IFLR 1000
The Guide to the World's Leading Financial Law Firms

In this year's edition, readers will notice some drastic changes in the ranking of the international firms in China. Those are the result of an editorial decision to try and more clearly underline firms with an actual on-the-ground presence in China ('foreign firms'), as opposed to firms that, although heavily involved in China related work, have their teams reside in other jurisdictions such as Hong Kong ('international teams')....

In this year's edition, readers will notice some drastic changes in the ranking of the international firms in China. Those are the result of an editorial decision to try and more clearly underline firms with an actual on-the-ground presence in China ('foreign firms'), as opposed to firms that, although heavily involved in China related work, have their teams reside in other jurisdictions such as Hong Kong ('international teams'). With a view to reflecting the increasing integration between continental China and Hong Kong on an economic as well as political level, this guide may revise its approach in future editions.

The evolution of the Chinese legal market is such that even established firms have to address peaks of demand in practices that had been less active in previous years. This has been for example the case with a significant drop in equity capital markets activity as a consequence of the fraud allegations that have ruffled the feathers of overseas-listed Chinese companies, causing Chinese companies to all but stop IPOs in the United States. Parallel to that there was a corresponding uptake of corporate activity in, among other trends, a return of joint venture formation work.

There have been a few major legislation changes that are worth mentioning. In capital markets, the revised qualified foreign institutional investors (QFII) regulations should allow QFIIs to invest in the Chinese capital markets through more than one securities dealer. The regulation also allows QFIIs to invest in the interbank bond market and private placement bonds issued by small and medium-sized enterprises (SME) and hold up to a 30% stake in a listed company, up from the previous 20% stake cap, changes that go in the direction of a further liberalisation of the Chinese financial system. In terms of private equity work, however, news seems to go in the opposite direction. The "5% rule" for Shanghai-based funds, which allowed foreign partners to be part of local funds with up to 5% of the capital, has been removed. Now all capital in a local fund must come from local sources to be able to invest in the restricted sectors.

Another area gathering increasing momentum for legal work is that of antitrust and competition. The 2008 Anti-Monopoly Law is quickly transforming the Chinese Ministry of Commerce (MofCom) into the third global authority for competition matters. With increasing pressures from the market and the legal experts, MofCom is expected to issue an increasing number of clarifications to its regulation, also in the hope to dispel a general perception of its insufficient clarity. Further in regard to competition work, it is of note that although foreign firms remain unable to practice Chinese law under the current system, their advisory role to MofCom in both policy drafting and evaluation of the European and American approaches is certainly a relevant one. In recognition of the above, the current edition introduces a ranking of local and international firms for antitrust and competition work in China.

CONTEXT AND TRENDS
"It is a choppy market, but we managed to maintain our position," confesses a partner. In China, the general tightening of credit, coupled with high cost of funding for private companies has pushed the latter to look for financing from offshore banks....

CONTEXT AND TRENDS

"It is a choppy market, but we managed to maintain our position," confesses a partner. In China, the general tightening of credit, coupled with high cost of funding for private companies has pushed the latter to look for financing from offshore banks.

Chinese banks have maintained activity on acquisition financing and projects, which have also been strengths. In the first category the trend for outbound investment has continued apace, both into Europe and elsewhere in Asia.

Lawyers also expect to see more debt restructuring transactions in the coming year, especially in the real estate sector. As the pressure mounts on developers and they struggle to find funding they will increasingly start looking at alternative sources of lending both home and abroad. Further, international funds that have a focus on distressed assets are already taking a closer look at China.

MAJOR LATERAL HIRES

Bruce Schulberg
From: Clifford Chance
To: Hogan Lovells (Singapore)

RISING STARS

Allen & Overy
Matthew Bisley

CONTEXT AND TRENDS
This has been, in some respects, a disastrous year for Chinese companies in the capital markets. Fraud allegations against PRC entities have triggered a sequence of delisting on the major US stock exchanges....

CONTEXT AND TRENDS

This has been, in some respects, a disastrous year for Chinese companies in the capital markets. Fraud allegations against PRC entities have triggered a sequence of delisting on the major US stock exchanges. However, these delistings have not always resulted in a "going private" transaction and often a withdrawal from a US exchange has led to a new listing in mainland boards such as Shenzhen or nearby Hong Kong. The government approach to this recent evolution is to encourage companies to take a look at the profitability of listing at home before considering offshore listings.

For foreign investors, new regulations will also present wider opportunities in the Chinese debt markets, which may be welcome news for entities looking to find a new channel into China.

In terms of this year's rankings, capital markets is possibly the category that sees the most changes. An evaluation of the firms' on-the-ground capabilities in Beijing and Shanghai, in fact, underlined that several of the previously-ranked firms are more properly ranked in the Hong Kong chapter where their experts are located.

MAJOR LATERAL HIRES

Anthony Jacobsen
From: Baker & McKenzie
To: Sidley Austin

CONTEXT AND TRENDS"The competition law regulatory landscape is becoming clearer," Promises one renowned antitrust and competition expert. Be that as it may, the issues in regard to the still infant 2008 Anti-Monopoly Law (AML) are numerous....

CONTEXT AND TRENDS

"The competition law regulatory landscape is becoming clearer," Promises one renowned antitrust and competition expert. Be that as it may, the issues in regard to the still infant 2008 Anti-Monopoly Law (AML) are numerous.

The Ministry of Commerce (MofCom), as the institution in charge of AML enforcement has three main priorities: merger control, abuse of dominance control and agreements control. Merger control has been the one involving the highest number of cases so far, with statistics reflecting a substantial increase in reviews between 2010 and 2011, with experts claiming that the next area of interest is going to be abuse of dominance: "AML is run in a fairly objective manner and has been more aggressive in tackling domestic monopolies than previously thought," says one competition lawyer.

The issues are concentrated around two key issues: uncertainty in the application of the AML regulation and, on a more pragmatic side, the responsiveness and timing of MofCom reviews.

"The main problem is that there has not been much enforcement nor guidance from central authorities," a source points out. This adds to the fact that recent MofCom rulings, such as the Seagate case, clearly show that the Chinese authorities have no interest in following the path of the two other major antitrust and competition centres of the EU and the US. With its aspiration to become the third global centre in its own right, MofCom authorities are following their own logic to reach verdicts on the cases under review.

The responsiveness issue is apparently tied to an apparently simple matter of insufficient human resources: the team in charge of AML reviews at the Ministry is composed of around two dozen officials. While MofCom is quickly adapting given the ever increasing number of cases to review, some internal rotation policies such as the transfer of more competent and senior personnel overseas does hinder the accumulation of expertise within the unit.

A foreign lawyer assures however that the establishment of a "fast-track procedure" has been part of closed–door consultation meetings with MofCom officials.

AML regulation, ultimately, is here to stay and the level of enforcement is only likely to increase, with a resulting hike in litigation as a consequence of more investigations into regulatory breaches. Firms are building up their competition and antitrust expertise in an effort not be caught unprepared by the upcoming changes.

Although investors are not necessarily losing confidence because of this situation, it does mean that they tend to structure their deals taking into account AML requirements and possible trying to work around the thresholds. As one lawyer puts it: "You play with the game not with the rules."

RISING STARS

Paul Hastings Janofsky & Walker
Lu Yi

CONTEXT AND TRENDS
The mergers and acquisitions landscape in China is becoming increasingly complex. First we have the compliance issues: domestic and foreign firms have to deal with the nuances of regulations such as the Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery regulations....

CONTEXT AND TRENDS

The mergers and acquisitions landscape in China is becoming increasingly complex. First we have the compliance issues: domestic and foreign firms have to deal with the nuances of regulations such as the Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery regulations. As a result, the number of M&A deals that develop a contentious element is increasing. Second, as mentioned in the competition section, companies have to take into account the additional time and resources to be spent to settle potential antitrust issues when entering into a deal.

In this environment, outbound work is becoming the dominant transaction type in the market. Chinese companies are increasingly active in offshore acquisitions, helped no doubt by their relatively healthy liquidity in comparison to their Western counterparts. More than ever before, those companies are looking at Europe and other scenarios, in addition to the established deal flow to Africa and Latin America, although the rate of closure is not at its highest. One interesting aspect of these deals is that they are not straight outbound transactions anymore: often the targets are companies that have Chinese interests and assets.

Because of the general market slowdown, inbound acquisitions are rare, although a surprise from the last year has been the comeback of joint ventures. There is mounting interest in this area, especially in transactions where larger companies are realising that the regulatory barriers to acquisitions are too great on either or both sides.

Finally, in light of the issues surrounding the offshore capital markets for Chinese companies, M&A is looking increasingly like a good exit option given the substantial disappearance of IPOs in the market.

MAJOR LATERAL HIRES

Ling Huang
From: Shearman & Sterling
To: Cleary Gottlieb Steen & Hamilton

Michael Chin
From: Dorsey & Whitney
To: Hogan Lovells

Catherine Miao
From: C&I Partners
To: Jun He Law Offices

Pete Zhang
From: Guangda Law Firm
To: Jun He Law Offices

CONTEXT AND TRENDS
While the general downturn may open up opportunities for private equity firms doing buyouts, the market situation is also unfavourable to exits of those same funds from the firms they invested in over the last four to five years, especially in terms of IPOs, given the generally low level of equity capital markets activity. As a consequence, the partners at many private equity funds are starting to get selective about their investments after learning lessons the hard way....

CONTEXT AND TRENDS

While the general downturn may open up opportunities for private equity firms doing buyouts, the market situation is also unfavourable to exits of those same funds from the firms they invested in over the last four to five years, especially in terms of IPOs, given the generally low level of equity capital markets activity. As a consequence, the partners at many private equity funds are starting to get selective about their investments after learning lessons the hard way. A local lawyer foresees that in this context, "offshore funds will recover market share. They are more patient in doing deals and investments."

Nonetheless, domestic funds retain the upper hand in the current market situation. Favourable regulations for domestic firms and the vast liquidity available to the sovereign funds make those the most active players in the market.

In the domestic market there has been a surge in the number of Chinese funds that are engaging in investments previously undertaken by foreign entities, given that they can offer Renminbi structures whereas most foreign firms cannot.

The government is also making efforts to ease the process of foreign investment for domestic funds. Law firms have seen in the past 24 months a number of Shanghai-based firms opening up offshore funds, mostly dollar-denominated, which have not only been successful but have raised considerable interest among North American entities like pension funds. These funds typically fall in the $300-500 million range.

Other funds are coming onshore and creating Rmb-denominated structures, with the perceived advantages including the greater ease of investment in the domestic market. They are also seen as a good way to attract foreign funds to China.

The picture is not so rosy for foreign funds working in China. As one expert puts it, "for foreign private equity funds it is difficult to compete in China given the entry requirements in terms of in-depth due diligence, documentation and filings." On top of that, the National Development and Reform Commission (NDRC), the main reform and economic planning body, clarified in a directive that Rmb funds with foreign general partners and local limited partners will continue to be treated as foreign funds. The hope remains that initiatives like the pilot Qualified Foreign Limited Partners (QFLP) initiative for Shanghai-based funds with foreign participation may gain ground in the future, but the outlook is certainly cloudy.

What is certain is that there is no lack of interest in Chinese assets from foreign funds that are teaming up like never before to acquire in the People's Republic of China.

In terms of sectors, technology and internet companies keep attracting a lot of the attention, while real estate private equity work is on the comeback trail. After a couple of years of policy tightening and a general liquidity shortage for local developers, funds – both domestic and foreign – are starting to take an interest in making investments again.

MAJOR LATERAL HIRES

Li Xiaoyang
From: Kirkland & Ellis
To: Jun He Law Offices

Roger Peng
From: Paul Hastings Janofsky & Walker
To: Loeb & Loeb

Martin Hu
From: Boss & Young
To: MHP Law Firm

CONTEXT AND TRENDS
The project finance teams are seeing a definite shift to outbound activity lately, with legal advisory to major financial institutions such as the China Development Bank (CDB) the key activity. China, on the back of its strong infrastructure expertise, is now exporting the know-how and its capital all around the world and, while average commercial banks may shy away from commitment to multi-billion dollar projects, that is no concern for cash-rich Chinese financial institutions groups (FIGs)....

CONTEXT AND TRENDS

The project finance teams are seeing a definite shift to outbound activity lately, with legal advisory to major financial institutions such as the China Development Bank (CDB) the key activity.

China, on the back of its strong infrastructure expertise, is now exporting the know-how and its capital all around the world and, while average commercial banks may shy away from commitment to multi-billion dollar projects, that is no concern for cash-rich Chinese financial institutions groups (FIGs).

Further to that, as a lawyer bluntly put it: "Chinese FIGs are sitting on piles of foreign cash, the returns on government bonds are close to zero and those projects provide a good 6-7% profit, plus they have the sector expertise."

It is a growing market, especially that of energy and natural resources, which is attracting more and more legal work from both local and international firms. Although some of the partners at the latter group have claimed a lack of activity in the past year, others insist that there is plenty of large-scale development-stage work going on for lawyers with deep sector knowledge.

Geographically, CDB is choosing Europe for smaller deals, with the larger projects happening in Latin America at the moment and a number of initiatives in Southeast Asia in countries like Vietnam. For the future, oil investments in the Middle East are also likely to take a larger share of the work, given China's notorious appetite for energy resources to satisfy its economy's ever growing industrial and urban base.

For law firms, project finance clients tend to be either FIGs or the corporates. Lawyers admit that the former are the easier ones to work with from a fee perspective, an area where corporates require more persuading before mandating counsel. At the same time, FIGs have projects across such a large number of jurisdictions that they expect international law firms to have deep teams and sufficient network to support them across the board.

MAJOR LATERAL HIRES

Bruce Shulberg
From: Clifford Chance
To: Hogan Lovells

Sean Wang
From: White & Case
To: Shearman & Sterling