China: Bridging The Cultural And Legal Divide

It's a rare circumstance when personal history, long-held passions, and market conditions coalesce in the form of a career. But that's the kind of fate Thelen Reid Brown Raysman & Steiner partners Tom Shoesmith and Meg Utterback-who both have extensive personal and professional histories in Asia-are enjoying.

The partners are based in the law firm's new Shanghai office, which opened in August 2006. Already a robust practice with many significant transactions under its belt, the firm's China practice is poised to expand its work throughout China and Asia, representing international companies entering or expanding within the market, as well as Chinese companies expanding internationally.

"We'll focus on our strengths," says Tom Shoesmith, when asked about the practice's strategy for growth. "Mergers and acquisitions, international securities work, and venture capital work are all core strengths of the firm and the people involved in the practice."

Also core is the firm's experience in construction, an area receiving a lot of attention in China these days. With a reputation as the premier construction and infrastructure law firm representing some of the largest construction companies in the world, the firm is particularly well positioned to expand into China's emerging market.

"A lot of Chinese construction companies have been given a mandate by the government to go out and work in foreign countries and expand the market," says Meg Utterback. "The opportunity for growth is tremendous."

While China's booming economy has become one of the world's most important, attracting foreign businesses and investors, Ms. Utterback, who speaks and reads Mandarin, recalls a very different time. Having lived in Beijing from 1985-1987 to study with the law faculty of China People's University, she comes to China now with a deep appreciation of the changes that have occurred over the past twenty years.

"There were very few established laws for foreign investment during the '80s," Utterback says. "There was a joint venture law that was about it." About that time in China, she explains, "The Public Security Bureau played a much bigger role in society," referring to the government offices that handle policing, security, and social order, as well as residence registration, immigration, and the travel affairs of foreigners.

Ms. Utterback's classes were all taught in Chinese and focused more on domestic issues, such as criminal and civil law, rather than international law, where most of her work today is done. "It was a much different time. Everyone was still wearing Mao jackets and speaking in Big Character poster slogans. The government issued tickets for people to get everything from rice to a shower."

In the face of conditions that might have deterred most westerners, Ms. Utterback found herself fascinated by China and longing for more. Even after law school in the U.S., where she took a strong interest in litigation, her desire to return to China remained strong. She is among the few litigators based in China today, placing her in a unique position to work on claims resolutions and investigation for foreign companies.

"I learned a lot, and the experience was rich enough and complex enough to keep me yearning to return even after law school in the U.S.," says Utterback. "In law school, I fell in love with litigating and trying cases, a practice incompatible with working as a lawyer in China at that time. Eventually, with China's opening and development, companies began to have disputes, and I found myself flying to China more and more frequently to explain the U.S. trial system or international arbitration to Chinese clients. I also started to represent foreign clients in Asia because of my experiences in arbitration in Asia. My work transformed and began to include more transactional matters. Given my language capability, I am a natural to liaison on all kinds of matters, not just litigation."

Mr. Shoesmith, who has more than twenty-five years of international experience, has a practice focused on corporate business transactions, which includes mergers and acquisitions, private equity and venture capital, international joint ventures, foreign direct investment, and corporate governance. He moved to China with his family in 2003.

The son of a career foreign diplomat, Mr. Shoesmith spent his childhood in Hong Kong, Korea, and Japan, until attending college and law school in the States. "Coming to China feels like coming home," he said of his recent move to Shanghai.

Experiencing unparalleled growth, Shanghai has emerged a vibrant, world-class city that rivals the most cosmopolitan urban centers of the west. As the largest city of the People's Republic of China, Shanghai is considered to be the stronghold of China's modern economy, and one of the country's most important cultural, commercial, financial, industrial, and communications centers.

"If you look around the world, there are a handful of cities that are developing economically really fast and are still a bit of a frontier," says Shoesmith. "Shanghai is one of these places, with a ten percent GDP growth per year during the past ten years. It's like Japan, Taiwan, and Korea fifteen years ago, but umpteen times as big."

"The PRC is booming," Utterback agrees. "Shanghai is the place to be."

Although the Shanghai office is brand new for the firm, the China practice is anything but. With an eighty-year history of providing legal services globally, including throughout Asia, attorneys with the firm have been involved in some of the largest construction, energy, and infrastructure projects in the world.

Earlier this year, the firm's US-China Securities team represented the Chinese company Winner Group Limited in closing a going-public transaction that was hailed as "the biggest Chinese reverse merger of the quarter." In fact, reverse mergers and acquisitions make up about fifty percent of the firm's China practice, and it's an area we expect will continue to grow in leaps and bounds in the coming years. This technique helps Chinese companies access U.S. capital markets by acquiring American-based companies, and it has become an important tool for growing Chinese businesses.

"The reverse acquisition method really started to take off about a year ago," says Shoesmith, citing the Securities Exchange Commission's new rules around these types of transactions in 2005, which legitimized the technique. "Most of our competitors didn't do this kind of work until recently."

Mr. Shoesmith and Ms. Utterback work very closely with a strong team based in the United States. "The key to success in international work is putting a good team together," Shoesmith says. "No one lawyer can go into the American and Chinese boardroom. The key is to have the right team and apply the right expertise where you need it."

Not only is the firm's China practice team made up of experienced lawyers at the top of their field, but when speaking with each member individually, there is a palpable sense of excitement they feel about the work they do, their commitment to clients, and to working with one another.

"When you have a common background, personally and professionally, and you all feel a part of a growing enterprise in what will be the most significant set of national and transnational developments in years, and believe that what you do is not only important in business but improves relationships between countries, it's exciting." says Bob Nelson. Nelson is a partner in the firm's San Francisco office, and has practiced international law for twenty-six years, working in the areas of foreign investment, private equity, energy, and infrastructure. He has worked on significant transactions in China for close to fifteen years, and has been active in Asia throughout his entire career. Nelson recently represented GE and Bechtel in working out a three billion dollar investment matter in India, the largest foreign investment ever in that country.

Louis Bevilacqua has been working on business deals in China for the past five years, and focuses extensively on reverse mergers. He and partner Joe Tiano practice in the areas of business and telecommunications. The two partners divide their time between the firm's Washington, DC and Shanghai offices.

"It's very exciting to go to China now, because there are many entrepreneurs out there who are able to develop personal wealth that they never could before," says Bevilacqua. "It's exciting to talk to these people because they are excited about the businesses they are trying to build."

The China practice team also includes business and securities associates Jing Zhang and Qixiang Sun in Washington, DC, and PRC legal consultants Julian Zou and Qiaozhu Chen in Shanghai.

According to Bob Nelson, in order to have successful business dealings in China, "It's important to work with consultants who really know and understand the Chinese way, and who can interpret different things and strategize appropriately."

"What distinguishes us from many other firms is that, while they have attorneys who have always focused on business in the U.S. and are now trying to follow business growth to China, we approach China with broad, deep international expertise," says Nelson. "International practice is so different in how you deal with people, in the types of issues that emerge, and in how you can best solve business and legal issues. To do it well, you need to have a lot of experience. We've done this our whole lives."

"This is by far the most different place to try to do business," Shoesmith says of China. "Culturally, it's so different from the West on such a deep level that you can probably assume your instincts are wrong. What the Chinese say versus what they don't say is different. The motivation is different, too," according to Shoesmith.

"The dimensions of language and cultural issues make it much more challenging," says Utterback. "Cross-borders make it more complex. The law changes everyday in China."

"Business is done differently in China," Bevilacqua agrees. "A closing of an agreement means very different things in China… simple terms mean something different to Americans and Chinese."

The firm's China practice team sees itself as a bridge spanning the cultural and legal divide that exists between western and Chinese companies seeking to do business with one another. "International transactional lawyers provide the passageway," says Shoesmith. "You help businesses achieve objectives in a country that may not have ever contemplated what a business is trying to do. You have to be creative, because you're often being asked to do things you've never done."

Given the tremendous growth taking place in China and throughout Asia, this sophisticated group of attorneys will continue to be called upon for their creativity and technical expertise well into the future. The combination of professional challenge and personal passion that drew them to this specialty area-combined with their skill and experience-will ensure continued success for their clients in one of the most dynamic markets in the world.

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