The Year The Economic Plate Shifted
Historical annuls will underline a handful of entries under the page marked “Year 2003″. The world watched on (and some gasped) as the US and its allies invaded Iraq (George “Dubya” Bush famously exclaimed “mission accomplished” some 3 months later). A different group of observers, gazing into the cosmos, watched the horrific disintegration of the Space Shuttle Columbia during its re-entry to Earth. There was international panic at the outbreak of SARS, which was tempered, in some ways, by the epochal completion of the Human Genome Project. It was a big year, even by the lofty standards of historians.
But perhaps the most momentous world event of 2003, certainly for Australia, was the election of Hu Jintao as President of the People’s Republic of China. It was a seminal moment in the course of China’s recent history. Hu’s rise represented the transition from traditional “Communist” leadership to a “technocracy” – a more pragmatic (but still Communist) form of government where technical experts are in control of discrete decision-making within their filed of expertise. President Hu is credited as the driving force behind the Chinese Scientific Development Perspective.
Scientific Development Perspective
Deng Xiaping, the President China from 1978 – 1992, implemented a variety of economic changes that brought China from the Marxism of Mao into the global economy and his economic advances toward a form of capitalism were entrenched by Jiang Zemin and the Three Represents. But it was not until Hu Jintao’s 2003 speech to the National People’s Congress calling for the building of “a harmoious society” that China came out of the economic wilderness and into the global economic consciousness, embarking on a sustained period of growth now colloquially referred to as The Rise of China. President Hu focussed on rural development and the economic welfare of farmers (in 2005 all forms of taxation on farming were abolished) with a much more egalitarian focus on sectors of the Chinese population which have been left behind by the economic reforms of his predecessors. Importantly, for resource-rich Australia, this signalled the development of infrastructure; a process which continues to this day.
Building Materials Required
You cant develop infrastructure without raw materials and the lengths China will go to in order to secure its supply of those raw materials is, we think, a major cause for concern. In September, we stumbled upon a report from a Canadian newspaper which revealed that in his most desperate hour, Moammar Gadhafi was approached by Chinese armaments companies directly linked to the Chinese government for arms contracts worth $200million. Such contracts violated UN Security Council Resolution 1970 which instituted a moratorium on arms trading (China is a signatory to it). Although China later denied any involvement in the secret arms deal by insisting it did not authorise it, a travel report made plain the fact that Gadhafi’s security officials met with at least three Chinese Arms manufacturers: China North Industries Corp. (Norinco), the China National Precision Machinery Import & Export Corp. (CPMIC), and China XinXing Import & Export Corp. Minutes of the meeting revealed that the companies informed the Gadhafi regime of the extent of the weapons stockpile and promised to provide additional weapons if required.
It certainly sounds like a commercially astute hedge by China:
“if support Gadhafi and he wins the (then unfolding) conflict then we’ll gain bargaining leverage in future oil export contracts; if he loses, we run a small risk of being exposed for involvement in prohibited arms dealings, which we can in any event deny.”
It is true that China has in recent years been notorious for showing support to oppressive African regimes with offers of aid and finance where mineral resources are concerned. China has blithely entered into business with African countries that Europe and America refuse to engage with, owing to UN sanctions. Those very sanctions, it now appears, were the portal through which China pushed to quench its rapacious appetite for African mineral resources. Sudan is but one example.
There, rather than attempt to peacefully end conflict, China is alleged by members of the US Congress and Amnesty International to have exported weapons to Sudan (again in contravention of UN resolutions) which prolonged conflict. Certainly, China had cause to involve itself in the Darfur conflict; in 2010, China imported half of Sudan’s oil output (approximately 250,000 barrels per day, or 5% of China’s oil imports).
But in another African country, Angola, illicit agreements made under a dictatorship fuelled an engagement with an African economy which now sees a Chinese semi-occupation where the locals are the proletariat and the Chinese are the landed aristocracy.
The Angolan Experience
Recent experience in Libya & Sudan shows what China is prepared to do in the name of securing its mineral supply. But the unfolding despair in Angola helps bring the pitfalls of reliance in Sino inbound investment into sharp focus. Angola, Africa’s second largest oil producer, was a war-torn wasteland for decades, subject to a variety of UN sanctions that expired in 2002. Yet, during Angola’s term of isolation from the international community, China provided Angola with massive financial backing in exchange for the country’s oil supply. Now that military tensions have eased in the country, a deeper malaise has set-in – a form of pseudo-Chinse occupation of Angola.
You see, the bargain that Angola signed up to in an attempt to revitalise the infrastructure decimated by decades of conflict came with one major condition: all infrastructure projects would be financed by Chinese capital, on loan and repayable by oil, and performed by Chinese nationals. Elias Issac, of the Open Society Initiative, told SBS recently
“the Chinese involvement is not generally creating employment for Angolans because the Chinese are bringing cheap labour from their own country”
Meanwhile, construction projects in the capital Luanda have attracted the ire of subsistence-living locals. Said one, attending a job-search center:
“I’m disabled and here I am with no wages, nothing. I fought to free our country and now I’m suffering. Now I think ‘why did I fight?’. I don’t know. For me to build that [since razed] home, so my children would have a place to sleep, I made huge sacrifices. I went to bed hungry. Then along comes the government which I helped and destroys my house. Imagine how I feel?
Another said:
“The Chinese came here with their money, their equipment, it’s all theirs. They brought labourers and skilled tradesmen, electricians, plumbers, bricklayers. There was no room for angolans who could do this work. No jobs for us.”
Mallesons & China
Which gets us to a fateful day in late 2007 when Stephen Minns, a high-flying Mallesons M&A partner, sat shrugged in his level 47 booth secretly wishing the firm’s Melbourne office wasn’t open-planned. Deathly silence gripped the ten floors of Mallesons that day when Mr Minns (and the dozen or so people sitting nearby) learned that his client BHP was intending to retain Blake Dawson for a looming hostile takeover attempt of Rio Tinto. Mr Minns had previously advised BHP on its demerger of Bluescope and was bitterly disappointed to learn that he and his team were losing work that it was later reported occupied the services of some 30 lawyers for a period of over six months.
But luck is an incredible thing and as luck would have it, when the BHP/Rio Tinto mega-merger fell over in November 2008 because of collapsing commodity prices, Mallesons was unconflicted and able to act when State-owned Chinese Company Chinalco picked up the phone and enquired as to whether it could lend a hand. Chinalco wanted help with a $24billion takeover of Rio Tinto and Mallesons was a very willing representative. Although the deal ultimately fell over, it sparked an influx of inbound Chinese work to Mallesons that would foster deeper ties between our northern neighbour and Australia’s most prestigious firm, in the process creating links between Mallesons and King & Wood that would eventually lead to the merger vote to be held next Wednesday.
Export of Capital & The Excellent Bargain
There is no doubt that inbound Chinese investment is a lucrative revenue stream. Ernst & Young partner Graeme Browning told the AFR (17/10/11):
“I’m surprised by how fast China has moved to be such an active exporter of capital”.
Mallesons CEP Robert Milliner to us in an exclusive interview a couple of weeks ago that:
“China’s share of world GDP was 4% in 1990 – and is predicted to be 24% in 2030. The appetite for China to participate in M&A activity for example is expected to grow from $1 to $2 trillion in the next ten years.”
Yet despite its foreign investment alacrity, China has so far suffered an embarrassing strike-rate: between 2007 and 2009, China is reported to have initiated $60 billion in domestic transactions, but completed a piddling $9 billion. Former UBS economist John Larum commented to the AFR (17/10/11):
“While there is a substantial policy push [by the Chinese government] to go global … there is a question about the capacity of Chinese investors to transact and to manage subsequent acquisitions. These limitations are now better recognised and should mean a greater willingness to engage service providers to assist with the transaction process.”
Cue Mallesons and the KW link-up. By formally linking with Mallesons and gaining unfettered access to the firm’s renowned (and, in our opinion, Australia’s finest) FIRB advisory team, we’re sure that King & Wood and its portfolio of (related?) State-backed Chinese companies will significantly increase that strike-rate. And if deals are getting over the line, then, well, we’re sure we’ll see KW Mallesons’ M&A team again increase its size, increase its leverage ratio, and we all know the rest … bigger bucks for the partners already reported to have earned $2million last financial year. Tick Boom!
The Patriotic Case Against
But it’s all too good to be true, isn’t it? Well, we think so. We’re sure our (potentially naive) views will inspire mixed responses from our readership, but we’ll state them anyway. We hold grave fears about what a KW Mallesons alliance will mean for Australia, for its natural resources and for the national interest.
We already know that when mineral resources are at stake, the Chinese government is variously prepared to disregard international UN sanctions to which it is a signatory, to deal personally with murderous dictators, and to form what some commentators have said amounts to a semi-occupation of a foreign country, but what will it do when it technically becomes part of Australia’s best law firm? Yes, by merging with King & Wood – a law firm in a communist country - isn’t Mallesons technically becoming part of that Chinese government itself?
We don’t have a clear answer to this question and we sincerely hope that Mallesons partners deliberating over Wednesday’s vote have a clear idea about how close the link-up will bring them to the Chinese government. Will incorporating in Hong Kong under the mooted Swiss verein structure ensure that Mallesons remains at arms-length?
If not, and let’s assume the worst, what would this mean for Mallesons’ FIRB advisory experts who are better versed in the Foreign Acquisitions & Takeovers Act than Foreign Investment Review Board is itself?
We know that Mallesons is variously prepared to outsource legal work, to underpay juniors, to overwork juniors and to stop at virtually no length to increase profitablity. So if that profitability can be further increased by engaging in conduct that a Mallesons partner might previously have disabused a Chinese-backed entity from engaging in, for now that partner is technically allied to the Chinese entity itself, could we see a dire situation where Mallesons partners are beholden in the first instance to China, in the second to their pay-packet, and in the distant third to what is morally right and in the national Australian interest?
Will we eventually see a day in Australia where Chinese are the landed aristocracy? We’ll let you be the judge and, as always, invite your views in the comments below.
In closing, we’ll turn to the comments of Mitt Romney, the current frontrunner to win candidacy for the Republican Party for the 2012 presidential race in an interesting peice in The Washington Post (14/10/2011):
“Understandably, some ask whether we should abandon the economic principles behind our historic prosperity. Should government redistribute wealth? Is free enterprise a flawed system? Should we abandon free trade? No, no and no. Redistribution is what once impoverished China and the Soviet Union. Free enterprise is the only permanent cure for poverty. Free trade has the demonstrated ability to make the people of both trading nations more prosperous… Having embraced free enterprise to some degree, the Chinese government and Chinese companies have quickly divined the benefits of ignoring the rules followed by others. China seeks advantage through systematic exploitation of other economies. It misappropriates intellectual property by coercing “technology transfers” as a condition of market access; enables theft of intellectual property, including patents, designs and know-how; hacks into foreign commercial and government computers; favors and subsidizes domestic producers over foreign competitors; andmanipulates its currency to artificially reduce the price of its goods and services abroad. The result is that China sells high-quality products to the United States at low prices. But too often the source of that high quality is American innovations stolen by Chinese companies. And the source of those low prices is too often subsidies from the Chinese government or manipulation of the Chinese currency.”
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I regularly read FS and liked this site a lot. But I found this article xenophobic (if not racist) and somewhat hypocritical.
How about genocides committed by British/European invaders against the native populations either here in Australia or in the Americas/Africa/Asia for that matter? The systemic suppression against Aborigines and minorities continues even today!
How about the Canadians who hammer thousands of seals to death every year? The Scandinavians who slaughter hundreds of dolphins? The Americans who illegally kill hundreds of civilians in Iraq and Afghanistan?
Why didn’t FS suggest that Aussie firms should refuse to merge with English/US/Canadian/European firms for that reason? Perhaps the infamous White Australian spirit is still shining above FS’s head? Does your neck really need to turn red, every time an Asian country is involved?
Very disappointed indeed!
no i think FS is just applying the same logic that FIRB does in assessing inbound Chinese investments. ie – what is in the national interest? I think it is a big worry indeed that MSJ might link up with King & Wood. What do we know about them? FS points to some atrocious recent behaviour by China and it is a fair point (not xenophobic or racist) to legitimately enquire whether King & Wood is partially state-backed.
Is anyone else asking what the implications of this might be? Presumably the partners concerned arent – they’re only worried about their back pocket
agree with Bilbo, hence why we see so many Chinese acquisitions knocked back by FIRB (thank god!)
Sorry guys – I tend to agree with Anonymous. I have noticed that the media here seems to unfairly target anything to do Asians, Indians or any groups which are non caucasians. This is another example.
There were none of this negative vibe coming from my fellow lawyers when Aussie firms merged with Clifford Chance, Norton Rose, A&O etc….but FS had decided to bash this particular merger because it is with a Chinese firm.
I have dealt with Chinese firms quite often and find that they are incredibly efficient and does the job very well. They are very profession and respectful.
I think FS’s post is not patrotic – but racist in my opinion……..
I didn’t realise you guys had Pauline Hanson on your team. You can say you’re not racist all you want, but if it walks like a duck and talks like a duck…
I don’t think there’s anything wrong to be patriotic. What I am worried about is whether it’s beneficial for Australia’s long term national interest when most of our northern neigbours perceive us as a bunch of anti-asian or racist bogans. Whenever i travelled around asia or talked with people from overseas, I always got asked why you guys hated us? what’s the indian bashing all about? Australia’s economic future rests in Asia. perhaps we shouldn’t ruin it? No?
Agree with Anonymous. Whilst I can understand the writer’s perspective, this article sounded racist and hypocritical to me as well.
Mallesons is a business, not a not-for-profit organisation, so of course profit is a major concern and driving force. There is no doubt that China is on the rise and this will likely continue for a very long time. The Australian economy has benefitted greatly from China’s outbound investment and it is only logical that a business, driven by profit, would seek to increase its share of the Chinese market. Even if Mallesons didn’t go ahead with the merger, there would still be plenty of legal work coming from China and Australian law firms will willingly take on all of it.
Whether Australian businesses merging with Chinese businesses is going to be of concern to national interest is something for the government to figure out and legislate with regards to. Otherwise, the last time I checked, Australia is a liberal democracy and Mallesons can make its own business decisions.
Also, the comparison of Australia with Angola is just ridiculous. Australia is NOT Angola. A simple merger with a Chinese firm will lead to Australia being pseudo-occupied by China is a pretty long call, if not a joke.
And just one more thing – who exactly comprises of the Australian aristocracy right now? People who are white, wealthy and male? It’s really sad to see that we are in 2011, in Australia, and yet there are still people talking about aristocracy. Especially in an article about ‘morals’ and ‘national interest’.
FS might as well start writing about religion as well from now on.
LOL!!! What are the names of those hordes of Chinese nationals who scour the Internet trying to enhance China’s image in chatooms?? Looks like they’ve found FS!!
Yeah – isnt there like a workforce of a few million who just sit on the net, trying to pump up Chinese tyres?
Call me a dork, but I don’t see any racism or a bogan writer here. I see an intelligently argued position on what is frankly a bit of a worry. FS didn’t make up any of the stuff in Africa- those things happened. They say the past is the best indicator of the future … so who knows what will happen if Australia’s best firm is suddenly an extension of, or alter ego for, China?
It’s one thing for Mallesons and other firms to represent chinese entities, which is fine, but I think FS is right that the situation changes drastically when Mallesons becomes so closely affiliated with a Chinese entity. Are there any readers out there who can comment on the degree of separation between King & Wood and the Chinese govt?
Re Dork’s comment
“They say the past is the best indicator of the future”
Its interesting you made this comment – what was Australia like in treating our indigenous ppl???? Australia does not exactly have a clean history. Lets be intelligent about this people.
Re: Aaaaaaon
KW is just a law firm – it is not the AGS!!! I take it that most ppl in Australia and those who have posted here on FB have not dealt with China first hand. I have lived in China for 3 years and just relocated back here. It is not what the media portrays what China is like. That is precisely the point. It is a commercial focused society.
All your fears about China in general and Mallesons merging with KW is just OTT.
Hey guys
It’s just a proposed partial merger between two private entities! There is probably no need to blow it out of proportion or overly politicize it.
Relax
Pauline just got fired on celebrity apprentice. When did FS hire her? lol
Are Dork (Sloth) and Aaaaaanon (Haha) the same person?
Pretty harsh likening FS to Pauline Hanson for expressing some legitimate concerns about what the merger may mean for Australia. Or am I just a bogan because I think China might use an affiliation with Mallesons to bend the rules?
Re: Tre
Malleson is just a law firm not the Cth Parliament. I’m not sure what would give a commercial firm such a mighty power to ‘bend’ the rules? From what I’ve heard it was Malleson approached KW, not the other way around. It’s Mallies who wanted a share of the chinese domestic market. Maybe the chinese should be concerned instead…
Cheers for the thoroughly interesting piece FS. The merger clearly raises some important issues. In my opinion it’s a bit of a concern if the merger has the potential to turn Mallesons into a kind of proxy for the Chinese govt
Interesting political take on a purely business matter guys. This reminds me of Arthur Calwell’s “two Wongs don’t make a white”.
Does Kevin Rudd work for the Chinese govt just because he is fluent in Mandarin? Oh his son in law is Chinese too. Oh no no! Where the b*****y h**l is Pauline? we really need her to kick all the evil foreigners out.. so we can be purely Australian again. Didn’t Aborigines come here first mate? how ironic! zzzZZZz
FS’s points are valid in the sense that the Chinese government’s practices are questionable in many instances.
However, this argument cannot be applied coherently when we consider other examples: Is America’s government acting correctly when it supports an absolute dictator and thug in Mubarak for thirty years? What about arming Iraq to the teeth with Biological and Chemical Weapons and unleashing them on the Iranians? What about taking our the democratically elected Allende in Chile? Or supporting the murderers in El Salvador?
I mean, the argument can be equally applied to the US – that doesn’t mean that we shouldn’t hook up with Bakers!
A sense of perspective will reveal the difficulty in applying this argument – China might not be an ideal state actor, but their track record in imperialism is not as bad as the US – do you question trading with them?
Oh my god that was awful. Your Asian politics minor in your arts degree does not make you in any way qualified to comment on international relations. To say a Mallesons merger is somehow going to tip the geopolitical scale is a complete smack.
Stick to gossip. Hacks.
Is Pauline Hanson the new firm spy editor? I am bitterly disappointed with the quality of article nowadays. You can say goodbye to your readership if you keep on posting nonsense like this.
IMHO there is absolutely no cause for the criticism being levelled at FS here. All the author is doing is posing a few valid qns to the Mallesons partnership. Those questions are not misguided. China’s recent track record is at best questionable and given the reach of a Communist regime into business, I think it’s fair for FS to admonish Mallesons partners of who they’re potentially getting in bed with.
We’re not talking about magic circle or Big Law here, so all that garbage about historical chapters of the UK and US is irrelevant.
Getting better access to, and possibly exerting undue influence over, Australia’s best foreign investment legal advisors is clearly in the Chinese national interest .. but query what it might mean for Australia.
Yes, Mallies is just a business. One with a long tradition of attracting the best legal talent so forget the xenophobia issue and consider it from another perspective:
The quality of K&W isn’t a patch on Clifford Chance, A&O etc and with the best will in the world, Mallies won’t be able to plug all the operating holes for years, if the merger happens.
The tradition of quality that goes with Mallies will inevitably change as the firm is forced to make compromises to fit the new culture. After all, the plate on the door will read King & Wood, not Mallesons.
Maybe K&W will match the Magic Circle in 15 years but in the meantime, why wouldn’t the next generation of young lawyers and some of those already at Mallies give the K&W circus a wide berth?
It won’t matter to the current generation of partners – they were trained under the existing regime and will be retiring by the time the impact of this merger becomes clear.
Going global is important but don’t just merge with anyone so the managing partners can tick the box on the merger task.
Mallies partners, you are custodians for what a fine firm has represented and what it could still represent if it waits for the right opportunity. Merge in haste, repent at leisure.
I agree with WTF, Dork and a few other comments above. FS is a sensationalist rag which is designed to provoke debate and give us a distraction from billing units. Mission accomplished here guys!
I would usually say it’s far-fetched to think a simple law firm merger could compromise Australia’s national interest, but going on the recent Chinese form cogently descrbed in the article, I think there is a point to be made.
Based on what I know about FIRB, it has no jurisdiction to intervene in partnership-type transactions not involving companies. So if they’re not asking questions about this proposal, who is?
Do you think Mallies partners would still have a say if the firm merges with a big Magic Circle or Wall St firm? It would just be a poor little cousin from down under.
Double standards! let’s pretend the west only brings freedom and democracy to da world! Didn’t the 1% just ‘forcefully’ removed all da 99% Occupy Movement protesters? what a bunch of hypocrites.
Re: wtf.
That’s exactly the point! So it’s okay for FS to bring up the scare mongering ‘gabage’ if it’s an Asian firm but not so fine to do the same to your white colonial master?
The central premise of this article – that malles should be considering Australia’s national interest in this merger because merging with KW is akin to aligning itself with the Chinese government is complete and utter garbage. I cannot believe the writer of this article could seriously even auggest that. KW is a private partnership, not a state owned enterprise.
I agree with the previous comments that this article smacks of xenophobia and racism.
As a regular reader i have to say, FS, I am very disappointed in what you have published. The tone and content of this article (query whether you should be publishing this type of commentary at all given people mostly read this site for goasip) very much turns me off returning.
Very,very poorly done indeed.
look, I think the article is at least valid insofar as it has provoked some debate. It is also replete with enough disclaimers (“our potentially naive views”) to warrant a measure of forebearance from the FS readership and not the vicious censure I have read in the comments above.
Likening one of Australia’s most informed legal commentators to Pauline Hanson for this article is just outrageous. Let’s look at the premises:
Premise 1 – China needs mineral commodities
Premise 2 – The Chinese/African experience exemplifies the misbehaviour China is prepared to engage in for the purposes of securing the supply of mineral commodities. I’m not sure I buy the hypothesis from FS that the meeting with Libya this year was as nefarious as they have alleged, but it is possible, especially in the context of its other recent behaviour on the same continent.
Premise 3 – China wants Australian commodities but has so far been comparatively unsuccessful in its attempts to secure it with a deal completion strike-rate of apparently less than 20%.
Premise 4 – Linking China’s most prestitigious firm with Australia’s best foreign investment legal advisors will probably help improve that strike-rate.
Premise 5 – Given what we’ve seen in Africa in relation to China’s export of capital for mineral supply, the Mallesons partnership should give serious thought to the merger and contingencies that in a normal merger could be disregarded.
Premise 6 – The likely next president of the US thinks China is dodgey.
Seems like a logical argued submission. It isn’t racist. It isn’t xenophobic. It was designed to give Mallesons partners spending the weekend thinking about the merger something else to consider.
I personally don’t think the merger will materially affect the national interest but I would like to thank Firm Spy for taking the time to write something interesting and relevant
My comments are addressed to those who are against the merger.
I am assuming most FS readers are current/future lawyers. If this is the case, then I am utterly shocked and disappointed by our present and our next generation’s lawyers’ mindset.
I cannot comprehend all your anti-asian/indian sentiments. I thought we have moved on from being such a closed minded society – but having read these comment -I am so wrong!! I am ashamed that we have such a large contingent of bogans/racists (whatever you want to call them) working in the legal industry!! Those who think that they are being patriotic are just fooling themselves.
I honestly believe that those who are against the merger simply have a fear of the unknown.
We are not particularly well in relating to anyone who thinks or looks different to us. We get along well with Kiwis, Americans, Canadians, European, and basically any one who looks white….but when it comes to Asians/Indian then we pause and say – oh we are not racist – we are just patriotic.
I blame the media for this. We have all been fooled by ONE sided reports we get from our Aussie media agencies. I have noticed Aussie news agencies never write any positive things about China/India. They focus on the negative and then tailor their article or report in a way so that it makes us feel there is a huge distance between us and them. Therefore, when ever there is anything to do China/Asia/India, we are subconsciously against it because we feel that we can and will never be able to relate to Asians/Indian on a personal and in a commercial level. This is precisely why we have people saying that they are against the merger.
It is time for us to stop this nonsense!!
Lost me with ‘landed aristocracy’ and the ‘Republican Party’. Are we talking about the undue influence of conquering white nations throughout history?
International firms have been built on the success of expansion throughout Europe, US and APAC. Where was this uproar when law firms entered the Soviet Union – another Communist country?
Mallesons is looking to formalise a commercial arrangement, not sacrifice their religious and political ideologies at the altar of Mao. Get with it. The last I looked, the law governs legal practice.
If the ignorant biggot who wrote this article had his/her way, there wouldn’t be any trade or commerce with China lest we support China, the Chinese and Communism. Exactly how scared is the author?
Have you noticed that your PC components, Nikes, TV etc are mostly made in China? We buy Chinese goods. China invests in Australia – as a consequence, there is an inflow of money from all over the world. Australia exports natural resources and produce for higher prices than they receive in the domestic market. Welcome to capitalism. (Perhaps the author is a closet socialist?) You’ve been supporting China’s position every time you bought a “Made in China” product. While you enjoy the strong Australian dollar when you travel – you can thank in part China.
Legal services are just another commoditised business offering, this is obvious to anyone whose ever been involved in a tender process.
Certainly all the parameters of such a commercial arrangement are not clear. It is a precedent after all. Why wait to shape the future? There are enough capable lawyers at Mallesons to draft and negotiate a commercial arrangement in their favour.
Weigh the deal and discussions on their merits and whether it helps to achieve the most important of the firm’s short and long term objectives. If you’re not confident, then the firm hasn’t done enough work to convince you. Last I read, PRC firms are not permitted to financially integrate with foreign firms and foreign lawyers cannot practice in China. This looks to be more like a formalised strategic alliance. Be clear about what you can expect to lose and gain globally – deal or no deal.
To those who think FS has made an interesting point – do you think an article like this would have been written if malles had been looking to link up with a US firm?
Last time I checked China isn’t the only country to have a questionable human rights record.
Lawyers, ever heard of the propensity rule for a fair trial of an alleged criminal? Here, FS paints China as a criminal in the context of this business deal (where there is no evidence of the Chinese government driving the transaction). And then FS tries to air all of China’s past dirty laundry, past acts and also hearsay from politicians to persuade readers (including any partners who actually read this) of their point of view. If thats not what you’re trying to do, then why publish this article in the first place.
Ever wonder why there are no Asian/Indian CEPs? And hardly any equity partners for that matter, unless they have the language skills and connections to milk money from Asia. The fact is that if you don’t fit into white blokey culture internally in your firm or externally with clients, you can’t go very far. Genuine racial tolerance and integration in Australia’s legal industry is a myth.
Given that there is a push by our Treasury and Aus Trade to make Australia (with its proximity to Kuala Lumpur and Singapore) a regional hub for Islamic Finance (Freehills, Clayton Utz and Mallesons already doing low scale IF works), I wonder how a merger between an Australian and a Middle Eastern firm will be received by Firm Spy’s readership…
Isn’t CBP’s managing parter a minority of some kind?
Great debate. A couple of points to add. The article does not raise concerns in respect of race. It is not racist nor xenophobic, though I do wonder about the landed aristocracy question at the end…. The concerns are raised in respect of what is known to be a very controlling and non-transparent government, which ‘participates’ or more accurately directs much of its domestic commercial activity. Accordingly, the concern is about whether a merger with a Chinese domiciled firm would be subject to the same controls or influence of this less than transparent government. On that point, I don’t share the writer’s concerns, but I will return to that below.
Putting, to one side questions of human rights etc and speaking purely in terms of commerce and capitalism (that sounds terrible, but I am not suggesting that I would put those things to one side in judging any government…ours included), there is nothing necessarily wrong with the way China governs. In fact, Beijing’s ability to pursue its national interest without the checks and balances and ‘democratic’ inefficiencies of most Western states has assisted in its rapid development. The fact, however, remains: we currently play by different rules. In the West (though I hate to use that term), we have systems and processes of government accountability (some better than others and none perfect). Our capitalist framework is largely premised on a neo-liberal approach to commerce and private industry. The sorts of government control that we have in terms of regulation are a far cry from the Chinese experience.
The inference of racism when drawing comparisons to the Norton Rose, A&O and Bakers experiences is misleading. This is not some ‘white Australia’ policy or Hansonism in the legal world which welcomes these mergers because they are a more palatable form of colonialism (this sort of reaction and lack of analysis by some on here is worrying because it is a straw man argument). These mergers and expansions in Australia have been accepted (I won’t say they have been successful, yet) simply because western common law nations from where these firms hail have either a shared or analogous evolution of their legal systems: We do play by the same rules.
Personally, I think the concerns expressed in the article are a little alarmist in the context of merger discussions. Frankly, in my view, these sorts of mergers tend to be mostly in name only and are really designed to improve branding or “depth” for a perceived client expectation that a firm should be able to look after its interests across the globe. For what its worth, I also think this perception of client expectations is erroneous. In any event I expect that under any merger Mallesons would keep all of their IT infrastructure entirely separate and off limits.
On the prudence of that approach seehttp://www.bloomberg.com/news/2010-04-19/rio-tinto-bhp-billiton-fortescue-hit-by-china-computer-hackers-abc-says.html
I’m more concerned about China not allowing foreign firms to take over its domestic law firms. At the very least there should be some degree of reciprocity. I personally think there’s some fishy business going around and guess what, what I’m Chinese!
It’s funny how China does not allow foreign firms to take over its domestic law firms or practise Chinese domestic law. Reciprocity much?
@Anonymous… Why didn’t FS suggest that Aussie firms should refuse to merge with English/US/Canadian/European firms for that reason?
Because these jurisdictions have the rule of law…
FS: “Will incorporating in Hong Kong under the mooted Swiss verein structure ensure that Mallesons remains at arms-length?”
Yes. The swiss verein model simply provides for a lock-up of the already extant Chinese referral arrangement – nothing more.
Some of the comments on this page are ludicrous at best.
@Anonymous
November 21, 2011 at 12:24 PM
I agree with you, and guess what? I’m an idiot.
This is going to destroy Mallesons’ brand domestically. The partnership is ditching a 154 year old name that is considered top-of-market in favour of something chinese members of a dissolving government-backed trade committee workshopped in 1993 to “sound western”. It is a recipe for disaster.
I dare say that the cream of the graduate crop will not be lining up to work for the firm that is considered to be the first choice of important corporates in Chongqing, Hangzhou and Ji’nan. This is a middle of the road decision. Assuming Mallesons can attract a smaller (read mediocre) American / European firm (or firms) so that it can carry out a global merger on its own terms, it will be left in the middle of the international law firm pack. A brand like Ashurst or Norton Rose will look like rolled gold to the ex-Mallesons partnership in 5 years. In the meantime, graduates will desert it in droves for Allens and Freehills. If they want to be deal monkies they will go to A&O and Clifford Chance.
If its clients aren’t put off by the merger they will surely be put off by the second rate lawyers that King & Wood will be left with. In my opinion, this decision appears to be driven by Mallesons’ energy and resources cabal and Robert Milliner’s desire for a final curtain call.
@ Prospective employee -
While KW is not a recognised name in Australia – I do not think it will “destroy” Malleson’s brand domestically. I bet lawyers in KW feel the same re: destroying their brand in China by merging a firm virtually unheard of outside of Aust.
If Mallesons wants to tap into the Chinese legal market – what better way that merging with an established top local firm in China? Note that I am referring to a “local” firm in China, not an international firm.
The partners at Mallesons must see an opportunity to generate revenue with this merger. There are a lot of deals going on in Australia with China and this will surely bring in more revenue and more jobs to the firm. Without continuing growth and diversification there won’t be any grad positions …… I see nothing wrong with this merger.
On the flip side – Asian corporate clients would recognised the KW brand and be inclined to do business with KW. This would surely have a positive flow on effect for Mallesons.
Your views again underestimates the potential for business with growing markets (like China/India) for Australia. Lets not “look down” upon Asian countries. If anything I am “put of” by your “belittling” comments. Last time I checked, there is alot more going on the world than just whats happening domestically in Australia.
FS: FYI – you do know the wrestling picture of the man locking in the “crossface” hold committed suicide just after he killed his wife and kid right?
Yes Anon, they do.
Very suitable picture for when discussing anything law firm related.
It’s comical the way any comment on this page questioning the merger has a negative score and all the pro merger comments are rated so high.
There must be some repetitive strain injury among poor old Mallesons staff who’ve been tasked with scoring down anti merger comments on this page ahead of the partner vote.
Not to mention the manufactured “outrage” over the supposed anti Chinese sentiment.
You’re helping sign away your own future, people. So naive.
@ RSI, I’m flabbergasted that you think that anti-Chinese sentiment should be in the majority. That speaks volumes.
There are a lot of racial bullying going on in the professional services environment. FS might wanna look into that. I hope I am not asking the wrong person for this.
It’s probably not the intention of FS to sound racist. But a few mates of mine from various law/accounting/IB firms did find the TONE of this article racist and voted against it. That’s the point we are trying to make. FS we are not your enemy.
Re: RSI Anyone
I voted – against your comment. And no its not “comical”.
I don’t work for Mallesons but I think law firms should branch out where there is growth. This is not “signing” away our future but making an intelligent commercial decision.
Your narrow view of the world will not help get Australia very far in the future. So naive.
@RSI Given the poor English used in many of the pro-merger comments I’d say it is the K&W crew and/or an organ of the Chinese state doing the voting / making the comments rather than Mallesons.
Taste of things to come.
@Prospective employee/RSI
2 points :
1) You have not responded constructively to comments made by the so called “pro mergers”. Rather, you completely ignored the underlying arguments made and only referred to your own post.
2) This is only a message board – if there are any spelling or grammar mistakes then it is expected and forgivable. “Poor English” can be easily corrected in the real world. What is harder to correct and forgive is people’s attitude (like yours) towards Asians. What an embarrassment to the legal profession!
The merger is a massive strategic blunder by MSJ. The simple reason is because MSJ is light years beyond KW on every single level.
Having worked in HK and China for several years, the level of sophistication of locally originating laywers working (even those trained abroad in Australia, the UK and US) for magic circle firms is on average very poor compared to the level of quality you’d expect in the UK or Australia.
How much worse is it in KW, a PRC based firm. There are exceptions but KW is not one of them.
I read almost all the comments here.
FYI, KW partners have voted for the merger last Friday. My colleagues view the merger as a pure business decision and it is beyond our imagination that the Chinese government would in any way be invloved in this transaction. KW is probably nothting in the eyes of the Chinese government. KW partners are running the law firm as a business.
Zol belittles Chinese lawyers, which is stupid and offensive. Don’t think people from other countries or races are less capable than you are. I always think that there is no difference in the level of intelligence between the races and continents. Many Chinese receive J.D. degree from good law schools in the U.S. and work in law firms in the U.S. Considering that they study and work in a foreign country using a foreign language and excel, you should show your respect. At least you cannot underestimate their intelligence and ambition.
At KW I work for a female partner (there are many female partners at KW and they are doing very well). She is very intelligent and very demanding and sometimes I don’t enjoy working with her. But I have to admit that she is one of the best lawyers I ever met, including U.S. law partners. Good legal practice requires the same set of skills, whether it is in the U.S., Autralia or China. There are the best lawyers in each country.
BTW, I don’t take racists seriously. To me, they are just narrow-minded. If they read world history, they would know, hopefully, no ethnic group or no country is superior for ever. Cities, regions, countries, cultures and civilizations all rise and fall.
If Asian countries are more powerful and richer than western countries, I am sure that some Asians would be racists and look down upon the Caucasians. If Africans are more powerful, some of them would look down upon the rest of the world. This is part of the dark side of our human nature. It is like within one country people from rich regions may belittle people from the poor regions, and within one society the rich may look down upon the poor. This happnes everywhere dating back to the early days of human civilization.
There probably are more racists in China than in Australia. I am always delighted to think that human civilization has reached such a level that racisim is now considered politically incorrect, especially so in the western countries.
To me, it is just natural, and there is nothing great, to be patriotic. It is like it is just natural to love one’s own family and oneself. As the world becomes smaller and smaller and international communications and connections keep growing, more and more people will share the view that we are one family in this one world. There will be more and more people identifying themselves as world citizens, instead of Australian or Chinese citizens.