National and even international firms are hurrying into China's second richest province - Shandong. Meanwhile the leading local firms are looking to expand outwards. ALB looks into the wealth being created by legal practice in Shandong

There are many things that people in Shandong are proud of: Shandong Luneng (the Super League champion football team), Tsingtao beer and Haier are just some of the famous brand names that call Shandong home, as well as a significant number of large state-owned enterprises, fascinating tourist destinations, and a substantial chunk of Korean and Japanese investment from just across the Yellow Sea.

Shandong is attracting an increasing number of outside firms to set up shop there. Beijing De Heng is the most recent arrival in Jinan, the capital city of the rich land, and pushes the total number of Beijing firms in the province to eight. The new office of Beijing De Heng, meanwhile, is headed by senior partner Dai Qingong and is currently staffed with five registered lawyers.

Lure for outsiders
"The economy in Shandong is very dynamic, and there is plenty of demand for legal services, especially for high-end and sophisticated services," says Liu Xinde, the directing partner of the Da Cheng office that was established in Jinan at the beginning of 2006. "Very few local firms are competent and experienced enough to provide this type of legal advice, and that's why Da Cheng decided to devote itself to the market."

There are 16 lawyers and six partners residing full time in the Jinan office, while Liu Xinde and another senior partner split their time between Beijing headquarters and the Jinan office to lend consistency across the two operations.

"Although the Jinan office is little more than a year old, its revenue is the highest out of Da Cheng's six branch offices nationwide," Liu points out.

Da Cheng has sensed opportunity in other parts of Shandong, too. Liu points out that the firm plans to open an office in Qingdao, a dynamic coastal city on the Shandong peninsular and a busy trading port that is flourishing with foreign investment and international trade. "We are expecting to have the Qingdao office set up by this May. When it is on its feet, it will provide a boost to our foreign investment and shipping practices," says Liu.

Banking and finance, insurance, and real estate are the current revenue drivers for Da Cheng's Jinan office. However, Liu notes, as Shandong is a region with a high density of large SOEs, restructuring them and helping them attract foreign investors has become an increasingly important profit centre.

It is not only Beijing firms that have been lured to Shandong. Back in 2005 Guangdong-based national firm Wang Jing & Co established a presence in Qingdao. Later that year, Korea Good Morning law firm also chose to set up in Qingdao and became the second international firm in the province. It is estimated that over 30,000 Koreans now reside in the city.

Qingdao also plays host to the first international firm in Shandong - the US firm Baker & Daniels, which was established in 1998. If evidence of the province's prosperity were needed beyond the soaring skylines of its big cities, during 2006 US$10bn in FDI was channelled to Shandong, up 11.5% from the previous year.

Last November, after having seen huge demand for raising capital from Shandong enterprises, several international professional services firms, including Mallesons, KPMG and JPMorgan Securities (Asia Pacific), together hosted the "Global capital for Shandong enterprises" conference in Jinan.

"It's no longer just about inbound investment - companies in Shandong have more interest in going global," says John Shi, the chief representative of Mallesons' Beijing office. "It's not just in the big cities where large investment banks and Chinese corporations are located that international legal services are much needed now... Often the second-tier cities are also needing the services of international firms."

Before the conference, partners of Mallesons had already been frequent flyers to Shandong. The firm has helped a number of Shandong companies, including Haier, list in Hong Kong and has represented foreign investors in various projects in Shandong.

Shandong paradox
Nevertheless, here is the paradox: Despite Shandong's thrusting economy, its legal profession is in general still well behind that of Beijing and Shanghai. Shandong is the second richest province, but its lawyers are yet to get on the rich list. Although by firm and lawyer numbers the province ranks third just after Beijing and Guangdong, the total revenue of Shandong firms in 2006 was US$98.2m, meaning it ranks only sixth and accounted for only a seventh of the total revenue Beijing firms made in the same year.

Interestingly, the lack of financial success is due not to a scarcity of work but to the small number of firms in Shandong keeping pace with economic development. "Most firms in Shandong are still focusing on traditional litigation practice. They have failed to become sufficiently innovative to meet clients' needs for more complex commercial transactions. In this sense, they have lagged behind," says Luan Shaohu, the founding and managing partner of Shandong De Heng.

According to the latest statistics from the Shandong Bar, only 6.3% of legal work is non-contentious. So even though there are large M&A transactions, big-ticket anti-dumping cases, and overseas listing happening, most of them are pocketed by firsttier Beijing and Shanghai firms. The cake is large, but lawyers in Shandong have yet to take a big slice of it.

The way out
There are of course exceptions to the rule. A large proportion of Shandong De Heng's total revenue comes from non-contentious corporate legal work, which has made it the top firm in Shandong by revenue for years. Over a quarter of the firm's practice is overseas-related.

Shandong De Heng's outstanding performance has been appreciated by the Shandong Bar and the provincial Bureau of Justice. The Bureau of Justice has designated Shandong De Heng as one of the two pilot legal groups in search of a modern and sensible development model to lead the rest of the profession.

Founded in 1993 and headquartered in Qingdao, Shandong De Heng has developed to become one of the country's largest law firms, with 118 fee earners including 34 partners in five national offices and two overseas offices. Already the powerhouse in Shandong, the firm's ambitions are now bigger than ever before.

Luan calls it his 'Beijing strategy'. "We will gradually develop our Beijing office to become the head office, strengthening our expertise and platform. But our main focus will remain Shandong. Ultimately we are aiming to distribute better resources and provider better services to our clients in Shandong," says Luan. This decision has been supported by the local Bar and government.

Luan continues to explain that his plan makes some good points. "Beijing is a better place to acquire talent and specialised expertise, which is a naturally occuring shortage faced by firms in other cities," says Luan. "Beijing has the highest level of regulators and final decision makers when it comes to large and important transactions. To build up our practice platform and clients resources in Beijing is a rational choice."

By 2008, expect to see Shandong De Heng's Beijing office taking off, its office in Shenzhen up and running, and the current liaison office in Seoul converted into a formal representative office.