The Dentons-Dacheng Merger, and its Connection to Growth in Africa

On January 2015, the multi-national firm, Dentons merged with Dacheng Law Offices, China’s largest firm, to create the world’s largest law firm. This new firm, Dacheng Dentons, with 6,500 lawyers in fifty different countries will overtake Baker & McKenzie as the world’s largest firm. This merger should come as no surprise because since 2001, after China joined the World Trade Organization (WTO), China has been globally expanding its legal services.[1] Also, over the years, Chinese corporate firms have established themselves as important players in foreign investments and other cross-border transactions.[2]  For example, before this merger, Dacheng was strategic partners with Edward Nathan Sonnebergs (“ENS”), Africa’s largest law firm, and had already been heavily involved in investment projects in many different African countries. To appreciate Dacheng Law Office’s rise to becoming a major player in the international realm, we must understand the history of the Chinese law firm.

The Evolution of Chinese Law Firms

The first legal service agency in China to be titled a “law firm” was established in July 1983, and five years later, there were 3,473 law firms in China.[3] Despite these developments, the evolution of the Chinese law firm as we know it today started between 1988 and 1989 when the Chinese Ministry of Justice decided to create cooperative law firms in a few cities in China.[4] Unlike the initial law firms, in creating cooperative law firms, the main objective was privatization in order to gain global legitimacy, and in doing so, attract foreign investors.[5] The first stage of China’s privatization occurred in 1992 when the once reluctant China, allowed law firms from the United States, United Kingdom, Hong Kong, and France to open representative offices in China.[6] However, it must be noted that the Chinese government placed limitations on these foreign firms by preventing them from interpreting PRC laws because only local firms could do so.[7] This first stage was followed by the partnership stage of the mid-1990s. Under the partnership stage, Chinese law firms were organized to imitate law firm partnerships in other countries.[8] With such partnerships, “all partners assum[ed] unlimited and joint liability for the firm’s debts and obligations.”[9] Throughout the rest of the 1990s, Chinese nationals traveled to countries such as the United States and United Kingdom to obtain “legal training and experience in foreign countries.”[10]

The Aftermath of China Joining the World Trade Organization (WTO)

In 2001, China joined the WTO and promised to liberalize its markets for legal services. In liberalizing its market for legal services, China’s State Council relaxed its restriction on foreign law offices interpreting PRC law by allowing attorneys at these offices to advice clients on PRC laws.[11] Shortly after this, the Chinese corporate legal market entered into its golden age of development as the world began to experience massive growth in international firms that in turn created employment opportunities for Chinese lawyers.[12] Also, by 2004, it became clear that local law firms in China had also taken strides in international law practice.[13] When a field study was conducted in 2004 on six local elite law firms in China, it was determined that local law firms in China specialized in areas such as foreign direct investments (FDI), and corporate litigation and arbitration.[14]

Chinese Law Firms as Major Foreign Investors

Years later, in 2011, it became clear that Chinese firms were major competitors in the International law firm arena.[15] In this year, it was determined that Dacheng Law Offices was the largest law firm in China employing over 2,000 attorneys, and having “thirty-five offices in China and seven offices abroad.”[16] Further, while Chinese firms such as Dacheng Law Offices were able to compete amongst other international law firms, the financial crisis of 2008 slowed down their economic growth especially in the area of FDI.[17] Nonetheless, reports show that Chinese law firms began to recover from the global financial crisis towards the second quarter of 2009.[18] However, after the financial crisis, Chinese firms have yet to repeat the rapid growth that they experienced in the mid-2000s.[19] Now, with the Dacheng and Dentons merger, it is likely that we will begin to see a higher percentage of investment out flow from China than we have seen before. This statement is supported by the fact that a major reason for Dentons merging with Dacheng is to gain access to the fast growing Chinese companies seeking to expand their business overseas.

How this Merger Benefits African Countries

In looking into overseas areas where Chinese companies are seeking to expand their businesses, it has become clear that Chinese companies over the years have developed a growing interest in African countries.[20] For example, in 2011 alone, China had trade worth $166 billion with Africa, and China’s trade value with Africa had risen 83% by 2012.[21] Further, between 2000 and 2011, China committed itself to $68 billion in aid and development projects in Africa.[22] Therefore, considering China’s interest in investment projects in Africa, and Chinese law firm interest in FDI, it is not farfetched to speculate that the Dentons and Dacheng merger is likely to result in increased investment projects in Africa. This is especially true because with Dentons and Dacheng merging, they will be combining their already affluent separate resources. In combining their resources, investment projects in Africa would be less burdensome on the firm. This in turn could signify a greater amount of investments into Africa than we have seen thus far from Chinese law firms and businesses.

In conclusion, while this merger is still fresh, the argument that this merger is likely to result in growth in Africa is supported by Chinese law firms’ interests in FDI, and China’s interest in investment projects in Africa. This argument is supported by the fact that Dentons has shown an interest in joining Chinese businesses in different overseas projects. So, as time progresses, and the global economy continues at an upward trend, it will be interesting to see what foreign projects Dacheng-Dentons chooses to invest in and how such investments will impact overall growth in Africa.

 

Joyce Fondong is a 3L and a Resident Student Blogger with the Journal of Law and International Affairs at the Penn State University Dickinson School of Law.

---

 

[1] Xueyao Li. Colloquium: Globalization and the Legal Profession: The Learning Process of Globalization: How Chinese Law Firms Survived The Financial Crisis, 80 Fordham L. Rev. 2847 (2012).

[2] Id.

[3] Id. at 2849.

[4] Id. (these firms were created in Beijing and Shenzhen. These cooperative firms did not have the same ownership and management models as state owned-firms. Also, these cooperative firms were owned and managed by only lawyers, and the state had no authority over the firms.)

[5] Id.

[6] Id. at 2850-51.

[7] Sida Liu. Law and Lawyers in China: Client Influence and the Contingency of Professionalism: The Work Elite Corporate Lawyers in China. 40 Law & Soc’y Rev. 751, 759. (2006).

[8] Li, supra at 2850.

[9]. Id.

[10] Id. at 2851.

[11] Id.

[12] Id.

[13] Liu, supra at 759.

[14] Id.

[15] Li, supra at 2854.

[16] Id. at 2852.

[17] Id. at 2856.

[18] Id. at 2859.

[19] Id. (stating that while it cannot be determined that the financial crisis has passed, if we look at the amount of business in June and July of 2009, it is actually higher than in 2008 “[s]ome increase was simply because of the resurgence of the market.”)

[20] Thomas Lloyd Owen Felstead. A Chinese Scramble for Africa?: Is China, neo-colonising the African Continent? Lund University Department of Political Science, 15 (2013).

[21] Id.

[22] Id.

Additional citations to articles & documents are included in the aforementioned underlined hyperlinks.