The Guangdong Free Trade Zone

The development of free trade zones (“FTZ”) in recent years has brought China to a new stage of economic reforms. As far as the degree of openness is concerned, it goes beyond the mere notion of “free trade”, and covers various aspects relating to governmental functions, legal system, investment and finance.

The Shanghai FTZ was launched in September 2013, followed by the announcement of three more in Guangdong, Tianjin and Fujian in April 2015. The Qianhai Shenzhen/Hong Kong Modern Service Industries Co-operation Zone (“Qianhai”) and the four FTZs in Shanghai, Guangdong, Tianjin and Fujian serve different purposes individually, but they all provide an environment for experimenting the liberalisation measures. If they prove to be successful, more FTZs in the rest of the country will follow.

Each of the four FTZs are similar in area, occupying around 120 square kilometres. The Shanghai FTZ explores the transformation of governmental functions, introduces innovations in management models and promotes Shanghai as an international economic centre focusing on the development of finance and shipping businesses. The Guangdong FTZ promotes integrated economic and trade relationships between Guangdong, Hong Kong and Macao. The Tianjin FTZ co-ordinates the development of the Beijing-Tianjin-Hebei region and upgrades the regional manufacturing and service industries. The Fujian FTZ seeks to strengthen its economic partnership with Taiwan.

The Hong Kong Economic and Trade Office in Guangdong has commissioned the preparation of a comparison paper on the three new FTZs of Guangdong, Tianjin and Fujian. The detailed differences among the FTZs can be found in a report issued by an external consultant on 31 March 2016.

Among the FTZs, the Guangdong FTZ is closest to Hong Kong both in terms of geographic location and its liberalisation policy. The Guangdong FTZ has always been the pioneer in the implementation of pilot liberalisation measures in the legal service sector.

It has been 12 years since the concept of a structured association between Hong Kong law firms and Mainland law firms was introduced under the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) in 2003. In Annex4 of the Main Text of CEPA, Hong Kong law firms that have set up representative offices in the Mainland are allowed, with effect from 1January 2004, to operate in association with Mainland law firms, except in the form of partnership. This association model has been further developed and liberalised with respect to the eligibility requirements on the size, standing and geographical location of the associated firms as well as on the number of firms in the association.

After over a decade, the association model has finally evolved to a partnership model, which was expressly prohibited back in 2003. Pursuant to the commitment in Supplement VIII to CEPA, the Pilot Implementation Measures for Partnership Associations between Hong Kong Law Firms and Mainland Law Firms in Guangdong Province (“Pilot Measures”), which came into effect on 1 September 2014, introduce on a trial basis a partnership model in three locations in the Guangdong Province, namely, Qianhai in Shenzhen, Nansha in Guangzhou and Hengqin in Zhuhai. In this model, one or more Hong Kong firms can form a partnership with one Mainland firm in accordance with the Pilot Measures.

As of January 2016, among the nine law firms operating in the form of partnership association approved in the three pilot areas, six were in Qianhai. The Agreement on Trade in Services signed in November 2015 further extends the pilot areas of this policy to cover the whole Shenzhen area with effect from 1 June 2016. Hong Kong and Mainland firms in Shenzhen will be able to provide one-stop, cross-boundary legal services through the form of partnership association.

Hong Kong corporations are also setting their foothold in Qianhai. Over 2,400 Hong Kong companies have registered in Qianhai Shenzhen-Hong Kong Modern Cooperation Zone by the end of January. The number accounts for less than 4percent of the total registered companies in the special zone, but their contribution is significant, taking up more than 20 percent of its economy.

With the increasing presence of Hong Kong companies in Qianhai, legal services, including dispute resolution services, will be in demand. The Law Society has been promoting mediation services to Hong Kong companies doing business in the Mainland. We are working jointly with the Hong Kong Bar Association on the establishment of a panel of Hong Kong lawyer-mediators to handle mediation cases in Qianhai. The mediators on the panel will be nominated to help resolve the commercial and trade disputes involving member companies of the Shenzhen Qianhai Hong Kong Chamber of Commerce in Qianhai.

In the Guangdong-Hong Kong Cooperation “2016 Work Plan”, both Administrations are keen to jointly promote the development of the Belt and Road Initiative, complementing each other with its own areas of strengths. Legal services are certainly an area of strength for Hong Kong and we are well equipped to provide a platform to help businesses in Qianhai and the Guangdong FTZ to “go out” for investments as well as “bring in” business partners. With only nine law firms taking advantage of the partnership association relaxation, there is much room for those who are interested in expanding beyond the boundary.

Jurisdictions: 

President, The Coucil of The Law Society of Hong Kong