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While international firms have benefited from a steady pipeline of inbound work from their global clients in recent years, it is on outbound mandates from state owned enterprises (SOEs) and private companies where the battle lines are being drawn. With aggregate China-outbound M&A values reaching record highs in 2013, and reaching the highest levels since 2009 in the first quarter of 2014, the ability to tap into this rich seam of activity has been crucial.

The energy sector is a key driver of outbound mandates, and Vinson & Elkins LLP’s closure of its Shanghai office to concentrate on the more energy-focused market of Beijing, where many SOEs are based, is indicative of the sector’s importance to foreign firms. Sidley Austin LLP, not traditionally associated with the energy space, secured four high-profile energy-related lateral hires in its Hong Kong, Singapore and Beijing offices, signalling its intention to break into the space.

Technology and intellectual property are two other key areas; the acquisitive nature of Chinese life sciences players is well known, while Lenovo’s $2.3bn acquisition of IBM’s server business (Hogan Lovells International LLP and Herbert Smith Freehills LLP representing the respective parties in that matter), and technology conglomerate Tsinghua Group’s acquisition of mobile chip manufacturer Spreadtrum Communications in an all-Chinese, $1.8bn deal (Morrison & Foerster leading the advice to the former) are further examples of the appetite for tech-sector deals.

On the IP front, firms such as Orrick, Herrington & Sutcliffe LLP have been involved in high-profile US-based patent and trade secrets court actions for both US and Chinese clients, while Bird & Bird, Jones Day and Hogan Lovells International LLP are among those assisting clients with protecting existing IP rights in the Chinese courts, which in the past year demonstrated a significant swing in favour of foreign companies with the granting of the first patent infringement preliminary injunction (PI) to Abbott Laboratories, followed closely by a PI for cross-label use in favour of Novartis. Allen & Overy LLP advised both companies on those matters.

Outbound work has yet to replace inbound mandates as the cornerstone of most practices. However, with the Chinese authorities less encouraging of foreign investment, particularly in real estate, and deals hampered by a punishing regulatory regime entailing lengthy competition reviews, it remains to be seen how long this will last.

Pillsbury Winthrop Shaw Pittman LLP opened its second mainland China office in Beijing, and Duane Morris & Selvam LLP entered the market with the opening of a Shanghai office.

While domestic firms take advantage of a regulatory regime which allows them, and not foreign firms, to advocate in Chinese courts and proffer official written opinions on Chinese law, in practice the restrictions do not hinder practising in China in any substantial way, and international firms are still the natural choice for handling big-ticket cross-border work. However rumours of the merger of some of the biggest local players and an increasing trend for the biggest Chinese firms to recruit foreign partners, may see this inherent advantage cut short in the years to come. Firms such as Junhe, Fangda Partners and Zhong Lun Law Firm all field foreign-qualified lawyers, and have expanded their operations into London and New York in recent years, as well as focusing on the Asia Pacific market with office openings in Hong Kong, Singapore and Tokyo. King & Wood Mallesons has gone the farthest in its expansionist strategy, entering into a groundbreaking tie-up with SJ Berwin LLP in 2014.

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Legal Developments in China

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  • China Drug Registration Regulation - Public consultation on amendment closes - March 2014

    In February 2014, the China Food and Drug Administration (“CFDA”) invited second-round comments from the public regarding proposed amendments to the China Drug Registration Regulations (“DRR”). One of the proposed amendments touches upon patent protection for drugs in China.
  • Revised NDRC Measures for Approval and Filing of Outbound Investment Projects - April 2014

    The National Development and Reform Commission ( NDRC ) released a new set of Management Measures for Approval and Filing of Outbound Investment Projects ( 境外投资项目核准和备案管理办法) ( New Measures ) on 8 April 2014. The New Measures take effect on 8 May 2014 and will replace the Interim Management Measures for Approval of Outbound Investment Projects ( 境外投资项目核准暂行管理办法) ( Original Measures ) which have been in force since 9 October 2004.
  • Insurance Update - CIRC Issues Insurance M&A Measures: What are the impacts and applications?

    On 21 March 2014, CIRC issued the Administrative Measures on the Acquisition and Merger of Insurance Companies (the Insurance M&A Measures ) which will take effect from 1 June 2014. The Insurance M&A Measures apply to M&A activities whereby an insurance company is the target for a merger or acquisition. The target insurance company could be either a domestic or a foreign invested insurer. However, the Insurance M&A Measures will not apply to any equity investment by insurance companies in non-insurance companies in China or in overseas insurance companies.
  • China issues new rules to regulate medical devices - May 2014

    The Regulations on Supervision and Administration of Medical Devices (in Chinese《医疗器械监督管理条例》, State Council Order No. 650) (the Medical Device Regulations) were amended by China's State Council on 31 March 2014 and will come into effect on 1 June 2014. This is the first amendment in more than a decade since the Medical Device Regulations were first promulgated in 2000, even though the amendment was initiated eight years ago in 2006. The 2014 amendment unveils reforms on the regulatory regime for medical devices market in China from various aspects.
  • Walking a fine line in China:Distinguishing between legitimate commercial deals and commercial bribe

    China in the 21st century exemplifies an atmosphere of great opportunity and intense competition. Against this backdrop, it has become increasingly common for businesses to adopt a variety of practices in order to make their products and services competitive. Such practices may include paying middle-men to promote sales and giving incentives to buyers directly. However, whilst revenue spikes are undoubtedly welcome, businesses should bear in mind the potential backlash arising out of these commercial arrangements. The risk that such arrangements may not comply with anti-bribery and corruption laws and therefore cause business significant damage in the long term should not be underestimated.
  • Rise of the private healthcare sector - July 2014

    As of 2013, China had 9,800 private hospitals, representing almost half of the total number of hospitals in the country 1 . However, private hospitals still severely lag behind their public peers due to low utilisation, talent shortages and incomplete social insurance coverage. As part of China's ongoing healthcare reform initiatives, the Chinese government has set a goal to increase the share of patients treated by private hospitals to 20% by the end of 2015 2 .
  • Banking regulation in China: Proposed deposit insurance system - December 2014

    On 30 November 2014, the State Council of China released a draft Deposit Insurance Regulation (the Draft), to establish a deposit insurance system in order to "protect interests of depositors, prevent and mitigate financial risks and maintain a stabilised financial system". The public are invited to submit comments on the Draft by 30 December 2014.
  • Tackling bribery: China toughens criminal law - December 2014

    Following earlier reforms of the PRC's anti-corruption rules (for further information, please see our previous briefings published in January 2013 and March 2011 ), the National People's Congress (NPC) has recently published a proposed amendment to the PRC Criminal Law in draft form for public comments (the Draft). The Draft expands the reach of official bribery offences, gives more autonomy to judges to inflict severe punishments, and generally increases the level and type of punishments that can be imposed on individuals who commit bribery offences. It further demonstrates the government's determination to tackle corruption in China.
  • China banking restrictions relaxed: New rules further open banking sector to foreign investors

    The State Council of China recently released amendments to the Foreign Bank Administrative Regulations of China (the Amendments) with effect from 1 January 2015.
  • How to Identify Administrative Conducts as Administrative Anti-monopoly

    With a trend towards increasing investigation against administrative monopoly, there will probably be more cases against administrative monopolistic conducts in 2015. Companies may, as plaintiffs, sue local governments or its authorized institutions for administrative monopoly.

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