Since Communist party leader Deng Xiaoping set about reforming China's economy just over 20 years ago, it has become increasingly attractive to outside investors.

And where they go, their lawyers are sure to follow.According to Peter Nightingale, chief executive of the China Britain Business Council, China has had the fastest growing economy on average in the world over the last 20 years.

'Even last year, which was a slow year, China's gross domestic product growth was 7.1%, which is enormous for a country of that size,' he says.

'At the moment, China has the world's tenth largest economy and in the next decade its economy will overtake the US because of the size of its population .

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that makes it very attractive to foreign business.'Freshfields' chief executive Alan Peck puts it bluntly: 'It's a huge market, an absolutely gigantic market, all the multinationals are involved there.

If it's too big a market for our clients to ignore, it is too big a market for us to ignore.'Despite earlier economic reform, it was not until 1992 that the Chinese government finally allowed foreign law firms to set up in China under licence.

Over the years, licences have been given out sparingly on a country-based quota system.

Many firms have had to service China from their Hong Kong offices and even now that Hong Kong is part of China, it is not the same as being on the mainland.

There are now 88 foreign firms and 25 Hong Kong firms with offices in China, of which 16 are English.However, even with a licence, firms still face restrictions on what they can do once they set up their China office.At the moment, foreign firms can maintain only one office -- which for most means an important judgement call between setting up in Beijing, the heart of government, or Shanghai, China's financial and banking centre.More importantly, firms are prohibited from employing Chinese lawyers, from entering partnerships with them and from practising local law.Wary of the delicate relationship foreign firms have with the Chinese government, few will speak openly about how they get around these problems.

Unofficially, one solicitor said his firm did advise on local law and that advice was only sought from Chinese firms when clients demanded an 'official' opinion.

Nevertheless, clients have to be warned that the advice is 'not worth the paper its written on because local firms don't carry sufficient insurance', he added.Gao Peiji, a partner in Clifford Chance's China department in Hong Kong, says that despite Chinese lawyers being forced to give up their practice licences when they take jobs with foreign firms, many are still employed as consul tants or paralegals.While foreign businesses might go to Chinese lawyers for 'less sophisticated' work, they need to use foreign firms for complicated work like mergers and acquisitions and project finance, Mr Peiji explains.

For local knowledge, foreign firms are expected to, and do, develop close relationships with local firms, he adds.Although firms had hoped that practice restrictions would ease with China's accession to the World Trade Organisation (WTO) -- which is expected later this year or early next year -- it looks likely that many of the restrictions will remain.According to one of the European Union negotiators for China's accession to the WTO, foreign law firms will find it easier to obtain licences once China accedes because the authorities will no longer be able to refuse licences on 'numerical' grounds -- previously there was a cap on the number of foreign firms it allowed in.

Any refusal must also be duly motivated, for example, on the grounds of incompetence or fraud, and there must be a possibility for appeal, he says.After a transitional period of a year, firms will also be able to open as many 'representative' offices as they wish.What will not change dramatically on accession are restrictions which prevent law firms from employing Chinese lawyers and from giving advice on Chinese law, two key elements for UK firms when they set up abroad.

In these two areas the negotiators got 'much less than half the apple', the EU spokesman admits.The small amount of ground which has been gained will allow foreign firms to enter contracted 'entrusment' relationships with Chinese firms.

Under these arrangements, foreign firms will be able to offer services on Chinese law and to ally themselves directly with Chinese firms while remaining separate and distinct entities.

Under the new arrangements, Chinese lawyers will also be able to work on secondment at foreign firms without having to give up their licences.In addition, the minimum amount of experience foreign lawyers will need before they can practise in China will be reduced from three years to two years for most solicitors and from five years to three years for a firm's chief representative.

Prior experience will no longer have to be consecutive.One of the hidden hurdles to opening a China office is recruitment, according to Simon Latham, senior partner of Ince & Co's Hong Kong office.

The firm was one of two UK firms to receive a licence to open in China in the most recent annual round (see [2000] Gazette, 31 May, 10).

One of the most significant factors for firms is whether they can persuade staff to relocate to Shanghai where there is a different ex-pat lifestyle to the established one in Hong Kong, he says.

For some firms, there is a smaller pool of candidates to chose from.This view is shared by Mr Peck, who says there is 'a big scramble' for lawyers who are fluent in Mandarin.

This leads Freshfields to recruit from the US, which offers a 'much larger catchment area'.But whatever hurdles may remain, China has proved itself attractive not only to the large City firms.

Neil Sampson of seven-partner City firm Rosenblatt has carved out his own niche there.

While most of the larger City firms admit that their China offices mostly service existing clients with interests in China, Rosenblatt has managed to secure instructions directly from one of China's regional governments.Rosenblatt now acts as the European representative of the Chinese province of Qunghai and has represented the infrastructure development arm of the Huizhou municipal government in t he Guangdong province.Mr Sampson -- who says he started visiting China 15 years ago as a tourist and spotted its business potential -- puts his success down to flexibility.

'We are more flexible than the bigger firms and we are prepared to go to Qunghai on a speculative basis which a lot of larger firms won't do.' He adds that gaining local instructions has been 'a lot to do with personal relationships' which he says he has nurtured over the past 15 years.Mr Latham says Ince & Co's strong relationship with China, built up over 30 years through its shipping expertise, has allowed the firm to 'carve out a bigger market in China'.

This means that the firm is now doing around 50% of its work for foreign firms and 50% for local companies, he adds.Colin Passmore, partner at Simmons & Simmons and chairman of the Law Society/Bar China Law Council, says his firm's motivation for opening a China office was to demonstrate its commitment to the country.'The Chinese are very keen on building long-term relationships and our feeling is that you are not going to make an impression by flying in, doing a deal and flying out again,' he says.

'Some firms service their China practices from Hong Kong and, as far as I know, that is a perfectly acceptable way of doing business.

But we and others took the view that if China was to take off for us we had to show a commitment and open an office there.'Although firms will not speak candidly about whether their China offices make money, they do talk of them more in terms of strategic placing and long-term investments.Mr Peiji says the ability of Chinese offices to make money depends on the economy.

'If the economy is down then it is difficult to make money, but I believe as a strategy it is important for law firms, particularly like Clifford Chance, to have offices in China to provide service to clients.'According to Mr Peck, the ability of Freshfields' China office to make 'an average contribution to profits' is the result of its size, which allows it to do sensible work and offer a full service: 'If an office is too small it is difficult in China, like everywhere else, to make a good return.'So what keeps firms plugging away in China? According to Mr Passmore, having 'stuck it out through thick and thin' his firm, like others, hopes to reap its rewards in the future.

'We know China, as part of the far east, has had serious economic problems in the past, but the prospect for the future keeps us there,' he adds.