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back to index backCHINAtalk April,  2007

Services – Is China set for that Great Leap Forward?

An Australian lawyer running his own small corporate advisory service in Shanghai says he finds it extraordinary that China has so few lawyers and accountants to service business at a time when foreign investment is being embraced.

I am surprised, to say the least, that  a country which is opening to foreign investment is not taking more interest in facilitating that investment through expansion and globalisation of key professions, such as accounting and law,” says Michael Wadley, who has been based in China for six years.

It is extraordinary that there are only 241 foreign law firms operating in China, aside from around 45,000 local lawyers in the Shanghai region and around 115,000 nationally,” Wadley told ATI. Take out those who are not in private practice, or practice offshore, and you have a much smaller number.” Of the 241 foreign firms licensed in China, 72 belong to Hong Kong firms, which are mainly focussed on the South of China and actually operating out of Hong Kong, with token offices in China. Half of the remainder are still Post Box offices, or one- or two-man teams.”

Wadley says he finds the accounting situation even more bizarre.

China has a shortage of accountants, a point regularly acknowledged by the Ministry of Finance. Most are bookkeepers with little concept of analysis or planning,” he says. The big multinational accounting firms are here, and all have plans to recruit 3,000 people each year. They are flat out managing their own growth. They can scarcely handle the volume of work referred to them through their own international networks – let alone take on outside clients, or look for business.”

Wadley says most of the international second-tier accounting firms are in China in name only, through license arrangements with local firms which have a limited number of foreign-language partners and a very small number of staff with an understanding of much more than conventional bookkeeping. Consequently,” he says, it is extremely difficult to find English-speaking/Western-standards accounting services beyond those firms I’ve mentioned. Yet every business in China has significant requirements for regular accounting services. The good news for China is that everything changes extremely quickly, and we’ll see a change with some speed – and on a large scale.”

Meanwhile, Wadley warns that establishing a professional business in China is not easy, despite commitments to the World Trade Organisation and the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and China, which specifically lists services as a sector for co-operation.

Australia, he says, is trying to make sure the services sector is dealt with in its FTA negotiations with China, and he says China apparently made a generous offer in recent APEC meetings to include some services in an APEC initiative – But I notice that, according to various media reports, law and accounting were not included.”

Services also were not dealt with in any great detail in the agreed terms of China’s WTO accession, Wadley says. From my experience running an Australian law firm (2001-03), which had a license in China from 1997, and then applying for a law firm license 18 months ago on behalf of a Hong Kong firm (without using CEPA, but understanding the difference – very slight –that CEPA makes), establishing here is still a very difficult road to hoe.”

Wadley initially headed the Shanghai office of the Australian firm Hunt & Hunt. When the firm suspended operations, despite successful growth of its China business, Wadley set up a consulting firm and later formed an alliance with a Hong Kong law firm. In December 2006, 18 months after making application to the Beijing Ministry of Justice, the alliance was permitted to establish a foreign law firm branch office in Shanghai.

Wadley’s corporate advisory practice, which represents a number of architectural and engineering firms from Australia and other countries, is now being merged into a regional group called Intercedent.

I’m finally getting to where I was trying to be five years ago,” Wadley told ATI. You need to be patient in China, and not lose sight of your objectives. I’ve now discovered that there are very few small foreign law firms operating in China – something pointed out to me by friends who are senior partners in major international firms.” Wadley says he believes a good legal firm in China needs to be a business advisor and a corporate strategic advisor first, with a legal emphasis and under-pinning.

There are several reasons for this,” he says. The legal system in China is very different – it is not prescriptive. The legal system and the economy are still quite under-developed. And the economy is developing at an incredibly rapid pace on a large scale – this calls for quick commercial thinking and strategy.”
Source:  AsiaTodayOnline - GAI

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