UNCLAS SECTION 01 OF 02 GUANGZHOU 000060

SIPDIS

SIPDIS
SENSITIVE
PACOM FOR FPA

E.O. 12958: N/A
TAGS: PGOV SOCI ECON EINV CM
SUBJECT: South China's Foreign Lawyers - Strangers in a Strange
Land



1. (SBU) Foreign attorneys in south China are subject to tight
restrictions, including prohibitions on advising on Chinese law,
with regard to the nature and scope of their professional
activities. Traditional Western legal touchstones such as
confidentiality, conflict of interest, and legal precedent are not

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consistently respected within the Chinese system. A
poorly-developed, corruption-ridden court system and the uneven
quality of regional local talent adds to frustration felt by
attorneys, as well as their clients. End Summary

Tight Restrictions
--------------


2. (SBU) Foreign law firms (FLFs) in Guangzhou and elsewhere in
China are subject to strict limitations on the kind of legal
services they can offer. They are permitted to provide counsel to
clients on international law, as well as their own national law, but
are expressly prohibited from advising on Chinese law. A French
attorney who practices in a firm with offices in several Chinese
cities, including Guangzhou, commented that they operate within the
regulations by routinely advising foreign clients "on the impact of
foreign law on Chinese law." One attorney stated that the
activities of FLFs have come under increasing scrutiny, but there
have been no reported instances in Guangzhou of the government
taking steps to close a FLF for illegal practice of law.


3. (SBU) In addition, FLFs cannot appear in Chinese courts, and are
obliged to work with a Chinese law firm which appears in court in an
official capacity for their clients. FLFs do employ local Chinese
attorneys, but these professionals are required to resign from the
Chinese bar once they start working for the FLF. Foreign attorneys
in Guangzhou have commented that some local Chinese law firms are
becoming more sophisticated and are beginning to compete directly
with FLFs. However, they believe that this is less true in
Guangzhou and Shenzhen than in other "first-tier" Chinese cities
such as Beijing and Shanghai. In general, finding high quality

local law firms to act as partners for FLFs is difficult.


4. (U) The good news: the current situation actually has represents
a relaxation of previous restrictions. Until the mid-1990s, FLFs
existed only as consultants; at that time, the State Council and the
Ministry of Justice provided a legal basis for foreign law firms to
formally practice in China. Prior to China's accession to the World
Trade Organization, though, foreign firms were limited to one
"unique" office. The government committed to removing this
restriction post-WTO, but timing requirements remain in place: upon
receiving a new license, a firm must still wait three years before
applying for an additional office or branch location.

Lack of a Western Legal Tradition
--------------


5. (SBU) Prohibited from forming joint ventures with local firms,
FLFs must establish commercial or "privileged" partnerships. A
senior lawyer from a European firm lamented the challenges of
working with local law firms: apart from not being able to share
common letterheads, he indicated, most Guangzhou law firms do not
abide by Western-style rules regarding ethics, professionalism, and
confidentiality. FLFs must advise their clients that, among other

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concerns, Chinese law firms are not bound by conflict of interest
rules, resulting in the potential of the local partner firm
representing other parties with adverse interests to the FLF's
client. Fred Hong, an American attorney with fourteen years
experience practicing in Guangdong province (following a sixteen
year legal career in southern California), expressed fewer concerns
regarding his work with Chinese counterparts, but stressed that his
partnerships with local firms are "long-standing relationships" in
which trust and reputations for reliability have been earned over
many years.


6. (SBU) The uneven quality of Chinese attorneys can lead to
frustrations both in and out of the courtroom. Chinese courts
permit a citizen or corporation to engage any person to appear as a
legal representative through the filing of a power of attorney (Dai
li ren, or "authorized representative"). American lawyer David
Buxbaum, who has advised clients in Guangzhou since the early 1980s
and was one of the pioneers in explaining trade law to U.S. and
Chinese parties, uses the POA to appear regularly in Chinese courts
as a legal representative, not as a licensed attorney. Although the
pass rate for the Chinese bar exam is low - between 5 and 9 percent
- foreign attorneys here argue that this has not yet created a class
of sophisticated legal professionals. Local attorneys are often not
aware of basic principles of Chinese law and procedure. One foreign
attorney stated that "you need to lead a lot" when working with
Guangdong province lawyers; a French attorney maintained that local
attorneys will often stick to positions having no legal basis,

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obstructing efforts to resolve cases appropriately.

Frustrating Appellate Practice
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7. (SBU) Foreign attorneys who practice in Guangzhou confirm reports
of poor judicial quality and outright corruption. Limited discovery
rights make the obtaining of necessary records and documentation
extremely problematic. Chinese courts do not abide by the
centuries-old Western concept of precedent, making prior caselaw -
such as it exists - effectively irrelevant. The appeals process
also does not follow the standard Western model: cases are typically
reviewed de novo, with appellate courts routinely re-examining the
circumstances of a cases and ruling on questions of fact, in
addition to those of law. As a result, there is a low incentive for
parties to make much effort or create any type of record at the
trial court level, as most cases are appealed as a matter of course.
One attorney said he is often quite frank with his foreign clients
who wish to pursue money judgments against parties in the local
courts: "I almost always tell them that they should kiss it
goodbye".

Slow development
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8. (SBU) However, foreign attorneys here also report signs of
progress. Although improvement in overall attorney quality remains
slow, transparency within the legal system is gradually improving.
"E-government" initiatives have made access to documents somewhat
easier and the practice of law more straightforward. One attorney
also commented favorably on the accessibility of some local
officials, as compared to Western counterparts, to directly discuss
administrative and property law issues. An American attorney
observed that the Chinese legal system has only had a few decades to
mature - it takes a long time for individuals, as well as the
system, to develop a "pure legal sense, but it's being picked up
gradually."

Goldberg