Almost 30 years after the reform policies of “Socialism with Chinese characteristics” paved the way for unparalleled economic growth and cultural transformation in China, the world—and investors—are taking notice of this emerging power. And while this country continues to face challenges in the political sphere, it is hard to ignore a more than tenfold increase in GDP since 1978, a growth in an economy already running at 11.3 percent in the second quarter of 2006, and a public share offering in May by the Bank of China—touted as one of the biggest seen anywhere in six years.

Transformation from a centrally planned economy, virtually closed to foreign trade, to a now rapidly expanding, market-oriented one has brought profound change. As this country of more than 1.3 billion people continues its sprint toward modernization, debates on everything from limited natural resources to the value of the yuan to copyright enforcement have become more urgent. In the face of such change, how is the legal profession adapting—both here and in China? And how best can American lawyers advise their clients who, with growing frequency, conduct business there? In this issue of Stanford Lawyer, two alumni discuss the emerging power—China.

Carmen Chang ’93 (MA ’81)

Among the first American lawyers to practice in China, Carmen Chang pioneered Wilson Sonsini Goodrich & Rosati’s practice in China in the early ’90s and its official venture there in 2005. She currently heads the company’s China practice representing clients such as Alchip Technologies, Fiberxon, Google, Hon Hai, Hua Hong, SMIC, Spreadtrum, and UTStarcom. A well-regarded expert in corporate and securities law and cross-border transactions, she focuses on the representation of public and private technology companies and financial institutions in public offerings, mergers and acquisitions, joint ventures, and financings.

Yi Zhang LLM ’06

With what could be called uncanny prescience, Yi Zhang chose to focus his university studies on law—not a popular choice in China in the early 1990s. He joined what is now China’s largest private partnership law firm, King & Wood, in 1996—just one year after receiving his LLB—and made partner just three years later. His early practice focused on foreign direct investment in China. Today, he deals primarily with mergers and acquisitions, IPOs, and private equity and venture capital investment in China.

CHANG: YOU WORK IN THE MOST ELITE SECTOR OF CHINESE PRACTICE, WITH PRIVATE LAW FIRMS THAT DEAL WITH INTERNATIONAL BUSINESS. IN THAT SECTOR, AS WELL AS GENERALLY, HOW HAS THE PROFESSION CHANGED OVER THE LAST TEN YEARS?

Zhang: I think the major change is that the Chinese law system is converging with the common law system. China has adopted a number of Western legal concepts in developing its legislative body. Chinese contract law, for instance, has “borrowed” from Western jurisprudence—including concepts such as offer, acceptance, consideration, etc. So I see that Chinese law is becoming more internationalized. But while we are pursuing the international standard of law, we sometimes lack enforcement of the law.

WHAT IS YOUR VIEW OF THE EVOLUTION OF INTELLECTUAL PROPERTY PROTECTION IN CHINA?

We are a member country to many international intellectual property treaties, so our IP law in terms of patent, copyright, trademarks, and so on is virtually the same as American law. In terms of enforcement, I think we have a way to go. But the strong will is there, and I foresee a uniform effort from the government and the judiciary to enforce Chinese IP law. And people have noticed dramatic improvement recently. One significant change is the introduction of coordinated nationwide campaigns by senior Chinese leaders. On the other hand, the economy has grown to a point where innovation and intellectual property rights are an indispensable part of the whole Chinese economy, and people realize the importance of this issue. Another factor is the increasing pressure from overseas countries for our enforcement of the law.

HOW WOULD YOU ADVISE PEOPLE DOING BUSINESS IN CHINA REGARDING IP PROTECTION?

I would advise them to treat IP protection very seriously and understand the legal requirements in China. IP law has a character of locality, which means if you wish to be protected in a specific jurisdiction, normally you need to register your rights there first. Surprisingly, the country with the most patents registered in China is Japan—not the United States. Approximately 55 percent of the total offshore registered patents in China are Japanese. So I would urge more U.S. companies intending to do business in China to treat their IP rights seriously at the outset.

DOING BUSINESS IN CHINA I’VE OBSERVED THAT THERE ARE GOOD CHINESE LAWYERS, BUT YEARS AGO THERE WERE VERY FEW. I’VE SEEN A VAST IMPROVEMENT IN THE SOPHISTICATION AND STRENGTH OF CHINESE LAW FIRMS OVER THE PAST TEN YEARS. HOW DO YOU ACCOUNT FOR THAT?

I think several factors contribute to that. First, there’s the growth of the Chinese legal system itself and the expansion of international business in China. Second, leading international law firms have guided Chinese law firms and helped them to mature. Then the more we deal with international business, the more we learn. Also we have many more newly graduated Chinese law students and the return of overseas educated Chinese students. All of these factors add to the sophistication of Chinese law firms.

IF CHINESE LAW CHANGES TO ALLOW IT, DO YOU FORESEE MERGERS AND JOINT VENTURES BETWEEN CHINESE LAW FIRMS AND FOREIGN LAW FIRMS?

It’s hard to predict, but I would not preclude that possibility. As far as I know, the opening of the legal market is not a part of China’s commitment under the World Trade Organization treaty

CAN YOU SPEAK TO THE TREND OF MEGA INITIAL PUBLIC OFFERINGS (IPOS) COMING OUT OF CHINA, AND SOME OF THOSE NOT LISTING IN THE UNITED STATES?

I think China is continuing to encourage its large state owned companies to conduct IPOs overseas. But some of the recent Chinese IPOs have chosen not to list in the United States. There are many elements that would have an impact on how an IPO venue is chosen. There could be, if not an economic element, simply preference. For instance, Chinese companies prefer the Hong Kong market because we are in the same time zone and it is convenient since we use the same language, and cultural difference is less. I think one could easily think of Sarbanes-Oxley as a deterrent. I don’t think it would be a major issue in choosing an IPO venue, but it would be a consideration for all overseas companies listing in the United States.

DO NASDAQ AND NYSE MARKET THEMSELVES IN CHINA?

NASDAQ has a representative office in China. And I think NYSE is planning an official presence soon. Other stock exchanges are also marketing themselves in China.

DO YOU THINK THAT CHINESE LAW FIRMS ARE BECOMING MORE LIKE U.S. FIRMS WITH STRATIFICATION BETWEEN THE TOP 10 AND THE TOP 100?

Today there are many Chinese law firms, and the difference between the top and the bottom is huge. According to Chinese law, one of the prerequisites for setting up a law firm is that you have three qualified lawyers—which is a low bar. I would estimate that perhaps 50 or 60 percent of firms are composed of just three lawyers. But in the leading firms, such as King & Wood, there are more than 100 fee earners with offices throughout the country and abroad.

WHAT DO YOU THINK ARE THE BIGGEST CHALLENGES THAT FACE YOU AS A CHINESE LAWYER TODAY?

Keeping up with the latest developments in Chinese law is a challenge. Chinese law has evolved over the past decade into a sophisticated system in which literally, each day, there is a new regulation or rule introduced. If you do not keep up with the latest developments, you will soon get lost.

Another challenge is to keep up with the evolution of the economy. If you have been in practice for a while, it is natural to follow your own experience and neglect learning about new developments. But those new developments are the driving force in the economy, and in legal practice.

MANY PEOPLE SAY THAT CHINESE LEGAL PRACTICE IS LESS CONSISTENT THAN AMERICAN AND THAT QUALITY DEPENDS ON THE LAWYER AND HIS OR HER TRAINING. DOES YOUR LAW FIRM HAVE TRAINING PROGRAMS FOR ITS LAWYERS?

We do. But compared with international standards, we are still in the infancy stage. Chinese firms have recognized this issue, but there is a long way to go before we can implement a sound method for training our lawyers. Unlike U.S. law firms that have more than a hundred years of history, Chinese law firms are just emerging. My firm, one of the largest private Chinese law firms, was established only 13 years ago. So we do not have a lot of accumulated experience. I think the situation will change if we continue attracting overseas educated people and implementing training methods into our own system, but that will take time.

DO YOU FORESEE AMERICAN-EDUCATED CHINESE LAWYERS, WHO ARE MEMBERS OF THE BAR IN VARIOUS U.S. STATES, PRACTICING AND ADVISING ON U.S. LAW IN CHINA?

No. While there are more overseas-educated Chinese lawyers with American Bar qualifications, I do not think that there will be many who practice U.S. law in China, mainly for two reasons. The Chinese lawyer’s strength is that he or she can practice Chinese law. Second, assuming that there is not an issue with unauthorized practice, even if we are willing to, the client base would not allow us to build a practice advising on U.S. law. I think the best strategy for Chinese law firms, when going overseas, is to continue to cooperate with international law firms so that each party can best serve the client—and each have a bite of the business.