SHANGHAI LEGAL EMPLOYMENT MARKET HIT BY ECONOMIC DOWNTURN

UNCLAS SECTION 01 OF 03 SHANGHAI 000552 SENSITIVE SIPDIS STATE FOR EAP/CM AND DRL NSC FOR LOI, KUCHTA-HELBLING E.O. 12958: N/A TAGS: PGOV PHUM SOCI ECON CH SUBJECT: SHANGHAI LEGAL EMPLOYMENT MARKET HIT BY ECONOMIC DOWNTURN The following is Sensitive But Unclassified (SBU). Please protect accordingly. Summary -------------- ¶1. (SBU) Expansion of Shanghai's legal employment market appears to have come to a sudden halt. Partners at Chinese and international law firms report a hiring freeze, but they said their firms have not yet begun layoffs. Law students express frustration trying to find legal employment. Professors report increased numbers of students seeking post graduate study and government employment as alternatives. Legal consultants complain of a "glass ceiling" imposed on their careers by China's restriction that prohibit lawyers at international firms from practicing Chinese law, while Chinese lawyers complain of losing clients to international firms that are "illegally" interpreting Chinese law. End Summary. ¶2. (SBU) Congenoff met with lawyers in Shanghai during November and December 2008 to ascertain their views on a variety of challenges facing the legal profession. This report is the first of two readouts from those meetings. Downturn Halts Law Firms' Expansion -------------- ¶3. (SBU) The economic downturn has brought an end to the expansion of the legal labor market in Shanghai according to partners at Shanghai-based law firms. Anthony Wang, a partner in the Shanghai office of Weil Gotschal, a major international law firm, told Congenoff that associates would not meet their billable hours requirement this year or likely next year as a result of the firm's transactional law business decreasing. Without additional work, Weil Gotschal does not plan to hire beyond replacement levels, he said. Wang added that his firm still views China as a growth market in the long term, however, and is not considering layoffs. Instead they are using the downturn to invest in training opportunities for their associates and staff. ¶4. (SBU) Luo Jie owns her own Chinese law firm with seven associates working for her. She has also put a freeze on creating new positions, but is planning to replace two associates who recently took jobs as legal consultants at an international law firm. She expressed frustration at losing the two attorneys, saying that Chinese law schools do not adequately prepare graduates to practice law and she is not looking forward to training new employees. ¶5. (SBU) Li Yunlong and Liu Xinyu, associates at large Chinese law firms, both said their firms -- AllBright Law and DaCheng Law respectively -- will not meet their billable hours targets this year. Li said that as a result, AllBright is holding off on further expansion. Students Turning to Graduate School and Civil Service -------------- -------------- SHANGHAI 00000552 002 OF 003 ¶6. (SBU) Recent law graduates told Congenoff that they are having a difficult time finding legal related employment. At a meeting with students and recent graduates at Fudan Law School on November 26, they said they all want to practice law, but only one had a job offer. The students were applying for graduate study and signing up for civil service exams as backup plans. The students were pessimistic about their employment prospects and the ability of the private sector to absorb new graduates. ¶7. (SBU) Liu Xinyu said that only one out of a hundred law graduates can expect to find a job at a large firm like DaCheng Law. Having to choose your major during the application process to undergraduate study means that many students do not understand what a legal career is when they make the decision to pursue one, according to Liu, thereby limiting the talent pool for law schools. Ruan Chao, a 2007 law school graduate and paralegal at Ryser and Associates, estimated that less than thirty percent of his classmates have found jobs since finishing school and only five percent are lawyers eighteen months after graduation. ¶8. (SBU) Charles McElwee, a professor at Shanghai Jiaotong University, also has noticed an increase in the number of students who, citing difficulties in the job market, have said they intend to apply for post graduate studies this year. In addition to the economic downturn, one cause of the employment difficulties faced by recent graduates is that the vast majority of them are not prepared to practice law after graduating. McElwee echoed the sentiments of Liu and Luo, saying that his students approach law like a science. They assume that if you insert variables into the equation, that is the law, and then you can quickly determine the correct result. He said this approach leads law students and young lawyers to quickly reach conclusions that may not be supported upon further analysis, often to the detriment to their client. Being a "Chinese" Lawyer Depends On Who You Work For -------------- -------------- ¶9. (SBU) Career advancement for Chinese lawyers who choose to join international law firms is inhibited by a restriction that prohibits lawyers at international law firms from practicing Chinese law. Chinese lawyers who work for international firms therefore are referred to as "legal consultants," and many of them complained to Congenoff of a "glass ceiling" imposed on their careers by this restriction. They said they joined international firms to expose themselves to a broader range of issues and for better pay but were required to give up their Chinese law licenses as a condition of working at an international firm. If lawyers at international firms are later hired by a Chinese firm, then their Chinese law license is restored, the lawyers said. ¶10. (SBU) Lawyers at Chinese firms consider legal consultants at international firms to be illegal competition. Luo Jie said international firms' "illegal" practice costs her both clients and her top associates. She and several other Chinese lawyers said it is unfair for the government to turn a blind eye to legal consultants practicing Chinese law when it is prohibited under current law. Is the Policy Fair? -------------- SHANGHAI 00000552 003 OF 003 ¶9. (SBU) Several lawyers commented on whether or not the restriction prohibiting lawyers at international firms from practicing Chinese law is fair. Li Yunlong would not say if the policy is "fair," but he said that from a Chinese firm's perspective, a lack of enforcement against "legal consultants" at international firms who are practicing Chinese law is hurting his firm. Several Chinese lawyers told Congenoff that the goal of the policy is to help domestic firms retain top legal talent, and when pressed, said that the restriction on lawyers at international firms from practicing Chinese law probably is a barrier against trade in services. Regardless, however, the policy is not achieving its objective, our contacts said, because the large salary disparity between domestic and international firms still manages to draw many more top legal professionals to international firms. ¶10. (SBU) Chinese lawyers who work at international firms as legal consultants find it difficult to advance to associate or partner in their company unless they obtain a law license in another country. In practice, therefore, many of the Shanghai lawyers at international firms have law licenses in the United States or United Kingdom. Liu Xinyu, who is at a Chinese law firm, said he supports the policy preventing lawyers at international firms from practicing Chinese law, primarily because his Chinese law firm is retained by many foreign companies to provide legal advice on the Chinese law aspects of business transactions. Because his law firm handles has domestic and foreign clients, Liu said, it has developed a strong client base and a good reputation. Comment -------------- ¶11. (SBU) While partners at law firms report that layoffs have not started in Shanghai, employment prospects for new graduates appear limited. According to our contacts in Shanghai, China's prohibition on international law firms practicing Chinese law, even when their employees have passed the Chinese bar exam, creates an extra barrier for Chinese working in international firms to rise above the level of legal consultant. With Chinese lawyers needing to secure a foreign law license to become associates in international firms, and new graduates having difficulty finding jobs, there is evidence that more lawyers in Shanghai are opting for graduate studies. The Shanghai Consular Section has seen a nearly fifty percent increase in the number of student visa applications -- undoubtedly including law students -- in December 2008 over a year ago. End Comment. CAMP