Shandong 09: Land of opportunity

The country’s second-richest province, Shandong, continues to offer business opportunities for local, national and international firms – despite the GFC

A greater number of high-profile transactions involving companies based in Shandong may be a major factor driving leading national law firms to set up in China’s second richest province. The increasing number of cross-border M&A transactions, like Haier’s recent US$121m investment in white goods producer Fisher & Paykel, and sizable IPOs including Shandong Chenming Paper’s US$410m Hong Kong IPO, are good reasons to have not just one but two full-capacity offices on the ground.

King & Wood and Dacheng will soon become the first two Beijing firms to have an office in both Jinan and Qingdao – the two major commercial cities in the province. King & Wood first landed in Qingdao 12 months ago after acquiring a group of 25 lawyers and partners from local firm Mingfeng. It is set to launch its Jinan office in the next few months. Meanwhile, Dacheng, which opened its Jinan office in 2006, has just obtained approval to establish an office in Qingdao. The new office will focus on foreign investment, international trade and shipping practices.

"Companies in Shandong have plenty of demand for legal services, especially for high-end and sophisticated services,” says Huang Tao, a partner at King & Wood. “Having strong service capacities on the ground enables us to work more efficiently and helps save costs for our clients.”

Currently, Dacheng’s Jinan office handles mainly corporate, banking & finance, insurance and real estate work. As Shandong is a region with the highest density of large state-owned enterprises (SOEs), helping them with restructuring and transactions is also an increasingly important part of the office’s routine work.

It is rare for national firms to have two branch offices in the same province, so the expansion of King & Wood and Dacheng in Shandong clearly spells out the growing importance of this nascent market.

 Local firms on the up
Most local firms are not feeling the competition brought about by the influx of large Beijing, Shanghai and Guangzhou firms, but for those targeting high-end clients and legal work, the rivalry is well under way.

Kang Qiao, headquartered in Jinan, has enjoyed a growing reputation, establishing itself as a leading advisor to many of the province’s large SOEs, public and private companies. As a result, it has had to compete against leading Beijing firms on some large projects and cases in recent years.
“Local Shandong firms will face more competition from Beijing firms. That’s an inevitable trend,” says Cai Zhongjie, managing partner of Kang Qiao. However, Cai notes that the branch offices of Beijing in the city have not yet put any pressure on leading local firms. Most competition still comes directly from headquarters.

Deheng (Shandong) has its origins in Qingdao and has grown to become Shandong’s largest law firm by both size and annual revenues. It currently has 125 lawyers, including 33 partners, across offices in Qingdao, Jinan, Beijing and Shanghai. The firm also has operations in Hong Kong, Seoul and Chicago. Its strong performance has cemented its position as ALB’s Northeast China Firm of the Year for two consecutive years.

“As we have operations nationwide, we have to face competitors that are major firms from different cities and regions,” says Hu Ming, the executive partner of Deheng (Shandong). To gain a competitive edge, Deheng (Shandong) has developed a Beijing strategy, which will see it strengthen its Beijing office and increase its offering of high-end, international corporate legal services.

In recent months, the firm’s Beijing office has moved into its new premises, located in CBD International Mansion, and has recruited a number of partners and lawyers with international experience. Liu Jiqing is one of the most senior members, having joined the firm as head of the international business group. Liu, a US-qualified lawyer, was formerly the resident partner and chief representative of Baker & Daniels’ Beijing office.

But Shandong is not only becoming more attractive to national firms, international players are also looking with interest. Local firms have reported an increasing volume of communication and cooperation between them and their foreign counterparts.

In 2007, Deheng (Shandong) was a founding member of the Sino-Global Legal Alliance (SGLA) with eight other leading local firms and Lovells. In recent years, it has established business relationship with leading firms in Korea, Hong Kong, and other important markets.

“Since early last year, we’ve seen a clear increase in the number of foreign firms and other intermediates that are actively contacting us and trying to set up a referral relationship with us, mostly for Chinese companies’ outbound investments,” Hu says. “There is plenty of communication, but only a few deals have actually taken place. Our clients are still cautious about making outbound investment at the moment. But huge potential exists and will be brought into full play once the economy recovers.”

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