For the first time a Hong Kong law firm was officially approved on Wednesday to form an association with another legal firm in Zhongshan, a city in south China's Guangdong Province.

The firms, Hong Kong's David YY Fung & Co and Zhongshan-based Zhong Yuan Law Firm, have been issued with a license for their alliance from the Guangdong Provincial Department of Justice. This puts an end to 10 years of unofficial cooperation.

"We will share some of our clients as well as the related profits even though we are still independent," Huang Dongwei, a partner of Zhong Yuan, told China Daily yesterday.

Huang has dispatched several staff to work in David's office in Guangzhou but they remain employees of Zhong Yuan.

The Hong Kong Special Administrative Region and the central government reached an agreement at the end of last year on liberalization measures under the third phase of the Closer Economic Partnership Arrangement (CEPA III), which took effect on January 1.

"Under CEPA III Hong Kong legal firms can enter into an association with mainland law firms in different cities of the same province, autonomous region or municipality directly under the central government," said Liu Shaohan, an official of the department. 

Under CEPA I and CEPA II Hong Kong firms were only allowed to cooperate with mainland firms in cities where they had branches or offices.

David YY Fung & Co set up an office in Guangzhou in 1993 but it had an unofficial association with Zhong Yuan in Zhongshan. Their joint business became formal when the license was issued under CEPA III.

Hong Kong currently has about 650 law firms and of these only 17 have branches or offices in Guangdong.

As CEPA III stipulates that a Hong Kong law firm can associate with only one mainland firm, experts believe the policy will not spark an upsurge in joint ventures in the short term.

(China Daily April 7, 2006)