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Cablegate: Shanghai Legal Employment Market Hit by Economic Downturn

VZCZCXRO7994
RR RUEHCN RUEHGH
DE RUEHGH #0552/01 3520046
ZNR UUUUU ZZH
R 170046Z DEC 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7438
INFO RUEHBJ/AMEMBASSY BEIJING 2364
RUEHCN/AMCONSUL CHENGDU 1616
RUEHGZ/AMCONSUL GUANGZHOU 0075
RUEHHK/AMCONSUL HONG KONG 1783
RUEHSH/AMCONSUL SHENYANG 1608
RUEHIN/AIT TAIPEI 1409
RHEHAAA/NSC WASHINGTON DC
RUEHUL/AMEMBASSY SEOUL 0302
RUEHKO/AMEMBASSY TOKYO 0461
RUEHGH/AMCONSUL SHANGHAI 8048

UNCLAS SECTION 01 OF 03 SHANGHAI 000552

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND DRL
NSC FOR LOI, KUCHTA-HELBLING

E.O. 12958: N/A
TAGS: PGOV PHUM SOCI ECON CH
SUBJECT: SHANGHAI LEGAL EMPLOYMENT MARKET HIT BY ECONOMIC DOWNTURN

The following is Sensitive But Unclassified (SBU). Please
protect accordingly.

Summary

-------

1. (SBU) Expansion of Shanghai's legal employment market appears
to have come to a sudden halt. Partners at Chinese and
international law firms report a hiring freeze, but they said
their firms have not yet begun layoffs. Law students express
frustration trying to find legal employment. Professors report
increased numbers of students seeking post graduate study and
government employment as alternatives. Legal consultants
complain of a "glass ceiling" imposed on their careers by
China's restriction that prohibit lawyers at international firms
from practicing Chinese law, while Chinese lawyers complain of
losing clients to international firms that are "illegally"
interpreting Chinese law. End Summary.

2. (SBU) Congenoff met with lawyers in Shanghai during November
and December 2008 to ascertain their views on a variety of
challenges facing the legal profession. This report is the
first of two readouts from those meetings.

Downturn Halts Law Firms' Expansion

-----------------------------------

3. (SBU) The economic downturn has brought an end to the
expansion of the legal labor market in Shanghai according to
partners at Shanghai-based law firms. Anthony Wang, a partner
in the Shanghai office of Weil Gotschal, a major international
law firm, told Congenoff that associates would not meet their
billable hours requirement this year or likely next year as a
result of the firm's transactional law business decreasing.
Without additional work, Weil Gotschal does not plan to hire
beyond replacement levels, he said. Wang added that his firm
still views China as a growth market in the long term, however,
and is not considering layoffs. Instead they are using the
downturn to invest in training opportunities for their
associates and staff.

4. (SBU) Luo Jie owns her own Chinese law firm with seven
associates working for her. She has also put a freeze on
creating new positions, but is planning to replace two
associates who recently took jobs as legal consultants at an
international law firm. She expressed frustration at losing the
two attorneys, saying that Chinese law schools do not adequately
prepare graduates to practice law and she is not looking forward
to training new employees.

5. (SBU) Li Yunlong and Liu Xinyu, associates at large Chinese
law firms, both said their firms -- AllBright Law and DaCheng
Law respectively -- will not meet their billable hours targets
this year. Li said that as a result, AllBright is holding off
on further expansion.

Students Turning to Graduate School and Civil Service

--------------------------------------------- --------


SHANGHAI 00000552 002 OF 003


6. (SBU) Recent law graduates told Congenoff that they are
having a difficult time finding legal related employment. At a
meeting with students and recent graduates at Fudan Law School
on November 26, they said they all want to practice law, but
only one had a job offer. The students were applying for
graduate study and signing up for civil service exams as backup
plans. The students were pessimistic about their employment
prospects and the ability of the private sector to absorb new
graduates.

7. (SBU) Liu Xinyu said that only one out of a hundred law
graduates can expect to find a job at a large firm like DaCheng
Law. Having to choose your major during the application process
to undergraduate study means that many students do not
understand what a legal career is when they make the decision to
pursue one, according to Liu, thereby limiting the talent pool
for law schools. Ruan Chao, a 2007 law school graduate and
paralegal at Ryser and Associates, estimated that less than
thirty percent of his classmates have found jobs since finishing
school and only five percent are lawyers eighteen months after
graduation.

8. (SBU) Charles McElwee, a professor at Shanghai Jiaotong
University, also has noticed an increase in the number of
students who, citing difficulties in the job market, have said
they intend to apply for post graduate studies this year. In
addition to the economic downturn, one cause of the employment
difficulties faced by recent graduates is that the vast majority
of them are not prepared to practice law after graduating.
McElwee echoed the sentiments of Liu and Luo, saying that his
students approach law like a science. They assume that if you
insert variables into the equation, that is the law, and then
you can quickly determine the correct result. He said this
approach leads law students and young lawyers to quickly reach
conclusions that may not be supported upon further analysis,
often to the detriment to their client.

Being a "Chinese" Lawyer Depends On Who You Work For

--------------------------------------------- -------

9. (SBU) Career advancement for Chinese lawyers who choose to
join international law firms is inhibited by a restriction that
prohibits lawyers at international law firms from practicing
Chinese law. Chinese lawyers who work for international firms
therefore are referred to as "legal consultants," and many of
them complained to Congenoff of a "glass ceiling" imposed on
their careers by this restriction. They said they joined
international firms to expose themselves to a broader range of
issues and for better pay but were required to give up their
Chinese law licenses as a condition of working at an
international firm. If lawyers at international firms are later
hired by a Chinese firm, then their Chinese law license is
restored, the lawyers said.

10. (SBU) Lawyers at Chinese firms consider legal consultants at
international firms to be illegal competition. Luo Jie said
international firms' "illegal" practice costs her both clients
and her top associates. She and several other Chinese lawyers
said it is unfair for the government to turn a blind eye to
legal consultants practicing Chinese law when it is prohibited
under current law.

Is the Policy Fair?

-------------------

SHANGHAI 00000552 003 OF 003

9. (SBU) Several lawyers commented on whether or not the
restriction prohibiting lawyers at international firms from
practicing Chinese law is fair. Li Yunlong would not say if the
policy is "fair," but he said that from a Chinese firm's
perspective, a lack of enforcement against "legal consultants"
at international firms who are practicing Chinese law is hurting
his firm. Several Chinese lawyers told Congenoff that the goal
of the policy is to help domestic firms retain top legal talent,
and when pressed, said that the restriction on lawyers at
international firms from practicing Chinese law probably is a
barrier against trade in services. Regardless, however, the
policy is not achieving its objective, our contacts said,
because the large salary disparity between domestic and
international firms still manages to draw many more top legal
professionals to international firms.

10. (SBU) Chinese lawyers who work at international firms as
legal consultants find it difficult to advance to associate or
partner in their company unless they obtain a law license in
another country. In practice, therefore, many of the Shanghai
lawyers at international firms have law licenses in the United
States or United Kingdom. Liu Xinyu, who is at a Chinese law
firm, said he supports the policy preventing lawyers at
international firms from practicing Chinese law, primarily
because his Chinese law firm is retained by many foreign
companies to provide legal advice on the Chinese law aspects of
business transactions. Because his law firm handles has
domestic and foreign clients, Liu said, it has developed a
strong client base and a good reputation.

Comment

-------

11. (SBU) While partners at law firms report that layoffs have
not started in Shanghai, employment prospects for new graduates
appear limited. According to our contacts in Shanghai, China's
prohibition on international law firms practicing Chinese law,
even when their employees have passed the Chinese bar exam,
creates an extra barrier for Chinese working in international
firms to rise above the level of legal consultant. With Chinese
lawyers needing to secure a foreign law license to become
associates in international firms, and new graduates having
difficulty finding jobs, there is evidence that more lawyers in
Shanghai are opting for graduate studies. The Shanghai Consular
Section has seen a nearly fifty percent increase in the number
of student visa applications -- undoubtedly including law
students -- in December 2008 over a year ago. End Comment.
CAMP

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