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South China, particularly the Guangdong-Hong Kong-Macao Greater Bay Area, is leading China's global expansion in manufacturing, technology, and new energy sectors. As companies localise overseas operations, South China law firms are innovating legal services and training cross-border talent to meet growing compliance demands.

 


  • Chinese firms now preferred over UK/US firms for overseas legal services
  • Hong Kong remains crucial gateway for Chinese overseas expansion
  • South China law firms adapting with integrated services and global networks

 

At the start of 2024, the American Chamber of Commerce in South China released its Special Report on the State of Business in South China, which continues to express optimism about the region's development despite the complex geopolitical environment and the slowdown in major global economies. The report highlights that, driven by the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) initiative, now in its fifth year, South China is poised to become a new hub for technological innovation in the coming years. This development is expected to create novel business models and opportunities, positioning the region as a key driver of China's trade and economic growth.

One of the main sources of economic vitality in South China is its deep connection with the global market. However, the modes of interaction between South China and the rest of the world have shifted in recent years. Liu Wen, partner at Commerce & Finance Law Offices, notes that whilst South China's economy has always been strongly connected externally, this connection was previously dominated by trade in goods. Now, due to sanctions and other factors, some South China companies are relocating their factories overseas, particularly those whose products are exported to sensitive regions like Europe, the United States and Russia. These companies are increasingly setting up operations in locations such as Southeast Asia and Mexico.

Lin Zejun, director of the Greater Bay Area office at East & Concord Partners, points out that South China is experiencing an unprecedented wave of overseas expansion in terms of depth, breadth and scope. He observes that manufacturing companies are not only moving their factories abroad but also establishing parts of their R&D centres overseas. Large companies are no longer limiting their outbound investments to a single host country; instead, they are targeting multiple countries, building comprehensive supply chains that integrate production resources and technologies from various regions.

High-tech and Internet companies also stand out for their innovative approaches to overseas expansion. Lin notes that as multinational digital companies with Chinese backgrounds grow stronger, they are beginning to export their R&D and business models abroad. These companies have achieved rapid growth with minimal investment in manpower and capital due to their reliance on digital business models. East & Concord recently advised on a project where the client decided to expand overseas and began operations in the host country within just six months, an unprecedented speed.

However, Liu Wen highlights that the situation with TikTok in the United States, where the company has been required to divest, has significantly impacted the strategies of Internet industry clients. These clients are now much more cautious about global expansion, prioritising legal considerations over the previous “business-first” approach. For example, Commerce & Finance's Shenzhen office has been working with an Internet client for the past ten months to assist in expanding its AI business to Japan. The client insisted on thorough legal research from the start to ensure the feasibility of operating in Japan, illustrating the new trend of aligning business strategies closely with legal frameworks.

In addition to being a manufacturing centre and innovation hub, South China is also seeing notable overseas expansion in the electric vehicle (EV) industry. GAC Aion, an EV brand under Guangzhou Automobile Group, has been actively expanding internationally over the past two years, with Thailand as its first overseas market. Media reports indicate that Aion entered Thailand in early 2023 with no office, factory or local employees. By January 2024, construction of its Thai factory had begun, and by mid-July, the factory was fully operational.

Wang Jing & GH Law Firm provided legal advice throughout Aion's investment and factory construction in Thailand. Wang Jing, honorary chairman and senior partner of the firm, reflects on the challenges they faced, including legal compliance, market access, data export and cultural differences. Many issues required continuous communication with the National Development and Reform Commission, as well as active engagement with Thai authorities to secure favourable policies and preferential treatment for the project.

One particular challenge in the project was data export. Wang explains that their cross-border legal services team, led by partner Yang Jie, collaborated with the Internet and digital economy team to conduct a due diligence investigation of GAC Motors' data processing activities. This resulted in a series of compliance review guidelines and data compliance management systems to ensure the secure and compliant export of data.

DEEPER TRUST

Chinese companies have significantly altered their approach to selecting legal partners for overseas ventures, shifting away from large UK and U.S. firms towards Chinese firms.

Liu attributes this change to two primary factors. Firstly, Chinese regulators have imposed stringent requirements on outbound investments, compelling companies to ensure domestic compliance before addressing foreign legal requirements. This includes navigating potential conflicts between local and Chinese laws. Secondly, as China's role in global trade grows, there's an increasing push to export Chinese legal standards. Consequently, Chinese companies now prefer collaborating with familiar domestic legal partners for their international expansion.

This shift has led to a broadening and deepening of services provided by Chinese lawyers in supporting global expansion.

In the past two years, Global Law Office's Shenzhen branch has primarily supported clients in sectors such as manufacturing, mining, infrastructure, new energy and agriculture. Their focus has evolved from traditional outbound investment services to addressing overseas needs, including local company registration, corporate governance, labour law, intellectual property, taxation, and customs.

The firm notes: “Clients increasingly expect Chinese lawyers to lead in coordinating with overseas partners for routine cross-border contracts, compliance, trade and pre-investment legal matters. Beyond coordination, Chinese lawyers are also providing advanced legal services in areas like tax planning, cross-border IP, data export compliance, and dispute resolution.”

 

“As Chinese companies grow into new-generation multinational companies, they require support in building cross-border legal, financial, taxation and organisational structures that meet global standards. Multinational companies must consider where to establish their overseas holding platforms, operations centres, finance hubs, supply chain networks and IP centres, making optimal arrangements across different jurisdictions.”

Lin Zejun, East & Concord Partners

 

Lin emphasises that the current wave of “comprehensive overseas expansion” by Chinese companies necessitates a new legal services model, as the traditional approach of Chinese firms collaborating with local firms in host countries is no longer sufficient.

He explains: “As Chinese companies grow into new-generation multinational companies, they require support in building cross-border legal, financial, taxation, and organisational structures that meet global standards. Multinational companies must consider where to establish their overseas holding platforms, operations centres, finance hubs, supply chain networks and IP centres, making optimal arrangements across different jurisdictions. These structures must align with both the holding platform and host country's regulations, considering factors like fundraising ease and future exit strategies.”

To meet these evolving needs, East & Concord has assembled a specialised team in its GBA office, comprising eight partners and over 20 lawyers, to advise on overseas expansion across various fields and regions.

In 2023, the office introduced comprehensive “one-stop legal, commercial, financial and tax services” to support companies expanding abroad. Lin notes: “In particular, since Internet companies are exporting their business models from Mainland China to overseas markets, integrated legal, commercial, financial and tax services can provide clients with comprehensive solutions that are feasible in business model, legally compliant and optimal in tax planning.” He adds that East & Concord's overseas deal-making team now includes three senior consultants, each specialising in financial, taxation and business model consulting. “They all served as partners in the Big Four accounting firms and can work closely with lawyers to provide services integrating legal, financial, tax and organisational structure aspects for companies expanding overseas.”

HONG KONG'S GATEWAY ROLE

What role does Hong Kong, an important gateway to China in South China, play during this wave of “going global?”

According to Lin, leveraging its resource ties with the Mainland, low transaction and tax costs as a mid-shore location, and convenience for fund-raising as a financial centre, Hong Kong “has always been an irreplaceable choice for Chinese companies to set up holding platforms for their overseas expansion, and is expected to play an ever more important role”.

Since 2023, Lin has noticed a slew of policies introduced by Hong Kong to attract private enterprises, such as family office policies, tax incentives and the recent “patent box regime”. This regime refers to a form of tax incentive where relief can be granted on profits derived from eligible IPs created through R&D activities in Hong Kong. Lin notes, “This can attract Mainland companies to establish R&D and IP centres in Hong Kong, and further entice Chinese companies venturing overseas to set up holding platforms in the city.”

Global Law Office similarly points out that the structures of many overseas expansion projects still use Hong Kong as the first overseas layer to connect domestic companies and their overseas outfits, “and many times Hong Kong companies act as either the acquirer or the target. Accordingly, Hong Kong law and Hong Kong litigation and arbitration have increasingly become the governing law and dispute resolution methods chosen by domestic companies for overseas expansion projects.”

Consequently, the firm has developed relevant one-stop legal services, covering registration and routine compliance, legal due diligence of Hong Kong companies, issuance of Hong Kong law opinions, transaction-level advisory based on Hong Kong law, and subsequent dispute resolution.

“In addition, the revision and introduction of fund-related regulations in Hong Kong in recent years has also attracted many Mainland investors to set up funds in Hong Kong as investment and financing platforms, which has to some extent increased demand for legal services for fund establishment in Hong Kong,” adds the firm.

Liu, however, acknowledges that although Hong Kong maintains its hub status, Singapore has begun to divert some projects in the past two years and has even “become another important option for Chinese companies in structuring their overseas presence”.

“We are still keeping a close eye on this, and it is not yet clear whether this will become a long-term trend. The problem with Singapore is that its market is not large enough and the capital market cannot accommodate too much capital. In terms of legal services, Singapore's 'Big Four' firms enjoy certain advantages thanks to their comprehensive service networks throughout Southeast Asia, but the legal systems of the region are very complex, and setting up investment platforms in Singapore does not respond to this complexity very well,” says Liu.

Therefore, he concludes, “funds flowing out of China may stay in Singapore for a while, but will eventually flow to other Southeast Asian countries”, so the role Singapore will play in the future remains to be seen.

HIGHER REQUIREMENTS

The intense wave of overseas expansion and the accompanying changes have raised the bar for relevant legal services. How have South China firms been responding, and what impact has this had on revenue from legal services for overseas expansion projects?

Liu explains that large overseas expansion projects demand significant resource investment and team coordination from firms. Citing the Japan AI project of an Internet company, he notes that Commerce & Finance mobilised at least five teams across the firm, including outbound investment, data compliance, US export control and sanctions compliance, Hong Kong services, and local Shenzhen services. "Although the client is from South China, once the deal becomes complex, the whole firm must work on it together."

Liu acknowledges that such projects, with their tight schedules and novel issues, require hands-on involvement from experienced lawyers, making it challenging to allocate time for training the next generation of cross-border lawyers. However, he's observed that partners and lawyers in their 30s are playing key roles in these projects, "proving that our past training system has worked well and young people can already take on heavy responsibilities".

"Of course, we hope to continue to pass on good work habits and keen market sense to even younger lawyers. Cross-border lawyers can only be trained through actual projects and practice," Liu adds.

Global Law Office notes that clients, unfamiliar with overseas regulatory landscapes and lacking local lawyer resources, "have a significantly higher degree of trust in and reliance on Chinese lawyers in overseas projects than in domestic ones, and are more willing to pay higher fees". However, clients are also becoming "more and more price-sensitive. They usually ask for quotes for comparison, and may even compare fees for the domestic lead firm and local overseas lawyers separately to select a more cost-effective team to work with".

To remain competitive, Global Law Office suggests that "at the same time of continuously upgrading their professional competency, South China lawyers may consider expanding their global networks and stepping up cooperation with professional institutions such as banks, financial advisors and accountants to provide clients with one-stop legal services. They should also do more research on the local legal landscape and actively share that information with clients."

Wang believes that in major overseas projects, clients prioritise partners' professional competency, followed by costs. "After comprehensive evaluation, clients are more willing to choose firms that are more cost-effective."

He admits that Wang Jing & GH doesn't currently have significant price advantages, "because major overseas projects inevitably involve working with local firms overseas, and most of the revenue flows to those firms. However, many foreign firms are not willing to adjust their pricing strategies, making it difficult for us to lower our fees, which has limited our bargaining power to a certain extent."

 

"Law firms can actively set up offices overseas to build a closer network with local firms and enhance cooperation and exchanges with international legal services providers. This way, we can not only provide clients with full lifecycle services from advisory to execution to standardise the service workflow and effectively control prices, but also significantly uplift the firm's competitiveness in the international legal services market.”

- Wang Jing, Wang Jing & GH Law Firm

 

In response, Wang suggests "law firms can actively set up offices overseas to build a closer network with local firms and enhance cooperation and exchanges with international legal services providers. This way, we can not only provide clients with full lifecycle services from advisory to execution to standardise the service workflow and effectively control prices, but also significantly uplift the firm's competitiveness in the international legal services market."

Regarding revenue from overseas projects, Lin shares that although this type of service requires continuous investment in talent development and knowledge structure building, "such investment can be matched by the revenue generated, forming a mutually reinforcing virtuous cycle of input and output."

Lin notes that within East & Concord, the GBA office is playing an increasingly important role in integrating resources across mid-shore, offshore, and host countries. Partners from offices in Beijing, Shanghai, and other locations with extensive cross-border experience are also collaborating closely and sharing resources to provide "one-stop" solutions for clients' global expansion needs.

"This wave of going global may profoundly change international dynamics. It represents an unprecedented and historic opportunity. Lawyers must be able to seize this opportunity to upgrade their service capabilities and build up the international image of Chinese law firms," Lin concludes.

 

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