Judith Crosby, head of Lovells' Peking office, describes the licensing system as 'an act of revenge' against US law firms that had been practising illegally in the Chinese capital for the past 10 years. 'Foreign lawyers could not get work visas,' she says, 'so the Americans practised disguised as business consultants.' In that role, they were answerable to the Ministry of Foreign Economic Trade Relations rather than the Ministry of Justice, so there were no controls to stop them advising on Chinese law.
The government finally cracked down on the practice with regulations introduced last July. It made its position crystal clear when only one US firm out of seven or eight operating clandestinely in Peking was licensed.
Vetting for a licence was strict. Three ministries had each to give approval and firms were required to provide letters of recommendation from their law societies, a promise to have someone on the scene at all times and agreement by their senior partners to submit to the jurisdiction of the Chinese authorities.
Ms Crosby says: 'When we heard we had been chosen, we then had only a week to get our senior partner out to Peking for the licensing ceremony.'
Ms Crosby began working for Lovells as a consultant in 1990 when she was studying Mandarin at Peking University. The Lovells office had opened four years earlier, sharing accommodation with the London Export Corporation which had been trading in the city for some 40 years.
The office, now in its own premises, is staffed by a lawyer, a diplomat and a secretary, all Chinese. Its work, in the lead up to China's move towards a market economy, is for multinationals and foreign investors.
'The biggest problem is that China has no developed legal framework,' Ms Crosby says. 'The Chinese are having to unlearn their past experience of law, that it exists to oppress, and learn that it also protects.'
Many legal concepts are totally new in China, for instance intellectual property. 'Under the Communists, the Chinese were taught that property was theft,' she says. 'Now the government is having to re-educate people from scratch.' Some intellectual property cases have already been brought, notably by Levi's and M & Ms - in the latter case the offending local product was deftly named W & Ws.
It will take some time before there is a large body of good lawyers in China, Ms Crosby says. Private law firms are beginning to spring up, although these are strictly speaking co-operatives, technically under a certain amount of government control.
'In the state sector everyone is paid the same, so no one is prepared to work after 5 o'clock. Many started out with high ideals, but now accept that they can be only timeservers. So there is no incentive to become a good lawyer. The really good ones went abroad and never came back. Decent education only really began after the collapse of the Cultural Revolution in 1978. This means that there is generally a lack of experience, and comparatively young people are making all the important decisions.'
But Chinese lawyers are learning from their visitors. 'If there is no existing Chinese law for the case in hand, the custom is to rely on international practice.' Foreign lawyers such as Ms Crosby are not allowed to advise on Chinese law. So far, all of Lovells' clients in Peking are non-Chinese. 'This is to do with the culture. Spending money on lawyers is not budgeted for. We encourage the view that it is money well spent.'
A sympathetic understanding of the Chinese culture and its differences from Western ways is essential to any successful enterprise there. 'China is an exhausting place to live in because of the concept of 'face'. You can't force anyone to do anything. If you march into an official's office and demand a document as of right, you will leave emptyhanded,' Ms Crosby says.
The all-importance of 'face' is something to which the American lawyers have not easily adapted, which is why, Ms Crosby believes, they have not found official favour under the new rules. 'The Chinese admire Americans and want to get on with them, but they end up offending the Chinese because they say 'I want'. Politeness is very important here.'
The Chinese can be tremendously charming and brave, she says. 'For lawyers, going into private practice is a huge step. They can't borrow money from a bank, they lose their pensions, and all kinds of other rights such as education. There are no guarantees when you come out of the state sector. China encourages people to become entrepreneurs, but has not reached the next stage, of knowing how to deal with failure.'
The country has no welfare state. In its place stands the strong tradition of family - if a relative loses his money, the family rallies round.
There is no arguing about the difference that the Communist Party has made in China, Ms Crosby believes. 'Education has improved greatly, the food supply has improved and a country that contains 56 minorities and 1.1 billion inhabitants is largely stable.
'There is a sort of democracy. People are showing they are not prepared just to put up with the status quo. The Chinese are willing to work hard if given the chance to make money. They are growing rich, but they haven't come to terms with the fact.
'Deng Xiaoping started the market economy rolling by allowing peasants to sell their excess produce. There are a lot of problems still: bad pollution, for instance, and a tax system badly in need of reorganisation to international standards. It all takes time, but China has realised how quickly she is moving forwards and the leaders are doing all the right things.'