Firm News

China's Alpha & Leader Goes to California

DECEMBER 19 , 2007

Kellie Schmitt
The San Francisco Recorder

For many years, U.S. law firms have been rushing into China, investing people and resources to help clients on the ground there.

Now, a Chinese firm is mimicking their strategy -- opening a representative office in the United States. This year, Guangzhou-based Alpha & Leader, with more than 60 lawyers, planted its flag in Los Angeles.

The firm is among a handful from China that have set up shop here -- such as King & Wood in Silicon Valley and Jun He in New York City -- likely harbingers as Chinese law firms mature and expand internationally.

"I think we're going to see more Chinese firms here -- they want to have a footprint here," said Robert Allan, the managing partner of Alpha & Leader's Los Angeles office.

For now, the advantages for Alpha of having its five-lawyer office here are mostly practical, he said. They also mirror what American firms say about opening in Asia: It's helpful to have someone based in the distant time zone, who literally speaks the client's language.

Allan is a Canadian-trained lawyer who has been a solo practitioner in the U.S. since 1985. In 2003, a client suggested that Allan meet one of the client's Chinese lawyers. Through an interpreter, he connected with Wesley Pan, now the senior partner in Alpha & Leader's China office. The two started working together under a loose alliance called the USA China Law Group. This summer, they formalized the relationship under the Alpha & Leader name, and Allan now devotes most of his time to the firm because, he says, the name says it all.

"We're first and first. You can't beat that."

He and Pan formed an alliance that resulted this summer in the L.A. representative office.

The firm targets much of its practice on a specialized niche: the purchase and sale of non-performing loans -- loans that are in or near default. As the Chinese government has transferred NPLs from state-owned banks to asset management companies over the past decade, it opened the door for foreign investors. Those foreign investors were looking to invest in China's development, but were limited by the Chinese government's currency restrictions and rules governing foreign ownership of property, Allan explained.

The legal work includes locating a loan, doing the due diligence on it, and handling the actual transaction. The firm's clients include Chinese banks and asset management companies as well as purchasers such as Citigroup, Bank of America and Goldman Sachs.

Allan said it was Pan who realized that a firm could find a lot of work in that specific area.

"Wesley's theory really struck me -- I thought it was an astute observation," Allan said.

Alpha & Leader has been involved in some aspect of more than 50 percent of the transactions involving non-performing loans in China, Allan said. Its competitors are other Chinese firms and American-trained lawyers such as Howard Chao, the head of O'Melveny & Myers' Asia practice.

But Chao said he wasn't familiar with Alpha, and dismissed the importance of a non-performing-loan practice for firms like his.

"The NPL practice in China has not blossomed the way some people thought it would," he said "The market for those deals has been decidedly smaller and local, domestic. There haven't been large-sized transactions anymore."

Chao attributes that, in part, to the policy of the Chinese government that encourages smaller, domestic bidders. There's so much liquidity in the Chinese domestic market that they don't need foreign investors in that sector, he said.

But, within China, Alpha & Leader is known as the go-to counsel on NPL portfolios, said Jinshu "John" Zhang, the head of the China practice at Greenberg Traurig, a firm that has sponsored Alpha attorneys to work in its L.A. office for a summer.

"In connection with the sale of NPL portfolios, they have worked with quite a few major I-banking houses," Zhang added.

ALPHA'S BEACHHEAD

Alpha's L.A. outpost houses five lawyers, all of whom are U.S.-trained. As a representative office, the attorneys focus on coordination, strategy and referrals for the firm's China offices.

Their Malibu office, accentuated with high ceilings and exposed white beams, was Demi Moore and Bruce Willis' former gym, back when the now-divorced couple lived across the street in a home overlooking the ocean.

Allan said it's a great location, though it's separated from the city's typical legal hub by miles of infamous Los Angeles traffic.

"I would rather fly to China than drive to downtown L.A.," Allan said.

Among their U.S. attorneys is Julia Zhu, an associate with law degrees in both the U.S. and China who has served as a judicial clerk in a China district court. She had been working for another small law firm in Los Angeles -- Brinkman Portillo -- but decided she "wanted something more."

Zhu's expertise comes in handy when helping U.S. clients navigate the Chinese markets.

"It's not only about lawyering," she said. "You really need to understand the mentality of the Chinese business community."

She offered the example of cautious American investors who wanted to insert a clause prohibiting money laundering in a contract, and the offense the Chinese took at the suggestion.

The firm is already looking into expanding its reach in the U.S. They have an exchange program with Greenberg Traurig, and, this month, agreed to an exclusive affiliation with Bryan Cave, an 800-lawyer firm. Bryan Cave will be the preferred firm to support Alpha on work in the U.S., and Alpha will become Bryan's preferred firm for local law services in China.

ENTERING THE U.S. MARKET

James Zhu, a Perkins Coie partner who helped established that firm's Shanghai office, said he recently attended a conference in Hong Kong that discussed whether more China firms would be entering the U.S.

As of now, there are just a handful of major Chinese firms with U.S. outposts.

"I think, given the economic transactions between the two countries, we're going to see such trends," Zhu said. "The caveat, right now, is that their offices in the U.S. are just windows to help clients' needs, but the majority of the work here is done through collaborations with U.S. firms."

That's largely because of the more recent establishment of larger Chinese law firms, many of which are still catching up to their international counterparts when it comes to sophisticated lawyering and full-service firms.

That is changing though, lawyers say.

"Chinese law firms are getting bigger and stronger and they have clients throughout the world," said O'Melveny's Chao. "It's the next step."

The advantages to having one's own office -- instead of just linking with U.S. firms for work here -- include having greater control of the work pipeline and developing stronger relationships with clients, Chao said.

But setting up shop in the U.S. is very costly and time-consuming, he pointed out. It's hard to find the resources to devote to opening an office abroad, given the demanding work climate for legal services in China.

Firms will probably be encouraged to do so as more Chinese companies come to the U.S., Greenberg's Zhang predicted.

Zhang agreed that there's still a steep learning curve for Chinese firms. Large-scale transactions require sophisticated, full-service U.S. counsel, and having a small outpost often isn't enough to fulfill those needs.

If they do establish a U.S. office the likely choices are Los Angeles -- and the entire West Coast of North America -- he said. The closer geographic proximity and the more culturally welcoming atmosphere are key, he said.

But even though more Chinese firms are likely to follow Alpha's example, Zhang pointed out that the real trend will largely remain in the opposite direction.

"The important moves are still in China, not here," he said. "We're opening an office in Shanghai as we speak."

Allan Law Group represents clients with domestic and international business interests in the United States, China, Russia, India, and the southern California cities of Los Angeles, Universal City, Pacific Palisades, Beverly Hills, Burbank, Pasadena, Glendale, Woodland Hills, Encino, Century City, Simi Valley, Los Angeles, Malibu, Ventura, Santa Monica, Culver City, Marina Del Rey, and Malibu.