Ji Li "China’s multinationals and their US lawyers" (European Chinese Law Research Hub)

 

The folks over at the European Chinese Law Research Hub (with thanks to Marianne von Blomberg, Editor ECLR Hub, Research Associate, Chair for Chinese Legal Culture, University of Cologne) have posted  a new paper by Ji Li (John S. and Marilyn Long Professor of U.S.-China Business and Law at UC Irvine School of Law), China’s multinationals and their US lawyers.

Marianne von Bloomberg explains:

Chinese multinational companies (MNCs), key agents in China’s global expansion, have caught considerable attention as the US-China rivalry escalates. Top Chinese MNCs such as Huawei, ByteDance, and Xiaomi face unprecedented political, regulatory, and legal risks in the United States, which, if poorly managed, pose existential threat. Are Chinese MNCs capable of negotiating the risks? The answer is certainly no if the MNC managers, most of whom lack basic understanding of U.S. law, do not delegate extensively to legal professionals. In other words, U.S. lawyers play an indispensable role in helping Chinese MNCs navigate the increasingly complex and hostile U.S. legal and regulatory landscape. Yet little is known about how Chinese MNCs interact with their outside counsel, as the existing literature on corporate consumption of legal services has largely neglected developing country MNCs. Ji Li addresses Chinese MNCs’ in-house legal counsels in the United States in his article “Going Out” and Going In-House: Chinese Multinationals’ Internal Legal Capacity in the United States." 

The essay provides a powerful empirical analysis of the business of providing legal services for Chinese enterprises in and around the United States by its indigenous lawyers. The focus is on that interrelation--lawyer selection, building trust, scope and extent of purchased legal services and the like.  The consequential issues are fascinating--from lawyer compliance with ethical obligations respecting human rights, to the transmission of technical know how through the ordinary process of providing advice and engaging in the business of advice.  But even more interesting would be reciprocal exchanges--what do U.S. lawyers learn from working with bound Chinese MNCs? The cross fertilization  will be difficult to see clearly for a while I imagine, but its beginnings are likely already well in place. c

I am cross posting the essay below. The original ECLRH post may be accessed HERE. And as a plug for the marvelous work at the European Chinese Law Research Hub: if you have observations, analyses or pieces of research that are not publishable as a paper but should get out there, or want to spread event information, calls for papers or job openings, or have a paper forthcoming- do not hesitate to contact Marianne von Bloomberg.

 

 

 

China’s multinationals and their US lawyers

A new paper by Ji Li

Chinese multinational companies (MNCs), key agents in China’s global expansion, have caught considerable attention as the US-China rivalry escalates. Top Chinese MNCs such as Huawei, ByteDance, and Xiaomi face unprecedented political, regulatory, and legal risks in the United States, which, if poorly managed, pose existential threat. Are Chinese MNCs capable of negotiating the risks? The answer is certainly no if the MNC managers, most of whom lack basic understanding of U.S. law, do not delegate extensively to legal professionals. In other words, U.S. lawyers play an indispensable role in helping Chinese MNCs navigate the increasingly complex and hostile U.S. legal and regulatory landscape. Yet little is known about how Chinese MNCs interact with their outside counsel, as the existing literature on corporate consumption of legal services has largely neglected developing country MNCs. Ji Li addresses Chinese MNCs’ in-house legal counsels in the United States in his article “Going Out” and Going In-House: Chinese Multinationals’ Internal Legal Capacity in the United States.

Li empirically explores several major aspects of Chinese MNCs as consumers in the U.S. legal market. Do they take professional legal advice seriously? The qualitative evidence (i.e., interviews with lawyers, in-house counsel, and other business professionals) tells a mixed story. While some view Chinese MNCs as not notably different from U.S. companies, others complain about habitual disrespect for lawyers and under-appreciation of the importance of quality legal services for running business in the United States. However, the quantitative evidence (i.e., data based on a comprehensive survey of Chinese MNCs in the United States) indicates that, on balance, Chinese investors recognize U.S. legal services as being costly but essential for their U.S. operations.

That said, in a market of 1.3 million registered U.S. lawyers, most of whom are self-claimed “leading experts” in their respective practice areas, how do Chinese MNC managers without U.S. legal expertise collect accurate and truthful lawyer information? The study reveals that Chinese managers surmount severe information asymmetry by relying primarily on trusted and knowledgeable third parties for U.S. lawyer recommendations (for more about Chinese MNCs’ lawyer selection preferences, see “What Do Chinese Clients Want?”). Additionally, the study finds that most Chinese MNCs spend relatively insignificant amounts of money on U.S. legal services, leaving them with minimal bargaining power vis-à-vis their legal service providers. It is therefore not uncommon for top U.S. firms to treat Chinese MNCs as “second class clients.”

Obviously, all Chinese MNCs are not the same, and their U.S. legal expenses vary significantly. Huawei and ByteDance probably spend millions of dollars a year purchasing U.S. legal services, whereas many report annual legal budgets of less than a hundred thousand dollars. What explains the inter-company variations? For instance, all else being equal, do state-owned Chinese MNC spend more on U.S. lawyers? After all, “it’s not their own money,” noted a knowledgeable informant. The study finds that the U.S. legal expenses of Chinese MNCs vary according to their legal service demand, not special corporate attributes such as ownership structure, which Li argues is another sign that Chinese MNCs have limited impact on the U.S. legal market due to their lack of leverage. The findings of this study contribute to ongoing debates about Chinese MNCs, their adaptation to host country institutions, and their impacts on the legal profession and the global legal service market.

Ji Li’s paper “Meeting Law’s Demand: Chinese Multinationals as Consumers of U.S. Legal Services” was published in Yale Journal of International Law online and is available for free here.

Ji Li (jli[at]law.uci.edu) is John S. and Marilyn Long Professor of U.S.-China Business and Law at UC Irvine School of Law. His book, Clash of Capitalisms: Chinese Companies in the United States (Cambridge University Press, 2018), examines the adaptation of Chinese investors to the U.S. legal and regulatory system. His other publications can be downloaded here.