Business Investment in China: A Challenging Opportunity
A Q&A with White & Case’s Li Xiaoming
July 8, 2005
White & Case partner Li Xiaoming was among the first generation of Chinese lawyers to return home with top-tier US experience. Today, after five years at a leading Chinese firm, he is the consummate China specialist. A combination of international pedigree and unparalleled Chinese experience has helped Li Xiaoming rise to the top of China’s young legal profession. Now a partner at White & Case in Beijing, Li boasts unique experience: he started his career as a government official at the China International Economic and Trade Arbitration Commission before leaving for law school at Duke University in the US, where he received his J.D. in 1990. He then spent almost a decade in private practice in New York and Hong Kong, and five years in Beijing.
This track record has helped Li attract an enviable client base. He has helped some of China’s biggest corporate names to list in New York – including China Life, PetroChina and Sina.com - and has advised Fortune 500 companies, such as DaimlerChrysler, on their operations in China. He has also represented Guangdong Nuclear Power Group, Huangshi Power Development Company and SECCO, among others, in the financing of their large projects. This interview appeared in a recent edition of the publication, Corporate Counsel.
Q: What are the biggest challenges for businesses investing in China for the first time?
Li Xiaoming: The learning curve is still relatively steep for foreign investors in China. Of course, no business expects to waltz into a new market with perfect knowledge, but investors in China can easily be daunted and because of that there is a tendency for them to huddle into a war-room with their advisors and prepare strategies. This may work for companies entering developed markets but it is not transferable to China – a ream of paper produced in New York cannot begin to anticipate the reality on the ground.
Q: But there are regulations and procedures for foreign investment; don’t they count for something?
Li: Regulations are constantly undergoing tremendous and rapid transformation. You cannot just look at the letter of the law and analyze your options based on that. You need constant interaction with the authorities and with Chinese legal practitioners, you need to communicate with them – you just can’t do that from outside China. You can’t remote-control a China practice.
Q: It sounds like the law of the jungle...
Li: Not at all. But you have to realize that the legal system here is still very young and there is very little case law, so inevitably any new law will have lots of holes – and there are lots of new laws, so uncertainty is something that just comes with the territory.
Q: How can investors cope with that?
Li: To be an effective advisor to your clients you have to understand the background of the laws: what the authorities are trying to achieve and why they have framed things the way they have. That’s why you need to be here, on the ground. Everything changes so fast and the longer you’re away from the center the more detached you become. Even when I was in Hong Kong I felt too removed.
Professionals started relocating to China in the footsteps of their clients; the center of gravity shifted northwards. We wouldn’t be doing an effective job to our clients if we weren’t here.
When a client falls into one of those holes in the law they need advisors who can go to the authorities and talk to them about how the law ought to apply in that particular situation. There is a good chance that the regulators will not have envisaged the issue – hence the hole in the law – so there may be room to work towards a solution. This is when it pays to have advisors who are tuned into the system.
Q: The only problem is finding good advisors...
Li: There are more and more world-class lawyers in China, but the number still cannot keep up with the demand for them. Remember, during the Cultural Revolution China was basically a lawless state. It wasn’t until 1982 that legal exams were re-instated at all and even after the Cultural Revolution it took a long time for the profession to attract bright students. At the time everyone was studying the natural sciences and the law was not a popular discipline at all. At Duke my Chinese friends would say: "Xiaoming, why are you studying the law?" They just assumed it was because I was a very bad student.
Q: White & Case has offices in Beijing and Shanghai. How do the two cities differ?
Li: There is no significant difference in the work being done in the offices. Shanghai is a center of innovation and commerce – there are 72 multinational corporations with their Asian headquarters in Shanghai, compared to six in Beijing – while Beijing is the capital, the seat of government and is home to most of the main regulatory bodies and Chinese companies. That difference is mirrored in the character of work carried out in our two mainland China offices, but, together with Hong Kong, all the offices really operate as a single unit – the stool with three legs.
Q: You spent five years at a mainland Chinese firm. What prompted you to make that move?
Li: I came to Hong Kong in the mid-1990s, just as things were starting to happen in China. The backdoor listing of Brilliance China Auto on the New York Stock Exchange in 1992 had opened everyone’s eyes and all of a sudden you had Wall Street lawyers turning up in Hong Kong. They desperately wanted New York lawyers who could speak Chinese so I was an obvious choice.
However, in Hong Kong I soon got the impression that I was on the outside looking in – that was one of the key reasons for returning to Beijing. I was like a medical student who couldn’t wait to work on real patients, and in China I found a surplus of them. Almost too many. The experience was incredible; to witness the development of China’s legal services industry at first-hand, to play a role in it. You can’t put a price on something like that.
Q: What new opportunities did you see at White & Case?
Li: China’s economy is becoming increasingly global and, as a result of that, the legal services they require also have to be global. We are now competing at the Olympic level and we have to provide services that are commensurate with that.
So today, to be a true China practice you need to have the support of an extensive international network and that was what drew me to White & Case: the opportunity to work in China as part of a global law firm. In fact, I’ve been surprised at how quickly White & Case’s international network has paid dividends. I’m already working with lawyers from offices all around the world and that support has totally changed the way I’m able to service clients.
Q: What are the biggest misconceptions about China?
Li: There is a contradiction between what people hear about China and what is really happening. China is not what they think it is.
The transition from a command economy to a market-based one has created a terrific sense of urgency; people are entrepreneurial, they’re willing to try to get things done because for the first time in their lives there is the possibility that through their own hard work they can live comfortably, provide for their families, educate their children and escape generations of hunger and poverty. This is the real engine of China’s growth.
At the same time, China is becoming a part of the international community. Though there may be disagreements about the pace of its emergence, the fact is that it’s happening. There are a lot of areas where it is still Old World, but overall China is moving in the right direction. That should be encouraged.
Li Xiaoming is a partner in White & Case’s China practice group and is responsible for the operations of the firm’s Beijing office. He has over 13 years’ experience working on China-related projects. Li’s practise focuses on advising multinational as well as Chinese clients on complex M&A and financial transactions in China. He also has extensive capital markets, project finance and structured finance experience in China. He can be reached at xli@whitecase.com.
"Talking" features White & Case lawyers answering questions about emerging legal and business issues. For more information about issues affecting business and investment in China, or to arrange an interview with Li Xiaoming, contact Patrick Dransfield at 852 2822 0406, or via email: .
Any information contained in this interview is for educational purposes only. It should not be construed as legal advice.