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China in Asia-Pacific

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China Overview

Contributed by AnJie Law Firm

Current economic conditions 

China appears resilient to external and internal economic fluctuations. Its GDP growth has been maintained at a rate above 7.4% in the first two quarters of 2014, though slightly lower than the 2013 growth rate averaging about 7.7%. The government has opted for small-scale and specifically directed stimulus plans to curb the seemingly flagging economy. Fixed-asset investment remains high, but at a slower pace. The total retail sales of consumer goods has grown 12.1%, with online sales having increased 48.3%.

Business climate 

China, the second-largest investment destination on the globe, still stands as a top destination for foreign direct investment (FDI). Since 1992, it has been the largest FDI receiver amongst developing countries, and this has been the case for 22 consecutive years. In the past two decades, China received about 7.6% of annual global FDI and 21.5% of the FDI into the developing world, on average.

The Ministry of Commerce’s statistics indicate that the January to July FDI has dropped 0.35% from a year ago, the first decline since February 2013. The year-to-year FDI increase in 2013, according to the UNCTAD’s World Investment Report 2014, was 2.3%. To be more precise, China attracted USD7.8 billion worth of FDI in July 2014, down 16.95% compared to July 2013, and down 45.8% compared to June 2014. Nevertheless, it is believed that fluctuations over a few months are normal and do not reflect the general trend, especially while China is undertaking structural reforms.

China's relatively stable political and economic environments have gained it competitive advantage in attracting FDI over many other nations and regions, which are affected by a fragile economy, uncertain policies, and social disorder. The new leadership appears very committed to sustained reforms and anti-corruption campaigns.

Responding to the growing role of the market, China has strengthened antitrust enforcement to curb market failures. Some Chinese and foreign-funded companies have received fines this year and more are under the radar of the authorities. The industries covered include auto parts, automobile, construction, IT and technology, pharmaceuticals, food packaging and processing, and so on.

New economic engines have been put in place to sustain stable growth. China has proposed the establishment of the Silk Road economic belt and the Maritime Silk Road, two initiatives that can be anticipated to connect South-East Asia, the Middle East, and Europe, with China. Meanwhile, the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor, and their related projects, will further expand the influence of the new Silk Roads and drive the regional economy.

Legal market 

China committed to opening its services market including the legal services market, gradually and conditionally, to other WTO members under the General Agreement on Trade in Services (GATS), when it joined the WTO in 2001. However, the relaxation of market access rules was relatively small, and limited to permitting foreign law firms to open more than one representative office without geographic limitations. Up till now, foreign firms in China continue to be limited to consulting on foreign legislation and on international conventions and practices; to dealing with legal affairs of the country or region where its lawyers are permitted to practice law; to recruiting native counsels and entering into long-term partnership with Chinese law firms; and to advising on the impact of China’s legal environment.

Chinese law firms have become increasingly competitive. They are recruiting more lawyers with an international educational background and vision, and further, it seems that local firms have a deeper understanding of the dynamics of China’s legal regime. The leading Chinese law firms headquartered in large cities can offer world-class legal services at a much lower cost.

Currently, the practices relating to mergers and acquisitions, intellectual property, dispute resolution, securities and capital markets, and real estate are relatively mature in the local legal services market. Further, some emerging practice areas such as competition, technology, media and telecoms, and outbound investment have quickly attracted the attention of Chinese lawyers.

Institutional reforms and rule-making 

It is widely claimed that 2014 marks the inception of the deepened reforms in China, including institutional reforms and rule-making at the central and local levels. New policies have emerged at various fronts, including reforming the judicial system, opening up SOEs to market competition and private domestic and foreign ownership, deregulating banking interest and exchange rates, reforming land ownership, relaxing the one-child policy, liberalising resource pricing, and combating corruption.

Outlook  

China has stepped up the efforts to shift away from the conventional investment-driven mode to a consumption-driven one. The emphasis on inclusive reform and social justice suggest a more moderate growth profile in the years to come. Antitrust enforcement actions can be anticipated to increase, when the market is performing a more fundamental role in resource allocation and a level playing field becomes the cornerstone of sustainable development. China keeps moving up the value chain as a result of continuous efforts on indigenous innovation. Sustainable and balanced economic growth is deemed to be the key to China’s long-term prosperity and stability, and will advance the burgeoning Chinese legal services market.