Far from slowing down, the Chinese economy just keeps on growing. Justin Whealing looks at the new opportunities for Australian law firms in China and beyond.
|Red dawn: Australian firms are seeing new opportunities on the horizon in China|
Just this month, the legendary American folk singer Bob Dylan was granted a licence to perform at a concert in China, though government authorities had to approve the set-list.
Its economy continues to grow at a rate of just under 10 per cent GDP growth per quarter, with China surpassing Japan as the world's second largest economy in 2010. In fact, the economy is growing so fast that the Chinese authorities have raised interest rates twice this year, in a bid to encourage savings and rein in inflation.
As one of more than 150 foreign firms in China, Minter Ellison is eager to get a slice of the growing economic pie as China moves from a developing to a developed economy. Mark Green, the managing partner of Minters' Melbourne and international offices, says the growth in China has flowed through to the bottom line of Australian firms with offices on the ground. "At least one-quarter of our revenue has international connotations," he says. "That is a marked increase from a decade ago."
Minters has more than 100 lawyers in its Hong Kong offices, with much smaller offices in Shanghai and Beijing - the latter office opening last year. China-related work is becoming an increasingly important part of the revenue stream for all Australian firms with offices there.
Allens Arthur Robinson was one of the first firm's to enter China, establishing offices in Beijing and Shanghai in 1996, and Hong Kong before that in 1988. With around 20 lawyers working out of mainland China, its strength on the ground is relatively modest when compared with the firm's overall network. But, in a similar vein to Minters, it is becoming an increasingly important part of the firm's international reach.
"Our China-related revenue, which is a deal that has a China aspect, such as a Chinese entity investing abroad, has grown substantially," says Paul Quinn, the executive partner of the firm's north Asia practice.
"China is a no-brainer for us and, interestingly enough, so is Mongolia"
Mark Green, Partner, Minter Ellison
Allens certainly has some heavyweight Chinese clients. In addition to acting for large Australian clients with extensive business links in China, such as Rio Tinto, it has acted for China Mining Partners and also had a role on the Chuandongbei sour gas project -China's largest onshore natural gas joint venture involving a foreign partner.
The country has provided plenty of opportunities for businesses looking to tap into a potential market of over one billion people. However, as the Chinese market becomes more sophisticated, the latest stage of that development drive has involved Chinese companies looking outward.
At Allens, Quinn says the firm's recent focus has been acting for Chinese clients doing outbound work, particularly in the area of energy and resources. "We have been here for over 20 years, and that has all been inbound work. Suddenly, within the last two years, the outbound work has shifted dramatically," says Quinn. "That has been a conscious decision by the Chinese government."
With Chinese eyes now looking outside of China, it is not just the Australian firms looking to cash in. "It used to be an inbound market, but is now an outbound market," says Tom Luckock, a Norton Rose partner and climate change specialist based in Beijing since 2004. "Around 60 per cent of our work is now outbound based." Unlike many firms in China, Norton Rose has a bigger presence in Beijing than Shanghai, with 26 lawyers in the capital and 10 in China's financial centre.
"China had about 18 gigawatts of wind power coming online last year, while Australia only had two gigawatts of installed capacity"
Tom Luckock, Partner, Norton Rose
In addition to Allens and Minters, Mallesons Stephen Jaques is the third Australian firm with a meaningful presence in China, with offices in Beijing, Shanghai and Hong Kong. Chief executive partner Robert Milliner says the firm's client base is fairly evenly split between Australian clients investing in China, such as Telstra, direct foreign investment into China from foreign companies or financial institutions, and Chinese or Hong Kong-based companies. He says it is the latter that is providing opportunities for law firms in the long-term.
"Previously we have relied more on Australian-based clients, but for us there has been a real growth in both our local Chinese client base and more opportunities to do broader commercial work coming out of the rest of the world, particularly from the investment banks."
China's growing economy means it has a voracious appetite for resources, with the government engaging in massive amounts of investment in both old and renewable energy sources. China has set some very ambitious environment targets, seeking to reduce carbon dioxide emissions by 40 to 45 per cent by 2020 compared with 2005 levels. This is despite China being the largest greenhouse gas emitter in the world, largely due to its massive consumption of coal. That will not slow down any time soon, with China still building coal-generated power stations and announcing plans earlier this month to invest in South African coal assets.
"China is engaging in renewable energy, but it is part of a complex web of further power generation to meet their demand cycle over the next period," explains Mark Green.
Climate change lawyer Tom Luckock has certainly been kept busy in his Beijing-based practice. He says much of the outbound work he is acting on is in the renewable energy sector and the development of related technology. "Chinese turbine manufacturers, backed by the banks, are looking to export into Europe, Australia and a number of other places," he says.
In fact, Luckock bemoans the focus on China's greenhouse emissions, pointing out that it is more advanced than many Western economies when it comes to the use of clean sources of energy, with around 30 per cent of the world's solar panels being made in China.
"Sometimes China gets a bad reputation on climate change, and I don't understand why," says Luckock. "China had about 18 gigawatts of wind power coming online last year, while Australia only had two gigawatts of installed capacity.
"China has invested a huge amount of money in the development of technology into renewable sources of energy and the development of technology around that, and now that technology is looking outwards."
"As the market becomes more sophisticated, China will need financial products, as it has lots of liquidity but not a lot of product"
Robert Milliner, chief executive partner, Mallesons Stephen Jaques
In addition to old and new energy sources, the developing Chinese economy has opened up growth opportunities around infrastructure and financial services. "As the market becomes more sophisticated, China will need financial products, as it has lots of liquidity but not a lot of product," says Milliner. "As well as green energy, health and education, the regular work in mining and resources will also provide opportunities. The Chinese market is incredibly interesting, and it is the biggest growth market in the world."
China's thirst for energy has meant that new frontiers have been opened up to satisfy its ever-increasing resources demand. Mongolia, to the north of China, has now become a hub for energy and resources work, as it has the world's largest untapped resources of coking coal.
"We have done a lot of resource-based work in Mongolia recently, acting for foreign clients looking for exploration and other development work there," says Allens partner Quinn.
Minters is in a similar position to Allens in that Mongolia is becoming an increasingly important part of the work flowing out of Chinese lawyers on the ground in China.
The firm has always used its Hong Kong and Chinese offices as a "hub" to act on other work throughout the Asian region. "It means trading in your niche areas, trading where there is a compelling reason for a client to mandate you," says Green. "China is a no-brainer for us and, interestingly enough, so is Mongolia, where we have acted for Australian and Chinese clients. That is frontier land which is deep in energy and resources, where our firm has significant expertise."
"We have been here for over 20 years, and that has all been inbound work. Suddenly, within the last two years, the outbound work has shifted dramatically"
Paul Quinn, Partner, Allens Arthur Robinson
In the current Australian legal market, where international firms are arriving in increasing numbers on domestic shores, large local firms such as Minters might even look to strike back by opening more international offices in the Asia-Pacific to broaden their coverage. It is something that Green doesn't rule out in Mongolia.
"We would see something like a further push-up into Mongolia as something to look at, because of that compelling reason for people to mandate us," he says. "It is probably more attractive for us to resource there rather than planting flags in Vietnam or Korea where the market is very heavy and competitive."