New Partners in Crime: HSF forms joint operations partnership with local Chinese firm Kewei

August 12, 2019

3 min read

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What's going on here?

Herbert Smith Freehills (HSF) has successfully obtained its Shanghai Free Trade Zone license after announcing that it had agreed a joint operations partnership with the Chinese firm Kewei that will enable HSF to offer more local Chinese legal services in mainland China.

What does this mean?

The Shanghai Free Trade Zone license is a special permit that allows foreign law firms to work in China through a joint operations partner and avoid the ban on foreign firms practising Chinese law. The idea is that it allows local Chinese firms access to the international legal market, whilst offering global firms a foothold in the Chinese market. 

HSF have now used this to expand their legal offering into mainland China. This new break into China has been underpinned by the close relationship between HSF and their new joint operations partner Kewei, who have been working together for the past 12 months on a wide range of legal tasks. 

HSF already has 35 lawyers in offices in Beijing and Shanghai, with another 100 in Hong Kong and will now team up with the much smaller and younger Chinese firm Kewei, who only have 20 lawyers in Shanghai. The 24-year-old Chinese firm also has two former HSF lawyers at its helm (Stanley Xie and Gavin Guo) who have certainly played a part in the successful tie-up of the two firms.

What's the big picture effect?

The move from HSF comes at a good time, as the Lingang area is being added to the Shanghai Free Trade Zone, reflecting the potential for a growing legal market in China. Despite doubts over Chinese growth due to the ensuing US-China trade war, the magic circle firm Linklaters (one of HSF’s rivals) predicted that there would be $1.5 trillion of inbound investment in China, $2.5 trillion outbound investment over the next decade. Recent Foreign Investment Laws follow on from the spirit of the third plenum of 1978 that marked the opening up of China’s economy to the world. There have been exciting projects such as the London-Shanghai Stock Connect (see our article on that here), the liberalisation of financial regulation that has seen the creation of new exchanges such as the “Star market”(see our article on that here) and the new opportunities to see global investment in the Belt and Road scheme and global Panda bond issuances, to name just a few! 

HSF has spent a lot of time focusing on developing its reputation in China in order to attract new clients. The success of its partnership with Kewei is working well in the People’s Republic of China (PRC) financial markets and in PRC courts, with HSF topping the Asia-Pacific M&A league tables in 2018, has led HSF to seek this joint operations deal. Their success shows promising signs for their potential to grow into this opening legal market. 

But they are not the first to spot this! HSF and Kewei is the sixth joint operation in the Shanghai Free Trade Zone. They follow in the footsteps of Linklaters and Zhao Sheng (2018), Ashurst and Guantao (2018), Hogan Lovells and Fujuan Fidelity Law Firm (2016), Holman Fenwick Willan and Wintell & Co (2016) and Baker McKenzie and FenXun Partners (2015).

So, why did it take HSF so long to break into the market when the Shanghai Free Trade Zone was set up nearly 6 years ago? HSF’s Senior Partner James Palmer said they “were focused on finding the right partner” and it has taken them till now to do just that. The question remains as to whether HSF can continue to make inroads into the Chinese legal market and if the US-China economic tension will thwart their plans.

Report written by Will Holmes

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