Interview Series: Gregory Louvel
Interview by Nil Larom, Fall 2022
Edited by Nil Larom and Hugo Menzer
Partner, Leaf Legal
1. How did you decide to move to China?
I have just completed my 17th year in China.
I started working in 2002 as an M&A lawyer for an international law firm firm between London and Paris but I was quickly underwhelmed by the nature of my work. My career path was predictable, with clear milestones for over 5 years. I wanted to add some spice to my life. I was fascinated by China since I went there for the first time in 1997 for the handover of Hong Kong to the Mainland. Back then, I wasn’t familiar with the Chinese language or culture, but I still decided to take Chinese classes, which I did for 3-4 years.
While working as a lawyer in Paris, I was studying Chinese every day before work, for up to 12 hours every week. My target was to be good enough to qualify to move to the firm’s office in Shanghai. I was extremely motivated but office politics made it impossible for me to relocate internally. I made the decision to go to China regardless. Rather the firm could sort out the procedure for me or otherwise I would find a way to go by myself.
“Don’t let anyone tell you that your dreams are wrong or impossible to fulfill!”
2. How was your first experience in China?
It so happens that, right before I decided to leave, I received an offer from an international law firm to come to China. I took the job, which after a few months turned out to be both a cultural and professional mismatch.
I left and got hired by the EU Commission to work in the financial section for a year. It was based out of Beijing which represented an opportunity to collaborate with high-level people in both the Chinese government and European Commission and to see how China works from a central perspective. Following that role, I got hired by another English law firm that was a perfect fit for my background, involving meeting and working with colleagues around Asia and the World.
The Chinese economy was shifting from manufacturing to more sophisticated industries. Foreign clients were investing in China, while China was securing assets and natural resources around the world. I got to go to many SOE headquarters and met their leaders.
Tencent was also emerging as a major player in that period of my career. The world was revolving around China, so I didn’t even have to go anywhere: staying here kept me connected to the world.
In 2011, I decided to take my career to the next level, joining an American law firm, where I stayed happily for 4 years.
Starting in 2012, you could witness a paradigm shift where China was becoming increasingly assertive on an international level. Chinese firms were making big acquisitions while foreigners were slowing down their investments in China. Some industries such as foreign hi-tech firms in China (Google and Facebook) were hitting rock bottom at that time. Whatever was driving growth in the world was not allowed entry into China. Supply chain and manufacturing all peaked before 2013. Chinese firms could do it better, cheaper, and with increasing efficiency.
The new five-year plan and the anti-corruption campaign came about to stabilize the power in China, with a focus on infrastructure and getting money flowing into the economy. Domestic demand was sluggish in China in terms of share of economic growth as opposed to more mature economies such as France and the US. Highest level of Chinese central government were already well aware that China’s aging population will eventually cause an economic slowdown and has been managing this issue for the past 10 years.
3. How did you decide to open your own practice in China? How has your specialization evolved since then?
After working at an American law firm with blue chip clients, I saw that everything was transitioning towards tech and increasingly China-centric. Doing business in China was becoming more complex and more expensive. The American firm had an American mentality when it came to business: “one practice, one way around the world”, and when something didn’t work, they just cut salaries and employees.
I saw an opportunity to implement what my management would not consider. It wasn’t personal; I just didn’t want a boss holding back my forward-thinking ideas. My partner-to-be, Bruno Grangier had the same Chinese journey as I did so we decided to open our own practice together in 2014-2015.
As we were one of the last firms to enter the “law firm market”, we needed to convince clients we were trustworthy. It took commitment and dedication to the clients, however small our practice was. We were very lucky in the sense that I managed to bring in clients who had previously been overpromised and under-delivered. I always approached them with a clear thought process and milestones; clients appreciated a clear-cut western explanation of the realities in China. Having a strong M&A background allowed me to advise clients on driving their investment process in China. My strongest asset when starting out was that I didn’t think only like a corporate lawyer, I could actually discuss strategy and business models with clients, unlike big firms that could only answer legal questions. Thinking out of the box and having a commercial approach to legal issues is what made our trademark recognized in the legal industry.
Overall our firm’s success was based on several factors: our background as lawyers, our international experiences in various countries, and our deep understanding of the Chinese context. Having a specialty is the key.
“There is always room for people who can bridge the gaps between China and the West”
“We knew how to localize our knowledge”
The acquisition cost for a client who was already represented by a law firm was very high. My first client was a video game company with no previous experience in China, who wanted options for their legal counsel. We started advising foreign entrepreneurs in China who were raising money; that was our starting niche. International PE and VC funds thought that having their portfolio companies focused on China would clearly open up a new channel and a story never told before to their Limited Partners (LP). Small size entrepreneurs with crazy ideas were starting to raise funds here with Chinese investors. We started advising them and grew with our clients.
As the tech industry moved quickly, so did investing practices, as well as data regulations and other regulatory updates impacting tech investments (CFIUS, trade sanctions, etc.).It all became our focus, as part of an exciting and fast-paced life.
4. What trends do you see happening in China lately and how do you see them evolving in the future versus in the West? What about trends in the digital space?
Today, everything is data-driven; no one opens a manufacturing site in China without having it digitalized in the first place. While Europe is focused on privacy, China is focused on sovereignty, and the US is market-driven, where the outcomes are solved down the road. China early on was concerned about foreign use of local data. Data has kept our firm very busy in the last 2-3 years.
Each type of player in the market has its own focus. Foreign players in China have been focused on online retail platforms. For foreign entrepreneurs, the scale is an issue, as the scale for certain domains is just not accessible for most. A lot of Chinese funds want to follow PRC Central Government five-year plans, where the government outlines the primary focus on certain industries; a well-known example is semiconductors.
In contrast to the five-year plan, the Chinese government also took sudden decisions to crack down on education, which caught local and foreign players off-guard. The cost of education for children was rising too fast, and despite coming from a place of concern for the population, the outcome was harsh and sudden for the industry, especially when coupled with Covid. The video game and education industries saw massive layoffs. Nowadays, Chinese recent graduates need to be overqualified to get into an SOE, as they aren’t hiring anymore. Only big tech companies are hiring now and even that is going through a period of instability. Entire programs got shut down, affecting the whole Chinese economy.
5. What opportunities and risks do you see for foreigners doing business in China?
Retail: China is still hot on brands (retail), you can still build platforms to sell sneakers and collectible items for example (laugh).
Web 3.0: Bridging collectibles to NFTs is an issue, as China hasn’t cracked the code on how to fuel or manage this market. Crypto allows users to control a currency while avoiding governmental control. China wants to control all the monetary tools, which means putting a break on tokenization in any form. Web 3.0 and NFTs are the other side of the “crypto coin”; how to make these things happen without playing with crypto? China will be interested in these markets but has to figure out and catch up on its own way of going about this. This could be an opportunity for any entrepreneur. Web3 funds in Asia are focused in Singapore; I don’t know of any funds in my circle in China that are able to crack this market. Firms here are focused on AI, industrial robotics for manufacturing, and connectivity, which are all promoted by the five-year plan and are safe.
Enterprise Software: Chinese firms have yet to grow in the Enterprise Software space, a domain where they have less experience than foreign firms. A lot of Chinese companies are limited by the human work factor and would need such tools to streamline their growth. Items such as enterprise security are still stronger with foreign players, as long as they know how to localize their business.
Valuating and Working with Data: Chinese leadership advocates for data to be considered as a new means of production together with capital and technological progress, in their thinking data can be used to fuel Chinese growth. It remains to be seen how they want to implement this and factor it in Chinese economic growth.
Data is therefore at the center of most recent centrally financed projects, but the question is how to get good data amongst the mountains of data collected. In my opinion the Chinese companies are hitting a roadblock as they endlessly collect data, and collecting bad data can be misleading and inefficient. Critical thinking is “paramount” in this discipline, and that would require a change in culture that is not necessarily present, being strongly linked to the local educational framework. Data analytics are strongly related to company reporting culture, which itself is strongly entrenched. Foreign firms are unfortunately limited in their participation to data analysis, which prevents the overcoming of the said roadblock.
The population trend: By the end of the century, China is projected to have a population of less than 700 million people (even way less by sone pessimistic projections); how would they deal with it? You need really good processes and smart AI to make decisions to deal with these issues. The population trend is not in line with plans for economic growth, which is a massive obstacle to becoming a healthy and dominant economy in the global landscape. The so-called “Silver Economy” segment may seem attractive on paper, but cracking it means targeting and inventing business models that would work well within a tighly knitted social fabric where the young directly take care of their elders and in return eleders take care of children pre-K education. It remains to be seen how Chinese society will adjust to these challenges while maintaining its traditions.
Credits: Nil Larom (interview and editor), Hugo Menzer & Alex Goncalves digital-space.cn (illustration).