Economic Development and the Development of the Legal Profession in China

1. Economic Development and the Development of the Legal Profession in China Randy Peerenboom Associate Fellow Oxford University Centre for Socio-Legal Studies Director Oxford Foundation for Law, Justice and Society China Rule of Law Programme Professor of Law, La Trobe University Melbourne

2. Overview • development of legal profession and legal system have closely tracked economic growth patterns in China – modernization thesis without liberal democracy • challenges confronting the legal profession, and in particular the commercial bar • comparison of elite foreign and domestic firms

3. Development of the legal profession and legal complex • Law schools: 8 in 1976, 62 in 1989, 183 in 1999, 389 in 2003 and 559 in 2005 • Number of law students: 25,000 in 1991 to 450,000 in 2005 • Number of lawyers: 1980s, 3000; today, 130,000 to 150,000 (definition issues)

4. Quality and professionalism • 1997: only 33% of lawyers had college or graduate degrees • 2004, two-thirds had such degrees, including 11% graduate degrees, 44% LLBs and 12% undergraduate degrees in other subjects • Trend: higher level of legal skills at all levels (countryside, urban, elite, govt, in-house) • More independence: most firms private partnerships; state-owned firms now financially independent

5. Two way street: economic growth and development of legal system/profession • rule of law and good governance highly correlated with wealth; • institutional development and growth mutually reinforcing • correlation between GDP and the World Bank indicators for rule of law r=.82; government effectiveness r=.77; control of corruption r=.76; voice and accountability (i.e. civil and political rights) r=.62 • China good test case; political, culture factors same: Shanghai’s GDP per capita is RMB 55,000 (roughly $8000), Beijing 37,058; Guangdong 19,70; Gansu 5,970l Guizhou 4,215

6. Provincial data • strong correlation between provincial GDP per capita and lawyers per capita (.98) • legal education measured by the number of law graduates per capita (.90) • litigation (.92)

7. General litigation data • The general trend: more litigation, less mediation, arbitration stable but insignificant • number of first-instance economic cases increased from 44,080 in 1983 to 1,519,793 in 1996 • number of first instance civil cases increased from 300,787 in 1978 to 3,519,244 in 1999. • between 1983 and 2001, economic disputes increased an average of 18.3% a year, an increase twice the rate of civil disputes, and four times the rate of criminal cases • since then litigation rates have been relatively stable

8. Types of commercial disputes • First-instance purchase and sale contract cases increased from 23,482 in 1983 to 422,655 in 1996. • Contracting out of land in rural areas increased from 21,459 in 1983 to 87,503 in 1995. • Money-lending cases increased from 1,264 in 1983 to 558,499 in 1996

9. Litigation and lawyers • developed countries non-litigation work = 80% of legal work: China litigation work exceeds non-litigation work by 1.8 times • strong correlation between litigation per capita and lawyers per capita. Concentration of lawyers in few places • The rate of litigation in • Beijing, Shanghai and Tianjin per 100,000 people is 1,307, 994, 802 respectively, • compared to between 177 and 230 in poorer provinces such as Hunan, Jiangxi and Tibet. • The number of lawyers per 100,000 people is • 54.3 in Beijing, 32.3 in Shanghai, 17.1 in Tianjin, and 12.2 in Guangzhou, • 6.4 in Hunan, 4.4 in Jiangxi, and 1.3 in Tibet

10. Legal system and growth • Education and professionalism of judges and lawyers highly correlated with wealth • Enforcement better in wealthy urban areas • Local protectionism • Corruption: better in some areas, some courts • Problems of presidents of courts: political figures; rational to bribe them; responsible for other judges • General satisfaction: • Number of disputes, nature of disputes, willingness to go to court, satisfaction with courts > all better on whole in urban developed areas

11. Oversupply of lawyers? • 200 - 260,000 people take the national judicial exam • 190,000 pass 2002 • Total number of “lawyers”: 150,000 • 26% of law graduates go to firms or in-house counsel in companies, • 23% took jobs in government agencies • 7% in other non-private agencies • 21% went to graduate school, took jobs in academia, left the country or joined the military. • That still leaves another 23% unable to find work. • Of 214 majors, law ranks 187th in terms of students ability to get jobs

12. Not oversupply, but low quality (READ CHEAP) demand • China is a lower-middle income country; huge regional differences; many disputes small change • Lawyers don’t want to live in rural areas, and don’t want to work for low fees charged by legal workers (statutory and market requirement) • Actually, legal workers provide more advice than lawyers, handle more cases in many places • Barefoot lawyers: two roles – compete with legal workers; sensitive cases • Criminal law – another story

13. Show me the money • medium income: RMB 100,000; average 80,000 in 2005 • multiply median income in China by 20 (GDP per capita difference with US), adjusted median income $260,000 • Cf. information technology RMB 35,000, finance 27,000; real estate 19,000 education 16,000, govt 18,000 • BUT, huge gap between elite and non • 22% of lawyers make less than RMB 50,000 • Beijing: 60% of all legal service revenues and 30% of income • Within firms in the same city, also increasing differentiation in salaries. 12 out of over 1,000 firms in Beijing had revenues in excess of RMB 100 million in 2007. • top 20% of Beijing firms = 80% of the total revenue • the bottom third accounts for only 2% (ouch)

14. Let’s talk elite • Handful of top firms in first tier cities: Beijing, Shanghai, Shenzhen, Guangzhou • Trend toward big firms: M& A • Some firms over 600 lawyers • A few 300 hundred + • Exceptions: Haiwen model; guanxi firms • Expansion into 2nd and 3rd tier cities • Tianjian, Guangzhou, Chongqing, Chengdu, Hangzhou; Xian, Dalian, Haikou, Shenyang • Outposts in major foreign markets: NY, California (LA, Silicon), Tokyo, Paris

15. Practice at elite PRC firms • Higher entrance requirements • Top law school, foreign bar, LLM or JD, experience, foreign languages • Increasing specialization • Wider coverage: • corporate work, M & A, private equity, securities, banking and financing (compete with for. firms) • but also sports law, insurance, satellite, real estate, deng deng (etc.) • Litigation monopoly • Govt relations/lobbying

16. Foreign forms: background • 200 foreign firms (more than 50 HK) • Most one office, though some have up to three • Most small: less than 20 lawyers • Chief rep usually foreign national partner. Some will also have other foreign partners or associates. • However, over 80% of lawyers working are PRC nationals who have studied PRC law and have LLMs (master degrees) or other degrees from foreign universities • 70% of lawyers in foreign firms are women

17. Comparison: PRC and foreign • Domestic firm advantages: • wider range • cheaper • more experience at most levels • local knowledge: language, connections • Disadvantages • do not do cross-border • senior partners: good with bad • management (though changing, as foreign firms do less training because associates jump ship)

18. Where we headed? • Differentiation • Foreign firms for transnational • Niche markets: eg construction litigation and arbitration • Cooperation with competition • Compete for senior associates • PRC don’t pay enough • Increase pay, need to increase rates – question of trust • Tipping point: • Sophisticated players: already greater reliance on PRC firms (though don’t realize that previous advice that have to rely on particular partner is now out of date) • Battle for Hearts and Mind of foreign in-house counsel: when will “prevailing wisdom” (ie “CYA”) catch up to market?

19. Lessons: law and economics/development • Much of focus on role of legal profession and liberal democracy/political liberalism • Modernization thesis: • Growth and institutional development (legal profession/system): check • Liberal democracy: no • Peerenboom,“Searching for political liberalism in all the wrong places: the legal profession as the leading edge of political reform in China?,” in B. Garth and Y. Dezalay eds. Lawyers and the Construction of Rule of Law: National and Transnational Processes (forthcoming 2009) • EAM: 2- track; Not democracy, not liberal

20. Not convergence, then viva la difference! • Lawyers as self-interested actors/screen clients/obstacle to justice • Lawyers as guanxihu = no rol, rationalization • Lawyers as politically activists, repressed by nasty authoritarian state: Fu Hualing; Fu and Cullens • Lawyers as sympathetic poor

21. No surprises • Legal profession develop. tracks econ develop. • Legal profession on whole positive force for rol (not always) • Elite commercial lawyers not force for political change • Lawyers economic actors: go into law because make big RMB • Screen cases, go where money is • Very elitist, great stratification • Protectionist

22. La difference • Legal profession young • Partners less than 45 (I used to say under 40) • Management issues • Ethical issues • China poor – most people can’t/won’t pay for legal services > lawyers engage in “sharp” practices • Not liberal democracy, Asia • Future: more likely Singapore than Japan, SK, Taiwan, but definitely more likely Japan/Korea/Taiwan than Myanmar, North Korea (or India, Philippines, Nepal, Cambodia, Bangladesh)