推动交易顺利交割；分工协作、创造共赢的法律商业机会，是广盛的宗旨。广盛亦在积极在吸收优秀合伙人加入，以共同打造高端、专业的法律服务平台。

PE/Capital Market practice leads G&P ahead with full speed

广盛律师事务所地址：中国北京市朝阳区东三环北路甲19号嘉盛中心6层电话：+86 10 5967 0111 传真：+86 10 5967 0135 网址 : www.gslaw.com.cn Guangsheng & Partners A: 6th Floor, Tower A, Nexus Center, East 3rd Ring Road North, Chaoyang District, Beijing, China T: +86 10 596 70511 F: +86 10 5967 0135 W: www.gslaw.com.cn

uangsheng & Partners Law Offices (“G&P”) has maintained both its scale and practice for over a decade in areas of fund formation, PE/VC investment, M&A, IPO, real estate, international trade, banking and finance, all of which are at the forefront of its domestic and international face. Many partners in G&P have over ten years practicing experience in law firms of United States, Canada, UK and Japan, some of them have ever worked at PRC central government, including Ministry of Commerce (“MOFCOM”). The private equity and capital market practice group has taken the lead for the firm’s quick development. G&P in year 2011 helped with the formation of 13 private equity funds (including pure RMB funds, Sino-foreign joint venture fund and offshore parallel fund) with a total capital commitment of US$659.1 million (around RMB4161 million); as well as the closing of over a dozen PE/VC deals (both offshore and onshore) with total investment amount of US$412.32 million (around RMB2603 million). G&P also helped with multiple merger & acquisition transactions (for listed companies and real estate funds).

The excellent performance of G&P has helped it in building a brand for itself: G&P ranked No. 1 in China law firms in Chinese Involvement Small-Cap Ranking (below US$50 million) in the Legal Advisors Review for year 2011 released by Thomson Reuters. Besides, G&P was nominated finalist in Private Equity Law Firm of the Year at ALB China Law Awards 2012, as well as finalist by China Venture in “Best Legal Service Provider for China M&A market” for year 2011. It is noteworthy that G&P adds its international exposure to its strong presence in China. G&P intends to create more awareness to its clients about three things in particular: G&P’s international working quality, cost effectiveness of its services, and the channel and resources it can extend to its clients. Contrary to competing with international law firms, G&P understands well its role and function in cross-border transactions; G&P maintains sound relationship with international law firms in PE/VC and IPO deals. To build a better platform in the legal industry, G&P is also looking for partners to join the firm.

Analysis

ASIAN LEGAL BUSINESS april 2012

Online union By Liu Zhen The sudden merger of Youku.com and Tudou.com may bring the ongoing litigation between China’s top two online video sites to an end, and create a market leader with about one-third of the total market share. Now, lawyers are ready for more M&A news in the competitive internet video market of some 450 million netizens

here has been speculation on whether the recent merger of China’s top two online video companies is to possibly create a “YouTube” of Chinese language, particularly when access to the latter is still blocked in mainland China. It seems quite close to that immediately - at least in terms of the name. How does “Youtudou” sound to you? Don’t worry. In fact there won’t be any Youtodou in spite of the jokes that are being circulated online. The official name of the combined entity of Youku.com and Tudou.com is simply “Youku Tudou Inc”. Nevertheless, the joint force of the two will indeed result in the largest internet video site in China, and change the landscape of the entire market. Youku currently leads the fragmented Chinese online video market with a 21.8 percent share, ahead of the second ranked Tudou’s 13.7 percent, according to Internet research firm Analysys International. In the deal worth over $1 billion, NYSE-listed Youku has purchased all the shares of its smaller rival Tudou. The latter is expected to delist itself from the Nasdaq after the closure of the transaction in the third quarter of this year. Under the terms of the deal, Youku stock and ADS holders will own around 71.5 percent of the new company, with the rest being held by Tudou shareholders and ADS holders. The new company will be headed

by Youku founder, chairman and CEO Victor Koo, while Tudou’s CEO Gary Wang will join the new entity’s board of directors. “Youku Tudou Inc will represent a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced bandwidth infrastructure, and strongest monetisation capability within the sector,” said Koo in a statement. Antitrust The closure of the deal now depends on the consent of the shareholders of the two parties and the supervisory authorities. According to the current regulations, any one single company which takes more than half of the market or two companies which together take over two-thirds of the market could be regarded as holding dominant position in the relevant market, and under antitrust risk. Despite being the largest currently, the combined one-third share of Youku Tudou Inc might not be large enough to trigger an antitrust procedure. “If there is any concern of antitrust, the two companies should voluntarily report to the Ministry of Commerce. The completion of the merger would be subject to the approval of antitrust department of the Mofcom after relevant investigation,” Zhong Lun Law Firm partner

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Chen Jihong tells ALB. “But this has to be verified and decided by the authorities officially, and the product and the market in this case are both to be identified,” says Chen. With at least 10 major online video service providers, including general portal Sohu.com Inc, search engine Baidu Inc, and instant messenger Tencent Holdings Ltd, the battle for China’s more than 450 million internet users is largely a money-losing game as it battles rising costs. Both Youku and Tudou have reported a net loss for 2011 in March this year owing to rising Internet bandwidth, and content and mobile video services costs. But one thing is certain: if the merger happens smoothly, it could at least save them the money that was been spent by both parties in taking legal action against each other. Bitter rivalry Not too long ago, Youku.com and Tudou.com were each other’s arch enemies, engaged in cut-throat competition for every bit of business – from content purchasing to user engaging; from advertisements to mobile apps. In December 2011, Tudou accused Youku of infringing the copyrights of a popular TV show the former had bought, and asked for 150 million yuan ($23 million) in compensation. Youku responded earlier this year by filing a lawsuit against Tudou seeking 4.8 million yuan ($762,000), saying Tudou’s claim had made it suffer losses. After the merger, the rights and liabilities of both parties will hopefully get consolidated. Such civil disputes will no longer exist, according to Chen. The disputes over copyrights between the sites have been growing prominently as the competition intensifies. Given the fact that the user generated contents remain relatively a minor part in China, the video sites have started paying huge amounts of money to secure commercial productions to lure viewers. “The larger the services providers become, the more attention they have to pay to the legitimacy of their products. They are responsible to make sure their materials are authorised. We can expect this merger to make a new leader in the copyright market,” says Chen. “As Youku and Tudou will remain two separate legal entities, they might continue purchasing copyrighted materials on their own but could share the copyrights in some ways.” Meanwhile, the rivals also regard the merger as a positive move. “From an industry perspective, Youku and Tudou’s deal is conducive for the healthy development of the sector,” iQiyi, Baidu’s online video platform, said in an e-mail to Reuters. “The cost of purchasing copyrights in the market will be more effectively controlled with fewer ... online video companies. It will also reduce the competition for bandwidth and market talent.” Consolidation Further consolidation of internet companies is not only beneficial, but also necessary, says Xie Xianghui, partner at Grandall Law Office. In his opinion, the vicious competition among large numbers of small-scale

Analysis

“The current moneyburning behaviours in the online video services are only shortterm phenomena, and not sustainable.” Chen Jihong, Zhong Lun Law Firm

companies would eventually end with consolidation and elimination. What Youku and Tudou have done is a sign of a good start to that. “In the regard of the current fragmented situation, there is an old Chinese saying – unavoidable union comes after long separation,” he says. “Mergers will create stronger players…Their capability of price negotiation will be enhanced, either with the copyrights holders or with the advertisers.” A few big service providers, each with unique specialties, will be the final result, he adds. “The entire internet economy will benefit from such moves,” he says. Chen noted that the bringing together of smaller companies is driven by both external competition and the internal demand for profit. “We can expect an increase of mergers and consolidations. The merger of Tudou and Youku is a stimulating factor. As the market leaders strengthen their control, the rest of the players will have to join forces to react,” he says. “The current money-burning behaviours in the online video services are only short-term phenomena, and not sustainable. The venture capital investors want profit. The purpose of such big amount spending of the online video companies is gaining more market share, and their ultimate goal is making profit.” Michael Clendenin, managing director of Shanghai-based RedTech Advisors, believes there should only be one or two providers to emulate the monopoly YouTube has enjoyed. “So even though this is a step in the right direction in terms of consolidation, there’s still a long way to go,” Reuters quoted Clendenin as saying.

Offshore Law Firms

ASIAN LEGAL BUSINESS April 2012

Offshore Law Firms

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firms are in Hong Kong to serve the booming Asian markets, and China is the key focal point. Nobody denies this. But if China is as crucial a market as they say, then why have only two of the offshore players set up physical offices in the mainland? A number of the firms that have not made the move say in unison that there are two main reasons for this: Firstly, that no legal work can take place and secondly (and most importantly), clients have not requested or required their presence on the ground in China. “Ultimately, it has to be driven by the need of the clients; we’re not in a rush to have an office just for the sake of having one,” says Arwel Lewis, a Hong Kong-based partner at Walkers. “It’s very dependent strategically on when and what sort of office we want.”

“What it (increased sophistication of Chinese clients) has meant for us is that we almost have to be ahead of the curve in providing value. Now there’s an educational role we have to take up, where we have to show clients the advantages before it’s too late.” Christine Chang, Maples and Calder

REUTERS/Aly Song

n the beginning, there was one. Now, there are two. Offshore law firms have begun to sprout up in China, with Ogier blazing the trail in July 2011 and Appleby launching its Shanghai post in April 2012. The question is: Who’s next? For nearly 20 years, Hong Kong has been the Asian home base for a roster of the world’s finest offshore law firms like Maples and Calder, Conyers Dill & Pearman, Walkers, Appleby, Harney’s, and Ogier. In the last five years, the offshore offering has become a more saturated space with smaller, boutique firms joining the race, from Thorp Alberga and Arendt & Medernach to a European powerhouse like Mourant Ozannes, which took root in Hong Kong a few months ago in late January this year. All the offshore law

Trail blazers Ogier and Appleby believe being available to clients on the ground is an invaluable component of their business strategies. China is still a market where relationships are nurtured through face to face meetings. In this context, Ogier’s Shanghai managing partner, Kristy Calvert, explains that the firm’s move to China was welcomed by existing PRC clients “because they have really considered this local office to be helpful in bridging the cultural gap in international transactions, and offering Mandarin capabilities.” Though neither Ogier nor Appleby have law licences to practice in China, both operations were set up to provide local support to existing clients and to serve as points of contact as Chinese clients mature in their understanding of the uses and benefits of offshore structures. Frances Woo, the managing partner of Appleby, says the time is ripe now for her firm to launch on the mainland. “We needed to wait for the market’s understanding of offshore to be sophisticated and mature enough to jus-

Offshore Law Firms tify us opening up a physical presence there, because it would need that type of volume of work in order for us to be there.” She says that as the professional market has developed in Greater China over the past decade, the market is now “at the point where not everything is coming through Hong Kong, and the China market is developing its own culture and a life of its own,” she says. “It’s important to develop those relationships, and be even closer on the ground in China than in Hong Kong.” Building new client relationships and bolstering existing ones are the key messages of the two on-the- ground offshore firms. Calvert says Ogier’s move to China “has really fostered a lot of new client relationships, and these new client relationships have been developing very fast”. Woo reiterates the importance of the face-to-face culture in China to explain part of Appleby’s push into the Shanghai space. “China is still a market where face to face meetings are important as opposed to other markets like Hong Kong, London or New York where even just a block away, everyone e-mails and does everything virtually,” she says. “We are there to meet clients face-to-face, develop a trust element, and really help the market understand that there are Cayman Islands, Bermuda, British Virgin Islands (BVI), and Mauritius advisers who are credible people

“We needed to wait for the (China) market’s understanding of offshore to be sophisticated and mature enough to justify us opening up a physical presence there, because it would need that type of volume of work in order for us to be there.” Frances Woo, Appleby instead of fly by night operations they just found on the internet. In China, you still have an environment where people are quite concerned with whether things are real or not, and that extends to products and services, including professional and administration services.” Right now, Ogier’s and Appleby’s Shanghai offices are small in terms of headcount. However, they work closely with their Hong Kong counterparts. Both firms emphasise that the role of the professionals in China is mainly to build relationships with clients, and that any legal work is referred back to Hong Kong, where it is executed. Ogier has hinted that more may join its Shanghai office soon. Woo says that an expansion could happen down the

ASIAN LEGAL BUSINESS April 2012

“Each time someone opens up there (China), we have to reanalyse it. We analysed it before, and we have been analysing it for the past seven years.” Christopher Bickley, Conyers Dill & Pearman road for Appleby. “Our plan is for it to grow more substantively, but when everyone first dips their toe into China, it’s initially smaller,” she says. “If past examples are anything to go by though, they ramp up quickly.” Waiting game All the other firms have been keeping a close eye on their competitors in the China space. “Each time someone opens up there, we have to reanalyse it,” says Christopher Bickley, a partner at the Hong Kong office of Conyers Dill & Pearman. “We analysed it before, and we have been analysing it for the past seven years.” The Hong Kong-based managing partner of Maples and Calder, Christine Chang, confirms the firm is “still monitoring the need for a presence on the ground. That other firms have chosen to have a type of presence there has brought it into focus, but at the moment, we are just taking things step by step.” As the actual legal work can only be done outside China, Hong Kong remains the most important office for all the offshore players. Lawyers who spoke to ALB believe that due to the nature of their work, it is about having those who can sit behind a desk, man the phones and e-mails, and provide appropriate advice to clients expeditiously that is most crucial to their firms’ success. Having critical mass on the ground is important as well, and stretching their resources too thin to cover both Hong Kong and China would not be wise in this current financial climate. Even Woo says that though it has been part of Appleby’s strategy to move into China, it may not be a suitable decision for everyone as it really depends on each firm’s unique game plan. “With every new office or new establishment, you need a period to bed that down because the capital investment is quite substantial,” she says. “You need the resources to back it up. Certainly, I think in this environment when markets are volatile and opaque, it’s not an easy call.” “Obviously, we have to balance a series of factors, and in a nutshell, we’re saying in terms of alignment of the different factors here, we feel that how we are progressing on this path is sufficient for now,” says Chang on whether Maples is considering setting up shop up North. “But it doesn’t mean that we aren’t monitoring closely and aren’t constantly listening to clients’ requests and demands.” Despite not having offices located on the mainland, many of the offshore firms continue to dedicate ample resources and time to connect with PRC clients. Everyone mentions constant visits to not just Beijing and Shanghai, but also to the rapidly-growing second tier cities such as Nanjing, Chongqing, and Dalian. The Conyers team holds regular quarterly meetings (in addition to at least one China visit per month), Maples’ China contingent – headed by Jenny Nip – has someone on the ground in one of the major cities at any given moment, Walkers sends up partners at least a few times a month, and even the new kid on the block, Mourant Ozannes, had its managing partner Paul Christopher travelling to Beijing within two months of the firm’s arrival in Hong Kong. “We’re keen to go up, investigate the market, and shake the trees to see what falls out,” he says. Maturing clients The maturation of PRC clients as sophisticated buyers of legal services

Appleby is the worldâ&#x20AC;&#x2122;s largest provider of offshore legal, fiduciary and administration services. With an unparalleled presence in eight of the major offshore jurisdictions, we are uniquely placed to offer clients a comprehensive range of services, and to to deliver advice that best meets their business needs. Our award-winning team has been servicing local and international clients in Asia for over 20 years. We are proud to announce the opening of Appleby Shanghai. This office will provide Chinese clients with local access to fully integrated fiduciary services of all our offshore jurisdictions including company formation and administration services for the BVI, Cayman Islands, Seychelles and Mauritius. For further information, please contact: Frances Woo, Managing Partner, Hong Kong Tel: +852 2905 5720 Email: fwoo@applebyglobal.com Scott Reid, Head of Business Development, Fiduciary Appleby Corporate Services (China) Limited Tel: +8621 6032 1630 Email: sreid@applebyglobal.com

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Offshore Law Firms is one of the driving forces of the offshore firms’ strategic decisions. Education has been a critical component of reaching out to clients, who may not have an understanding of the options, benefits and facility of utilising offshore vehicles. “We want to help the clients understand why they would want to use a neutral vehicle that is well regarded and recognised by both investors and regulators, and that gives the international community confidence in the laws of that jurisdiction,” says Woo. “There’s a lot of cross border work involving China, so foreign entities from outside China may not want to use a Chinese, English or U.S. entity and the use of offshore is something everyone is comfortable with.” Lewis of Walkers explains that part of his team’s role is to “hold the client’s hand” through the offshore process so clients can learn about the function of an offshore law firm, how offshore jurisdictions operate, and what benefits they can bring to a transaction. “It’s something we do regularly, and it’s satisfying to watch the relationship with the client and their understanding of how we can help them grow. It helps build up that trusted business advisor relationship,” he says. With the popularity of Cayman Islands law and British Virgin Islands law among PRC dealmakers growing over the past five years, all the offshore lawyers say their Chinese clients and the general business community are gaining a better understanding of how offshore centres can work in their favour. “Success breeds success,” says Hong Kong-based Walkers partner Ashley Davies. “Because the Cayman or BVI vehicles are seen as successful, people want to be involved as they know these are cost-effective and efficient countries for their transactions. That in turn means we have more exposure, and are able to do more work for these clients, and they will use us more in time. It’s a nice virtuous circle to be in.” Christopher of Mourant Ozannes mentions that it is not just about educating clients for his team, but also about educating the whole range of service providers, including intermediaries. “We are

ASIAN LEGAL BUSINESS April 2012

trying to get people to understand the legitimate uses for offshore centres, and clearly that is going to ultimately lead to an increased use of those, and subsequently, more work for us.” Additionally, offshore firms provide various seminars to Chinese clients on market trends and how their offshore platforms complement the deals they are contemplating. “We have an ongoing series of training seminars that we roll out to clients, “says Chang. “That will be the focus of our next visit to China; to roll out these seminars where we invite clients to come and listen about IPOs, funds and trusts.” Based on her experience, the Maples managing partner shares an interesting twist on how the offshore legal advisor role has morphed in recent years in line with the growing sophistication and understanding of her PRC clients. “What it has meant for us is that we almost have to be ahead of the curve in providing value,” she says. In the past, the role of offshore counsel was limited to ancillary involvement after the onshore lawyers had structured a deal. “Now, there’s an educational role we have to take up, where we have to show clients the advantages before it’s too late. So, rather than simply having offshore counsel involved at the end of a deal and everyone’s in a frenzy, we now need to go in before anything takes place and say ’why don’t you think about this and see if it works for you? It may not work for everyone, but we do see a lot of these deals, these are the trends we’re seeing and it may be helpful for you’.” Being proactive, she says, is what offshore lawyers will need to start doing more often to engage and win over clients. Another example of how the Maples and Calder team is reaching out to create the work they hope to win is rooted in a trend in the aviation sector in China. Every lawyer points out the boom in this area, especially aircraft financing. Chang highlights how her team is promoting the use of offshore structures with the local governments in certain free trade zones, like Tianjin. The free trade zones are designed to make the registration of aircraft highly tax efficient. “We have been talking to the authorities in the free trade zones to inform them if they want to attract more business - in particular business from international players - they should allow investors to use a Cayman entity,” she says.”It would attract more business because people, especially international parties, are familiar with these vehicles and would want to take advantage of the flexibility and common law legal framework of the offshore jurisdiction.” The Maples managing partner says her team is not trying to break into the specialised area of onshore aviation work, but that its objective is to allow the firm’s clients to enjoy “the best of both worlds”- by enjoying the tax benefits of the free trade zones and the flexibility of a recognised offshore structure. She reports that the local authorities have been very receptive to her firm’s proposals. “This is an illustration of ways we’re thinking ahead, and bringing more value to the table,” adds Chang. Staying busy Private equity, M&As and the potential listings (or relistings) on the Hong Kong and domestic Chinese bourses will keep the offshore crowd busy in the coming eight months. However, there are two areas that have emerged in particular for the firms which have drummed up new business, and which many of the lawyers predict will only grow hotter in the coming few years: Wealth management and trust planning, and aircraft financing. “Another trend is with the increased sophistication of the entrepreneurs and founders of Chinese businesses, before they go ahead with a transaction, they want to put into place business continuity planning and wealth planning,” says Chang. “More inquiries are coming through to our trust and wealth planning department.” Walkers’ trust practice is based in Singapore, and is led by Lee Syin Long who joined the firm in August 2011 as its Asia Head of Trusts. According to Davies, she has been very busy and is looking to grow her team. “She (Lee) is very busy working on trust structures, asset

Offshore Law Firms

ASIAN LEGAL BUSINESS April 2012

REUTERS/Lucy Nicholson

protection structures, succession planning and long-term wealth planning. A lot of that is coming out of the PRC and its wealthy individuals,” he says. Woo has noticed increased activity at her firm as well in this area. “We get to understand their needs, currently and going forward, help them establish trusts and other structures, and administer them on an independent basis,” she says. Aircraft financing in China has really taken off as well, with more commercial jet financing and private jet financing (accompanying the rise of the wealthy in the PRC). “One of the key areas of growth is the buying and building of airplanes,” says Davies. “Overall, Chinese banks are in a better position than European banks, so more activity is coming out of this part of the world.” On Feb. 14, Reuters reported that Chinese aircraft leasing company BOC Aviation had ordered 20 C919 aircraft from China’s stateowned plane maker, a deal that will help the country’s first home-grown large passenger jet gain access to new markets. Then on Feb. 29, Reuters said that while airline carriers are expected to have sufficient loans available to buy new planes this year, the field of lend-

ers is shifting from Europe to Asia. Former leading players like RBS, Germany’s HSH, BNP, Societe Generale and Credit Agricole are exiting or downsizing their aircraft financing businesses. The gap is being filled in part by Asian lenders like DBS, United Overseas Bank and OverseaChinese Banking Corp. Major Chinese airlines, China Development Bank Corp’s CDB Leasing, General Electric Co’s GE Capital Aviation Services, the leasing arms of Industrial and Commercial Bank of China and the Bank of Communications have also ordered C919s. BOC Aviation, a 25-year industry veteran, ordered 15 Embraer SA E190 aircraft last November worth $642 million at list price, in a bid to meet demand from airlines for smaller passenger jets to develop new markets. BOC Aviation managing director and chief executive Robert Martin said in September last year that problems faced by European banks provided an opportunity to grab market share in the aircraft financing industry. The road ahead With a choppy, unpredictable year ahead, the offshore law firms are carefully considering their China strategy. Those that have not forayed into the mainland proper with a physical office space are adopting a “wait and see” approach, keen to learn from the experience of Ogier and Appleby. As for the two firms in China, they will continue to pound the pavement and leverage off their first mover advantage. “Being in China is helping us build our profile,” says Calvert. “I believe more firms will be following us into the market, because certainly our findings for China clearly show this as a growth area for offshore. We are here where our clients need us.”

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spotlight: pearl river delta

ASIAN LEGAL BUSINESS april 2012

Pearl River Delta Renaissance amidst crisis

By Liu Zhen The Pearl River Delta has cradled the birth and the growth of China’s legal business over the past 30 years with its pioneering economic opening and reform. In the global economic gloom, in which the highly export-dependent manufacturing industries were damaged, law firms find their chances to prepare for the next boom.

Chinese cyclists in full rain gears speed past a juncation in Guangzhou. REUTERS/China Photos

uangdong is described as a smaller scale sample of China’s overall legal market landscape, where the inland mountainous areas are equivalent to the underdeveloped West and the prosperous Pearl River Delta (PRD) acts as the province’s Beijing and Shanghai to host the most modern and international business . It was the PRD region that pioneered the “Opening and Reform” of the rigid and poor communist China some three decades ago. With the country now becoming the world’s second-largest economy, Guangdong has also topped the national GDP ranking for years. As for legal business, the PRD region, which consists of the provincial capital Guangzhou, the two Special Economic Zones of Shenzhen and Zhuhai, and six other industrial cities scattered around, is once again where the relaunch and burgeoning happened . “The business of the lawyers is undividable from the overall economic development,” says Xue Yunhua, the executive partner of Guangda Law Firm in Guangzhou. “There were many historical number ones taking place here, in terms of both the state administrative system and the actual practice,” he tells

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spotlight: pearl river delta

“The market volume of the PRD region is still big enough to hold enough firms. The clients require different level(s) and types of services…and different firms have different positioning(s) and plans to acquire the living space.” Zhang Jianwei, Jun He Law Offices

ALB, recalling his experience since 1986 when he started practice in a state-operated law office like everywhere else in China at that time. Soon enough - only two year later - Guangdong started to pilot the partnership-type firms run by private practice lawyers. But it was not until 1992 that the Ministry of Justice approved such type of firms to be established nationwide. The first ever firm with a foreign practice was also located in this region. ‘The first ever case to have lawyers handle a non-litigation property deal was in Guangzhou; also the first case of lawyers involved in a SOE’s restructuring into a public company. The latter was first suggested by the government, But eventually, the rule was set up that all IPOs have to be advised by lawyers,” he says. “The 30 years of opening and reform(s) made the PRD one of the world’s largest and most active economic rims, which has paved (for) us legal practitioners a solid ground to develop upon and provided us a market with great potential,” says Laurence Chen, the founding partner of Guangdong Chen Liang & Co in Dongguan city of this region. However, the PRD firms have their “birth defects”, according to Chen. The pressure for survival had never been significant in the good old times. A lack of foresight, bad planning, low-efficiency operation, unprofessional acts, insufficient competition and so forth, were not big issues because the booming regional economy covered them all up. But with the growth cooling down during the global economic crisis and the competition intensifying, such problems might prove to be fatal. “The legal industry in this region was like a premature infant in the incubator. It was protected by the good environment,” Chen says. “But

“The business of the lawyers is undividable from the overall economic development.” Xue Yunhua, Guangda Law Firm

there is great uncertainty whether this infant can survive and grow facing the harsh conditions like now.” Big or strong One of the changes in the environment is the expansion of national firms into this region. “There is (a) significant presence of our colleagues from surrounding regions and provinces, including Hong Kong, Beijing and Shanghai…and other advisory bodies like consulting and accountant agencies are virtually expanding into the legal consulting market,” says Chen. “We local firms are in difficult defence,” says Tong Xin, a partner at Shenzhen-originated Guanghe Law Firm. “The top national firms have the brand to attract the best lawyers, and the famous lawyers once again make their brand more attractive,” he tells ALB. “Our advantage is we know the client bosses better. But we are not good at branding.” Xue also sees the competition for talent getting tighter and tighter. “It has been much more obvious that the firms are taking experienced lawyers from each other. And from my own experience, we had strong appeal to our own lawyers in the past. But over the recent years, I see some people leaving,” he says. Brand does not only appeal to lawyers, but also to clients. In biddings against national firms, local firms are feeling the pain of being far from the central authorities, who decide and approve all the deals, according to Tong. “When it comes to financial(s) and securities, the client would think the Beijing firms have the advantages as all the relevant government authorities are in Beijing,” says Xue. “You know, in China, the businessmen are always keeping a close eye on government conduct,” Tong adds. The same as in other regions, local firms

spotlight: pearl river delta

ASIAN LEGAL BUSINESS april 2012

“If we utilise the time window and opportunities brought by the crisis to proactively address the problems before, we can again recapture a leading position in China’s legal business.” Laurence Chen, Guangdong Chen, Liang & Co

have an advantage in litigations and arbitrations, thanks to their deep local connections. The exception is Shenzhen, the newly built city after the “Opening and Reform ” with most population immigrated afterwards where old network does not work . On the other hand, the national firms benefit from their wide network and are aiming at the high end markets of finance, securities, and corporate practices, according to Zhang Jianwei, partner at the Shenzhen office of Jun He Law Office. “As a national firm, our resources can be allocated nationally. The key concern is the need of our client. For those in the PRD, our nearby office can provide services of higher efficiency and at a lower cost. Our internal system can guarantee the fairness of interest distribution,” says Zhang. The Guangdong Lawyers Association is trying to push the merger of local firms to form some giants which are adequately competitive, given the fact that national industrial leaders, such as King & Wood Mallesons, had started international mergers, according to Xue. But the mission was difficult and the campaign has yet to be very successful – none of the top five firms in Guangzhou have had such initiatives. “The big firms with a long history have their own concepts, culture, practices, working style, and distribution system. Unless we break down everything and start again from scratch , a merger is difficult,” says Xue. “Solely becoming big is pointless if it makes nothing stronger.” He adds that presently in China, sometimes smaller is better because over 70 or 80 percent of practices can be done by individual lawyers, and even better not by a team . “Many practices needs personal networks or ‘guanxi’, and are not easy for a team,” says Xue. However, Zhang does not believe that competition makes the PRD a ruthless battlefield. “The market volume of the PRD region is still big enough to hold enough firms. The clients require different level(s) and types of services. The legal market is built on the economic and

legislation environment, and different firms have different positioning(s) and plans to acquire the living space,” Zhang said. Crisis A general threat to all firms, national or regional, though, is supposed to be the ongoing global economic crisis. The PRD region, known for its active small and medium export-oriented manufacturing, was the worst affected area. However, as many firms observe, the impact of the crisis on the legal business has not been direct or obvious. Actually, many of them have recorded steady growth despite this. “Generally, our business has been growing year by year. Although not as fast as before, but basically it’s been good,” says Xue of Guangda. Tong of Guanghe says his firm reported a revenue rise and a headcount increase in both its Shenzhen and Guangzhou offices. He thinks there might be a lag in time for it to show. But a more important reason was that the legal business is not very dependent on manufacturing industries, which was normally lowly charged. When the export drops, the legal service does not necessarily go down. Nevertheless, the crisis-stricken industries would unavoidably worsen the overall economic environment in the region. And the firms have made their adaptations . “Although the general economic situation and the property policies have caused an overall effect, as an incorporated firm, we have (a) stronger ability to mitigate the crisis. Loss here can be compensated there. The controlling measures resulted in more disputes. So, our litigation and dispute resolution practices are growing,” says Xue. Lu Xiaoguang of Commerce & Finance Law Offices thinks that over the past two years, the market is recovering gradually. Zhang of Jun He shares the thought. But none of them would take a chance. “We also changed our practice by introducing new teams, such as dispute resolution and IP. As a result, our revenue has been steadily growing,” says Zhang. Xue adds that they will not sit and wait. “We used to wait passively for clients to come. But now we proactively go out to look for new clients,” he says, “At the same time, we are expanding our existing services. We emphasise the professionalism. We further divide our practices, and staff every department with a team with a good combination of all age groups.” A new plan for the next 10 or 30 years to match the legal industry’s development with the type and pace of local economic growth would prepare essential fuel for the next rapid run of PRD legal business, suggests Chen. “If we utilise the time window and opportunities brought by the crisis to proactively address the problems before, we can again recapture a leading position in China’s legal business,” says Chen.

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Malaysia country report

Investment soars to

ASIAN LEGAL BUSINESS april 2012

new

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Malaysia country report

heights

in Malaysia

In the midst of national election fervour, Bank Negara Malaysia has announced a bundle of financial liberalisation measures aimed at developing the domestic banking market, and enhancing the competiveness of the economy. But with the global economic slowdown, will these measures be enough to solidify Malaysia as an investment hotspot? Seher Hussain finds out more

he beginning of 2012 saw Bank Negara Malaysia issue a statement announcing several liberalisation measures aimed squarely at developing the domestic financial markets. While the nation is consumed with election fever, these measures tie into national sentiment by closely adhering to Prime Minister Najib Razakâ&#x20AC;&#x2122;s New Economic Model which aims to turn Malaysia into a developed country by 2020. Specifically speaking, restrictions have been relaxed on interest rate derivatives, as well as debt and foreign exchange trading. A slowdown, but no slump Asian economies across the board are expected to slow down in 2012. However, they will be able to avoid a slump, according to Reuters reports. Elaborating on the trend, the RHB Research Institute stated that the Business Conditions Index had dipped in the last two quarters, signifying that Malaysia was unlikely to remain unaffected by a crisis-ridden euro zone. A Reuterâ&#x20AC;&#x2122;s poll, meanwhile, predicts GDP to grow at 3.8 percent, down from 4.9 percent last year. Several market sources have made a strong argument that the government should move up the 2013 election date, and swiftly dispel any uncertainty that is currently surrounding the investor environment. Foreign investors may be holding back due to their apprehension about the political situation. In that light, Bank Negara Malaysiaâ&#x20AC;&#x2122;s announcement of these measures is a clear sign that the country is committed to creating a vibrant economy.

REUTERS/Bazuki Muhammad

The lowdown One of the most significant measures concerns foreign exchange rules. From now on, licensed foreign banks will be permitted to trade one foreign currency against another. Some caveats do apply, such as the bank must be a licensed onshore bank, and that trading is only allowed between one foreign currency and another, and not against the ringgit.

Malaysia country report

ASIAN LEGAL BUSINESS april 2012

“There has been a natural progression in the measures announced to open up the market. The government is making it easier for domestic companies to borrow and raise financing from abroad now.” Jal Othman, Shook Lin & Bok

For now, residents are only allowed to trade a foreign currency against the ringgit on a spot and forward basis at a licensed onshore bank. At the moment, licensed banks include investment banks, Islamic banks, and commercial banks currently operating in Malaysia. Further, restrictions have been relaxed on domestic interest rate derivatives, with licensed banks now allowed to offer ringgitdominated interest rate derivatives to a non-resident. “Now investors and major corporates will be able to manage some of their foreign exchange costs more efficiently, and those risks associated with extreme exchange rate volatility which has been quite pronounced recently,” says Lee Taylor, corporate M&A partner at Clifford Chance’s Singapore office. “It will be interesting to see if certain currency-linked products are developed for the retail sector, and whether the regulator will respond with increased consumer protection.” It is likely that this relaxation of restrictions will have a dual effect; one in helping international financial institutions expedite their transactions in Malaysia, and two in prompting domestic banks to expand into regional markets. “We expect we will be supporting more and more of our Malaysian banking and corporate end-user clients with product innovation and other transactions,” says Taylor. Leon Koay, country head of global markets at Standard Chartered Bank, told local Malaysian media that: “Malaysia continues to grow as an important reference point for investor portfolios for Asia, and this measure offers increased flexibility to investors and institutions that wish to include ringgit assets in their investment portfolios. It also widens and deepens the pool of participants in the onshore interest rate derivatives market, and is conducive to enhanced market liquidity.” A knock-on effect is expected for legal practitioners, who will see more work. Speaking in this regard, Ronald Tan, head of

debt capital markets at Tay & Partners, says: “Now, there is an opportunity for Malaysian banks to offer more financial services and products to investors. So, the private banking and wealth management services will send a lot of work flowing through the legal market.” Opening up the market Industry watchers are also closely following the opening up of the market in terms of permitting foreign banks to operate in Malaysia. “In the past, the government has been quite strict on issuing licenses to foreign banks,” says Mohamed Ridza Abdullah, partner at Mohamed Ridza & Co. “But six years ago, they started giving licenses to Islamic banks, a clear liberalisation in the banking sector. Now, Chinese banks and a Japanese bank (Mizuho Corporate Bank) are being allowed to enter the market. So the trend is there.” Taylor says: “These measures, together with other announcements last year allowing foreigners to hold higher stakes in banks (currently capped at 30 percent), and more banking licenses for foreign banks, have certainly put Malaysia in the spotlight and drawn the interest of foreign investors, particularly banks.” Jal Othman, partner at Shook Lin & Bok’s Kuala Lumpur office, details this and says: “There has been a natural progression in the measures announced to open up the market. The government is making it easier for domestic companies to borrow and raise financing from abroad now.” However, some investors still feel some amount of trepidation. Commenting on this phenomenon, Tan adds: “When it comes to clients, especially foreign ones, some still have this stigma about Malaysia and capital controls. Though it happened in 1988, and it’s almost 15 years ago, people are still worried about capital controls. So the liberalisation has further cemented the fact that there are no capital controls left in Malaysia apart from the non- internationalisation of the ringgit.” Islamic Finance The government is also keen to promote Malaysia as a hub for Islamic finance, as growth stays steady in this area. According to Thomson Reuters data, Islamic bond issuance globally rose from $13.9 billion in 2010 to $23.3 billion last year. A recent example is Malaysia’s biggest toll expressway company announcing that it will issue $9.7 billion in Islamic bonds in what will be the world's largest sukuk offering. “There’s a lot of liquidity in the market, so we are seeing plenty of Islamic financing. The interest in the sukkuk market is coming back and the MRT project, worth 40 to 50 billion ringgit, is currently being worked on, creating a lot of spin-off financings,” says Ridza. Alongside these “soft” measures to liberalise the market, the government is also pursuing “hard” options; most notable among which is the Kuala Lumpur International Financial District. Covering about 75 acres of land adjacent to the central business district, the

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Malaysia country report

new project will bring together international and domestic financial institutions under one roof. Although in the nascent stages, it is part of the country’s drive to become a financial hub and make business easier.

pital group Acibadem by Malaysian statelinked investor fund, Khazanah Nasional, as reported by Reuters, is one such headline grabbing news in this regard.

Outbound and inbound interest Practitioners remain busy. In this context, Tan says: “We have seen quite a few really serious and interested bidders for Malaysia assets. So, there is (a) lot of inbound foreign investment work.” Taylor adds to Tan’s thoughts when he says: “Beyond increased banking and financial services work, we have noticed an increase in foreign interest in the real estate sector and the oil and gas/ petrochemicals sector.” Ridza points out that opportunities have now arisen for foreign companies to partner with local businesses. He highlights several smart partnerships between Singaporean and Malaysian companies as well as the development of the special economic zone of Iskandar, which is currently being constructed in the southern Johor area, and is expected to promote foreign direct investment. Modeled after the Pearl River Delta Economic Zone in China, it has already attracted outposts of Pinewood Studios, Southampton University and Johns Hopkins University. The increase, however, is not only one way. Malaysian companies are also keen to explore regional markets. “There has been an encouraging trend towards foreign listings by Malaysian companies, and quite a lot of outbound work in my practice,” says Othman of Shook Lin & Bok. For instance, the recent purchase of Turkish hos-

What lies ahead? “The new rules should improve cross border investment, and will allow some of the domestic banks to expand their product offering and cater to different investor appetites, while deepening their franchise base and enhancing their regional influence,” sums up Taylor. “ This is particularly the case with many of the established international players who are looking at withdrawing or repositioning their product offerings given today's increased capital costs, restricted liquidity, and leverage requirements.” Generally welcomed across the board, many legal professionals feel positively about the results of the liberalisation measures. The measures clearly give more freedom to the markets, increase the amount of international work, and help shore up the economy against the global economic downturn.

REUTERS/Bazuki Muhammad

Malaysia country report

ASIAN LEGAL BUSINESS april 2012

The Future is Malaysian authorities have recently announced plans to set up specialised environmental courts in the country in 2012. As interest steadily grows in one of Asiaâ&#x20AC;&#x2122;s most dynamic economies, these new legislative measures are expected to inspire investor confidence, boost public awareness, and help regulate offences, reports Seher Hussain

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Malaysia country report

Green C

hief Justice of Malaysia Tan Sri Arifin Zakaria recently opened the Legal Year and Judges Conference by contrasting the punishment meted out to a man in 2005 found guilty of illegal possession of a dead tiger in Kelantan, with the punishment served to a man in 2010 convicted for the theft of 11 cans of Tiger Beer and Guinness. The former paid a RM 7,000 fine, while the latter was sentenced to five years in prison. “Clearly, our values were misplaced. Surely our tigers are worth more than the 11 cans of beer,” said Zakaria, who used the example to announce a new, progressive focus on environmental law for the country. The move is a timely one, given the “perfect storm” of factors heightening the importance of environmental regulations in Malaysia right now. Energy deals are booming, foreign investors are pouring in, and the banking market is in a state of liberalisation; all trends that are predicted to increase the amount of environmental work being undertaken as both domestic and international companies capitalise on this resource-rich nation.

State of play At the moment, “the environmental law market is peculiar in Malaysia; there are very few lawyers who deal with these issues on a regular basis, it is often part and parcel of a lawyer's general practice,” says Dhinesh Bhaskaran, partner at Shearn Delamore & Co. Legal work generally falls under two categories − compliance and prosecution – under the main piece of legislation relating to the environment; the Environment Quality Act. “Environmental issues in this country primarily relate to pollution and in the last decade we have seen an upsurge in advisory work,” continues Bhaskaran. The influx of foreign companies into the country has contributed to this trend, as any entity that is looking to set up manufacturing facilities needs to comply with the regulatory measures. Recent trends indicate that awareness of environmental issues is not just confined to multinationals, but “local companies, who previously rarely used to seek advice on these sorts of issues are now seeking advice regularly,” reports Bhaskaran. In the last year, Malaysia has made a concerted effort to improve its global environmental performance. In Yale-Columbia University’s Environmental Performance Report (EPI), project director for the 2012 EPI, Angel Hsu, says: “Malaysia has seen some very notable improvement, specifically for air quality, as well as water, and reduced child mortality.” “It is clear that Malaysia’s government is starting to be more active in trying to improve environmental conditions,” continues Hsu. “What we’ve seen in other countries is that although income is usually a predictor of high environmental performance, it’s not always the case. Some middle to low-income countries have had success in controlling air pollution and improving environmental health conditions, and Malaysia’s overall high score in the Environmental Health category is testament to this.” The improvement in the country’s air and water quality has a direct link to the tightening of environmental regulations, precipitating the increase in both foreign and local companies seeking regulatory advice.

REUTERS/Bazuki Muhammad

Boosting investor confidence A significant producer of oil and natural gas, Malaysia consistently attracts a large amount of energy companies looking to enter the market. Most recently, international oilfields services company Halliburton teamed up with Malaysian oil and gas company Petronas to open up a shale gas technical facility in Malaysia, as reported by Reuters. Holding the third-largest oil reserves in Asia-Pacific after China and India, the

Malaysia country report Southeast Asian nation pulled in $10 billion (RM 31 billion) in foreign direct investment in 2011; second only to Indonesia in the region, as reported by the Straits Times. Energy companies are naturally concerned about environmental regulations, especially in emerging markets. “They are always the leaders in this area because of their international experience,” explains Janet Looi, corporate partner at Skrine. “They are usually on the environmental committees and in Malaysia; they are generally further ahead in terms of awareness of regulations than other companies.” Alongside oil, gas, renewable energy and mining corporations, the international investor community is also closely following the evolution of environmental measures in the nation. The prospect of dedicated environmental courts will “bring us in line with international standards,” says Looi. “It will increase foreign direct investment and give investors confidence in Malaysia. We will become even more investor friendly because we will be able to evaluate the problems,” she adds. Elaborating on the subject, Looi says: “Environmental offences can be deliberate or accidental and the question of whether or not the crime was preventable turns on technicalities, which depends on an in-depth understanding of the operations. Specialised courts will feature trained judges who will be able to make these distinctions.” Additionally, she says: “At the end of the day, it will definitely increase our profile among the international investment community, especially with those companies that are already in compliance.” The environmental courts are expected to join the dedicated intellectual property and maritime courts already present within the Malaysian judicial system. The people’s voice There has been a perceptible rise in public awareness regarding environmental issues in recent times. “The public and the non-governmental organisations (NGOs); they’ve gotten much more vocal in recent times,” says Toh Beng Suan, projects partner at ZicoLaw. “Sometimes, a big project could already have obtained initial approval but if the public and NGOs strongly object, they will have demonstrations and there is a chance that the project could be scrapped.” The most recent example of this has been Australia’s Lynas Corp rare earths plant, a project that has been mired in controversy since its inception. Built in the state of Kuantan, the $200 million plant has attracted the ire of the public and the NGOs alike, who question

ASIAN LEGAL BUSINESS april 2012

the facility’s safety procedures in handling radioactive material. With a temporary license granted by the Malaysian government, Lynas Corp is awaiting a final decision from Prime Minister Najib Razak. “Recent publicity pertaining to the construction of a nuclear power plant and the Lynas Advanced Materials Plant in Malaysia has underscored the necessity for companies to obtain proper environmental advice “says Bhaskaran. “Companies have become very cautious before they enter into a deal.” The dispute is not without historical precedent: In 1992, another rare earths plant in Malaysia was shut down by a unit of the Japanbased Mitsubishi Chemicals Corp, after residents there blamed the plant for birth defects and a high rate of leukemia cases, according to Reuters reports. Given the increase in public scrutiny of potential offences, Chief Justice Zakaria’s announcement of a renewed legislative focus on Malaysia’s environment dovetails with national sentiment, and provides clear-cut safeguards for foreign investors. Nuts and bolts Currently, environmental offences are dealt with at the state court level. “What we find is that from state to state, there is a difference of approach and a range of fines that are imposed,” says Bhaskaran. “The advantage of having a specialised environmental court is that you get far more consistency in the imposition of fines and penalties.” This uniformity of penalties is crucial to both companies and lawyers. “I’ve had situations where companies that discharge effluents have a huge difference in fines imposed on them simply because of where the court is located. So the judges don’t have a clear picture of what the norm is,” says Bhaskaran. Dedicated environmental courts, on the other hand, will give legal practitioners the ability to provide their clients with unambiguous advice as to the amount of potential penalties. As a result, they will be generally welcomed by lawyers in the field as such. However, there is some concern that another, more pressing issue, is being overlooked. “The actual problem is the lack of enforcement officers,” says Toh. “I want more people on the ground to find out who the culprits are. We have pollution in the rivers. So you need to monitor and trace who is the polluter. So before it even reaches the court, we need to have more trained officers to catch the offenders.”

Malaysia country report REUTERS/Jean-Philippe Arles

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