As enterprises step out, lawyers please come in

Since the Belt and Road initiative was proposed four years ago, Chinese enterprises going global have encountered opportunities of historical proportions. Their investments in countries along the Belt and Road have been steadily increasing. Just in terms of project contracting abroad, in 2017, Chinese enterprises executed contracting project contracts worth more than US$140 billion in the 61 countries along the Belt and Road. However, it should be noted that, under pressure in the domestic and foreign competition environments, enterprises, in the course of going global, have also paid a bitter price, one of the major reasons being inadequate defence against legal risks.

Among the Chinese enterprises that go global, large state-owned enterprises (SOEs) are the main force. Traditionally, the business of these enterprises has mainly been project contracting. They now face both a change from general contractor to investor domestically, and a transformation from domestic business to international business, but there remain certain misunderstandings in terms of the prevention and control of legal risks, the function of legal affairs, the engagement of external counsel, etc.

COMMON MISUNDERSTANDINGS

Overstressing the importance of business departments and neglecting the legal affairs department. The status of inhouse counsel in an enterprise will usually directly affect the level of prevention and control of the legal risks in a project. Foreign-related projects involve complex legal services and few enterprises have a sufficient number of inhouse counsel to handle all legal matters. The status of inhouse counsel directly determines the breadth and depth of participation in projects by external counsel.

Wang Jihong is a partner at Zhong Lun Law Firm. She can be contacted on +86 10 5957 2288 or by email at wangjihong@zhonglun.com
Liu Ying is an associate at Zhong Lun Law Firm. She can be contacted on +86 10 5087 2713 or by email at liuying@zhonglun.com