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Foreign Firms in China: Bingham
Summary:In the first of a series, we talk to Boston-based firm Bingham McCutchen about practicing law in China and the partners' ambitions for their newly-opened Beijing office.

Boston-based law firm Bingham secured its first mainland Chinese client on Tuesday, two weeks after a Beijing launch party where its best known employees, former SEC chairman Christopher Cox and ex-California governor Pete Wilson, mixed with senior Chinese officials. 
Cox and Wilson are two of the ex-government figures brought to Bingham by Chairman Jay S. Zimmerman who has been in charge since 1994 and has pushed the firm beyond its roots dealing with shipping merchants on the east coast of the U.S.
The high-profile guests at Bingham's Beijing launch party bring in business for one of the most new lucrative businesses lines: Bingham Consulting. It advises companies on dealing with the government and media, primarily in the U.S., and often works separately from the law firm.
In the first of a series of interviews with the top executives of foreign businesses in China, the Economic Observer spoke to Bingham’s managing partners Brian Beglin, who moved from Bingham’s Tokyo office, and Xiaowei Ye, who joined from Jones Day in Beijing.
Speaking in a spacious office on the 50th floor of Beijing’s tallest building, they told the EO about the restrictions on non-Chinese law firms, as well as Bingham’s ambitions in China and its advice for Chinese firms who fear that U.S. regulators might stand in the way of their expansion plans.

 Brian Beglin                      Xiaowei Ye  

This text is based on an interview: the answers have been shortened and edited for clarity. A few of the questions have also been reworded.

Why did Bingham decide to open an office in China now?
[Brian Beglin] If you're going to be in international business these days, you need to be in China because this really is the center of the action.
For 50 years in Asia, we did cross-border work, primarily with Japan, from our New York office. We didn’t feel the need to have a Tokyo office, but six or so years ago that strategy changed and we very quickly built up a substantial practice through a local merger with two Japanese firms.

So, foreign law firms in Tokyo aren’t subject to the same restrictions as in China?
Not any more. I worked in Tokyo 25 years ago and it was exactly like it is here. Except for a couple of firms that got started just after the war when the bar hadn’t yet put the restrictions in place, you couldn’t have foreigners as members of a Japanese firm. Those rules have since changed, and now you can create a structure that permits you to have a fully functioning office in Tokyo.

What functions does your Japanese office perform?
We have a very significant independent local practice that has nothing to do with cross-border transactions, but we also have both Japanese and non-Japanese lawyers who specialize in the cross-border area.

Who are your clients in Japan?
Japanese firms doing business in Japan, Japanese firms doing business abroad, non-Japanese firms doing business in Japan.

How about your Hong Kong office?
From Tokyo, we opened a small office in Hong Kong with staff from our London office. Much of the Hong Kong business involved work into and out of China, and so the next logical step from there was to open the office in Beijing.



How do international law firms operate in China?
[Xiaowei Ye] International law firms aren’t allowed to advise directly on Chinese law, but most of the law firms can advise based on their experience in China. What we have been doing is working with local law firms on issues where we need local advice, especially in situations like appearing in front of certain administrative agencies or in court.

Do you work with one specific Chinese partner or do you use several?
[Brian Beglin] Mostly, international law firms work with different local partners. We have several relationships depending on the situation because some firms are stronger in one area than another.

Presumably a deal like [Sino-Australian combination of] King & Wood and Mallesons Stephen Jaques isn’t an example that you expect international law firms here to follow?
I don’t think you can generalize. There are different strategies; there are different ways to achieve the same end.

That “end” being the practice of Chinese law?
Well, Mallesons can’t practice Chinese law either. The merger is a swiss verein where they have a common parent in Switzerland, but they’re still maintaining two separate law firms. The Australian lawyers are subject to the same restrictions we are, but they have a closer relationship with a single firm.
So, you can hitch your future to one horse or you can pick horses based on expertise and, to date, everybody, or just about everybody has chosen the latter course, but now there’s a new model on the market, so we’ll see.

Is it something that Bingham might consider further down the line?
We won’t rule out anything, but it hasn’t been part of our expected strategy over the near term.

Do you expect the regulations in China to follow the course that they took in Japan?
It took fifty years for [foreign lawyers to be allowed to associate with local ones] in Japan. It’s probably going to take quite a while for it to happen in China. If you measure it from the ‘50s, it was some time in the 2000s that it changed. Bar associations in every country, like any trade group, are always very protective of their local monopoly, and countries have a legitimate interest in maintaining that the people who practice law in their jurisdiction uphold the standards that they require.

Can you give legal advice in Japan?
No, I can’t give formal advice. I’m not admitted to the Japanese bar, but I can associate in a firm with people who are locally qualified who can give local advice. So, the first step is to permit an association between licensed local lawyers and non-licensed foreign lawyers, but no [country] crosses the line and says, “any lawyer admitted anywhere can practice our law”.

So, would you expect that first step to come anytime soon in China?
I don’t see it in the near future.



What will be the main focuses of Bingham’s business in China?
Bingham’s international specialty is financial services in all of its aspects and that’s where we expect our practice to have a very high focus. In addition to that, perhaps coincident with it, is our cross-border mergers and acquisition and direct investment experience.

Given China’s restrictions on lawyers, how are you able to advise foreign firms that are acquiring Chinese businesses?
If a foreign firm is going to do an investment in China, there’s tax planning. If there’s intellectual property that’s going one way or the other, there are issues about how you protect it and where the property is located. If there’s a license, is the license offshore or onshore… there are a multitude of issues that are impacted that have absolutely nothing to do with Chinese law.
Then there are things that have something to do with Chinese law, but you know from your experience, for example, if it’s going to be a joint venture – what are the two or three kinds of joint venture structures that are used in China.

Will this office be handling both outbound and inbound transactions?
We’ll be handling both. We aren’t, by any stretch, the first foreign firm to set up here. There are a lot of foreign firms that have a longer history of doing the inbound work and a lot of the larger local firms have been doing that for a long time. So, it will be harder for us to compete for the inbound work at first, but we can and we will.

What does your day-to-day work involve at the moment?
I can say we’re probably half involved in getting ourselves out into the community and setting up relationships, but from the moment that we opened, there was this pent up demand of work from existing Bingham clients that the firm had historically referred to other law firms who were in China.

How will you measure whether or not you have succeeded?
This is a very tough market. There are a lot of foreign firms here and the Chinese companies who are clients, as opposed to counterparties, are sophisticated. You have to be patient and you have to be committed to the market for the long term, otherwise you should never come.

What is the best thing that Bingham can offer here in China?
We have a very substantial investment funds practice – so we’re talking hedge funds, private equity funds, public funds, and, as you’ll know from the press, there’s a big push by Chinese investment funds, supported by the government, to expand their offerings internationally.
The area where we’re genuinely unique is that we have a wholly owned subsidiary, Bingham Consulting, which is composed largely of former senior federal, state and local government officials who have worked in various aspects of the government in the United States.
What we do is to advise clients in those areas or cases where there is an important intersection between the law and what the political environment and public policy prescriptions provide.
So, for example, if your accelerator pedal is alleged to be sticking, that’s not just going to be a legal problem.


Did you advise Toyota?
I’m not mentioning who our clients are – I’m just saying that’s a legal problem, but it’s not purely a legal problem because there’s a public relations component to it, there’s a political component to it, there’s a trade component to it and all of those things need to be viewed in the whole.
A proper legal strategy might be to come into the room with bats and put up a very spirited defense. That might not be the best political response and the best overall response might be something in between or might involve aspects of each so Bingham Consulting does that kind of consulting.
For Chinese companies entering the U.S. market, as we’ve all seen in the press, there have been some spectacular failures […] of course, the failures get all the press and there is a political climate that needs to be addressed when looking at outbound Chinese foreign direct investment.
Chinese companies regularly are cognizant of the needs domestically – they’re politically sensitive – and more of them need to realize that their cross border transactions have the same sensitivities.

What is the difference between Bingham Consulting and a traditional lobbying practice?
We don’t lobby in favor of legal changes. If we were advising a Chinese company that wanted to do an acquisition in the U.S. in an area that was at all sensitive - are there aspects of their business model that could possibly create issues if they tried to make an acquisition in the U.S.? You might be able to give them some advice about ways to fix or reorganize or realign those things.
Then you would say – OK, you want to be in XYZ industry in the U.S., if you were to do a transaction in that industry in that locale, you’ve got these four or five constituencies who are going to be troubled by it for whatever reason – it might a be local union, who knows.
You could make some enquiries based on your established relationships in that locale to say – we have a client who wants to make an acquisition, it's going to create 1,500 jobs in your jurisdiction, you know, what do you need this company to do to best position itself to be welcome in your market, as opposed to being seen as an invader in your market.

How do you assess the mood in America towards Chinese investors?
I think it’s mixed. You have local governments and local politicians, who are desperate to create employment opportunities in their locale, but on the other hand, you have some politicians who are generally in favor of throwing up barriers.

It’s all about connections?
Well, you have to know who the constituencies are that are likely to be concerned and then you have to figure out how to address their concerns, and not all of them are addressable, but some are and that’s where we can help.

Are there industries that you think are off-limits to Chinese companies but shouldn't be?
I don’t think that’s really our function. Our function is to figure out what is permissible. China has its catalogue of foreign investment and it carves up the world into things that foreign companies may not do, things they’re encouraged to do and things that are permissible sometimes with restrictions. Every country has those categories. China does it in a catalogue way, America doesn’t have a catalogue, but it has a system and practitioners know where things are likely to fall.

Does Bingham Consulting also hope to offer advice on Chinese government policy?
What we do in China is similar, but at a more restricted level. There are permits and multiple permits that need to be obtained to do various things, and sometimes things get lost in the bureaucracy and someone needs to figure out -where it’s lost, why is it lost, why it hasn’t come out, what’s missing, where’s the issue.

What about Chinese attitudes to law and legal advice? Are lawyers held in lower regard here than they are in Japan?
It’s certainly well-known in the market that Chinese clients tend to have a narrower view of what lawyers can do for them than may be the case in more developed economies. That attitude I think is changing, in part because when they get a good execution, clients can appreciate what a good law firm can do for them.

By Will Bland

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