China's stimulus package is expected to increase legal work as the government injects investment in the country's infrastructure, according to local lawyers.
In a bid to offset adverse effects from the global financial crisis, the Chinese government last week pledged US$570bn towards the country's housing, infrastructure, water, electricity, and transportation sectors. Although it is unclear how the package will be implemented, it is designed to boost the domestic economy and expected to encourage trade relations between its Asian neighbours.
"It is good news," said Tom Chau, partner in global firm Herbert Smith's Beijing office. "We expect to see an increase in deals as the government begins investing in the infrastructure sector. One would also expect that such investment will generate new opportunities in other related sectors such as logistics, construction and consulting. With these new opportunities, we expect that there will be an increase in the need for legal work."
Following the announcement of the package, stock markets in Asia soared on expectation that Chinese demand for commodities will boost trade relations in the region. Chau said that more cross-border transactions are likely to occur, as large-scale investments often require international experts and service providers.
"[For example], legal documentation is needed to regulate the relationship of participants. It is expected that the need for legal advice will not be confined to only one or two jurisdictions, but will spread across different jurisdictions, including those in Asia."
The global financial crisis is also boosting outbound M&A deals, as Chinese companies take advantage of market volatility and buy up distressed foreign companies. The growth opportunities have most recently driven insurance and telco giants China Life and China Mobile in their aggressive hunt for global acquisitions. China Life's chief investment officer has said that M&A "opportunities are becoming more and more obvious", undoubtedly due to the plummeting market values of overseas insurance companies.
Chau advises investors to be cautious, and adopt more stringent and detailed legal documentation to minimise legal risks. But he also agrees that we're likely to see an end to China's export-driven economic dependence.
"The Chinese economy has been changing from an export-driven economy to a more diverse economy, and we expect such a trend to continue in the foreseeable future," said Chau. "The global financial crisis may accelerate such changes."