Transcript Economic Development and the Development of the Legal

Economic Development and the Development
of the Legal Profession in China
Randy Peerenboom
Associate Fellow Oxford University
Centre for Socio-Legal Studies
Director Oxford Foundation for Law,
Justice and Society China Rule of Law
Programme
Professor of Law, La Trobe University
Melbourne
Overview
• development of legal profession and legal
system have closely tracked economic
growth patterns in China – modernization
thesis without liberal democracy
• challenges confronting the legal profession,
and in particular the commercial bar
• comparison of elite foreign and domestic
firms
Development of the legal
profession and legal complex
• Law schools: 8 in 1976, 62 in 1989, 183 in
1999, 389 in 2003 and 559 in 2005
• Number of law students: 25,000 in 1991 to
450,000 in 2005
• Number of lawyers: 1980s, 3000; today,
130,000 to 150,000 (definition issues)
Quality and professionalism
• 1997: only 33% of lawyers had college or
graduate degrees
• 2004, two-thirds had such degrees, including
11% graduate degrees, 44% LLBs and 12%
undergraduate degrees in other subjects
• Trend: higher level of legal skills at all levels
(countryside, urban, elite, govt, in-house)
• More independence: most firms private
partnerships; state-owned firms now financially
independent
Two way street: economic growth and
development of legal system/profession
• rule of law and good governance highly correlated with
wealth;
• institutional development and growth mutually reinforcing
• correlation between GDP and the World Bank indicators
for rule of law r=.82; government effectiveness r=.77;
control of corruption r=.76; voice and accountability (i.e.
civil and political rights) r=.62
• China good test case; political, culture factors same:
Shanghai’s GDP per capita is RMB 55,000 (roughly
$8000), Beijing 37,058; Guangdong 19,70; Gansu
5,970l Guizhou 4,215
Provincial data
• strong correlation between provincial GDP
per capita and lawyers per capita (.98)
• legal education measured by the number
of law graduates per capita (.90)
• litigation (.92)
General litigation data
• The general trend: more litigation, less mediation,
arbitration stable but insignificant
• number of first-instance economic cases increased from
44,080 in 1983 to 1,519,793 in 1996
• number of first instance civil cases increased from
300,787 in 1978 to 3,519,244 in 1999.
• between 1983 and 2001, economic disputes increased
an average of 18.3% a year, an increase twice the rate
of civil disputes, and four times the rate of criminal cases
• since then litigation rates have been relatively stable
Types of commercial disputes
• First-instance purchase and sale contract
cases increased from 23,482 in 1983 to
422,655 in 1996.
• Contracting out of land in rural areas
increased from 21,459 in 1983 to 87,503
in 1995.
• Money-lending cases increased from
1,264 in 1983 to 558,499 in 1996
Litigation and lawyers
• developed countries non-litigation work = 80% of legal work: China
litigation work exceeds non-litigation work by 1.8 times
• strong correlation between litigation per capita and lawyers per
capita. Concentration of lawyers in few places
• The rate of litigation in
– Beijing, Shanghai and Tianjin per 100,000 people is 1,307, 994, 802
respectively,
– compared to between 177 and 230 in poorer provinces such as Hunan,
Jiangxi and Tibet.
• The number of lawyers per 100,000 people is
– 54.3 in Beijing, 32.3 in Shanghai, 17.1 in Tianjin, and 12.2 in
Guangzhou,
– 6.4 in Hunan, 4.4 in Jiangxi, and 1.3 in Tibet
Legal system and growth
• Education and professionalism of judges and
lawyers highly correlated with wealth
• Enforcement better in wealthy urban areas
– Local protectionism
• Corruption: better in some areas, some courts
– Problems of presidents of courts: political figures;
rational to bribe them; responsible for other judges
• General satisfaction:
– Number of disputes, nature of disputes, willingness to
go to court, satisfaction with courts > all better on
whole in urban developed areas
Oversupply of lawyers?
• 200 - 260,000 people take the national judicial exam
• 190,000 pass 2002
• Total number of “lawyers”: 150,000
– 26% of law graduates go to firms or in-house counsel in
companies,
– 23% took jobs in government agencies
– 7% in other non-private agencies
– 21% went to graduate school, took jobs in academia, left the
country or joined the military.
• That still leaves another 23% unable to find work.
• Of 214 majors, law ranks 187th in terms of students
ability to get jobs
Not oversupply, but low quality (READ CHEAP)
demand
• China is a lower-middle income country; huge
regional differences; many disputes small
change
• Lawyers don’t want to live in rural areas, and
don’t want to work for low fees charged by legal
workers (statutory and market requirement)
• Actually, legal workers provide more advice than
lawyers, handle more cases in many places
• Barefoot lawyers: two roles – compete with legal
workers; sensitive cases
• Criminal law – another story
Show me the money
• medium income: RMB 100,000; average 80,000 in 2005
• multiply median income in China by 20 (GDP per capita
difference with US), adjusted median income $260,000
• Cf. information technology RMB 35,000, finance 27,000;
real estate 19,000 education 16,000, govt 18,000
• BUT, huge gap between elite and non
– 22% of lawyers make less than RMB 50,000
– Beijing: 60% of all legal service revenues and 30% of income
– Within firms in the same city, also increasing differentiation in
salaries. 12 out of over 1,000 firms in Beijing had revenues in
excess of RMB 100 million in 2007.
– top 20% of Beijing firms = 80% of the total revenue
– the bottom third accounts for only 2% (ouch)
Let’s talk elite
• Handful of top firms in first tier cities: Beijing,
Shanghai, Shenzhen, Guangzhou
• Trend toward big firms: M& A
– Some firms over 600 lawyers
– A few 300 hundred +
– Exceptions: Haiwen model; guanxi firms
• Expansion into 2nd and 3rd tier cities
– Tianjian, Guangzhou, Chongqing, Chengdu,
Hangzhou; Xian, Dalian, Haikou, Shenyang
• Outposts in major foreign markets: NY, California
(LA, Silicon), Tokyo, Paris
Practice at elite PRC firms
• Higher entrance requirements
– Top law school, foreign bar, LLM or JD, experience,
foreign languages
• Increasing specialization
• Wider coverage:
– corporate work, M & A, private equity, securities,
banking and financing (compete with for. firms)
– but also sports law, insurance, satellite, real estate,
deng deng (etc.)
– Litigation monopoly
– Govt relations/lobbying
Foreign forms: background
• 200 foreign firms (more than 50 HK)
• Most one office, though some have up to three
• Most small: less than 20 lawyers
– Chief rep usually foreign national partner. Some will
also have other foreign partners or associates.
– However, over 80% of lawyers working are PRC
nationals who have studied PRC law and have LLMs
(master degrees) or other degrees from foreign
universities
– 70% of lawyers in foreign firms are women
Comparison: PRC and foreign
• Domestic firm advantages:
–
–
–
–
wider range
cheaper
more experience at most levels
local knowledge: language, connections
• Disadvantages
– do not do cross-border
– senior partners: good with bad
– management (though changing, as foreign firms do
less training because associates jump ship)
Where we headed?
• Differentiation
– Foreign firms for transnational
– Niche markets: eg construction litigation and arbitration
• Cooperation with competition
• Compete for senior associates
– PRC don’t pay enough
• Increase pay, need to increase rates – question of trust
• Tipping point:
– Sophisticated players: already greater reliance on PRC firms
(though don’t realize that previous advice that have to rely on
particular partner is now out of date)
– Battle for Hearts and Mind of foreign in-house counsel: when
will “prevailing wisdom” (ie “CYA”) catch up to market?
Lessons: law and economics/development
• Much of focus on role of legal profession and
liberal democracy/political liberalism
• Modernization thesis:
– Growth and institutional development (legal
profession/system): check
– Liberal democracy: no
• Peerenboom,“Searching for political liberalism in all the
wrong places: the legal profession as the leading edge of
political reform in China?,” in B. Garth and Y. Dezalay eds.
Lawyers and the Construction of Rule of Law: National and
Transnational Processes (forthcoming 2009)
• EAM: 2- track; Not democracy, not liberal
Not convergence, then viva la difference!
• Lawyers as self-interested actors/screen
clients/obstacle to justice
• Lawyers as guanxihu = no rol,
rationalization
• Lawyers as politically activists, repressed
by nasty authoritarian state: Fu Hualing;
Fu and Cullens
• Lawyers as sympathetic poor
No surprises
• Legal profession develop. tracks econ develop.
• Legal profession on whole positive force for rol
(not always)
• Elite commercial lawyers not force for political
change
• Lawyers economic actors: go into law because
make big RMB
– Screen cases, go where money is
– Very elitist, great stratification
– Protectionist
La difference
• Legal profession young
– Partners less than 45 (I used to say under 40)
– Management issues
– Ethical issues
• China poor – most people can’t/won’t pay for legal
services > lawyers engage in “sharp” practices
• Not liberal democracy, Asia
• Future: more likely Singapore than Japan, SK, Taiwan,
but definitely more likely Japan/Korea/Taiwan than
Myanmar, North Korea (or India, Philippines, Nepal,
Cambodia, Bangladesh)