While many argue that the Chinese economy is slowing down, potentially declining just as the rest of the world is getting back on its feet, the Chinese law firms in Hong Kong are on a roll and emerging as major players in the market. SSQ Hong Kong consultant Felix Lee outlines what these firms have been doing over recent years to raise their game.
In the early 2000s, the continuing arrivals of the American law firms rapidly changed the landscape of the Hong Kong legal market. Before this time UK law firms dominated the space, along with a few domestic players. Over a short period of time a number of US firms, including Simpson Thacher, Sullivan & Cromwell and Davis Polk, launched in Hong Kong, backing themselves particularly in the capital markets space. This changing landscape led to some high profile partner and team moves and contributed to a rise in salaries as firms competed for talent. The market experienced a watershed moment, and for the first time Hong Kong qualified lawyers were offered New York rate salaries. However, the period of the unchallenged Western law firms’ dominance in Hong Kong has waned, and now we are witnessing the rise of the Chinese ‘red circle’.
The term 'red circle' refers to the elite Chinese law firms, for example Fangda, Zhonglun and Jun He. Their emergence in the last several years can be seen as a direct outcome of market supply and demand. With the rising status and influence of the Chinese economy there has been more outbound investment and an increase in the number of Chinese conglomerates investing abroad. This has been very rewarding for the domestic Chinese firms. They have more competitive pricing structures and are more closely aligned along cultural and linguistic lines. This gives them an advantage over their western counterparts and therefore they can more easily secure instructions for this work.
Who is doing what?
The way in which these ‘red circle’ firms have grown in Hong Kong has varied. However, three clear strategies have emerged; the merger or combination, the lateral hire and the alliance.
In 2012 King & Wood took over with Mallesons Stephen Jaques and this combination is commonly viewed as the catalyst by which the Chinese law firms were able to flex their muscles in the Hong Kong legal market. King & Wood Mallesons, which aims to compete internationally with the traditional UK and US law firms, has continued to strengthen its international offering by a further combination with top 20 UK firm SJ Berwin in 2013. It is also currently exploring the possibilities of opening an office in Singapore through a tie-up with a pre-eminent local firm on the ground.
Fangda, a direct rival of King & Wood Mallesons, has used a different expansion strategy. The firm has not gone down the merger route and has instead seen the power of organic growth at the senior level across strategic geographical locations (Shanghai, Beijing, Shenzhen and Hong Kong). It launched and grew its Hong Kong office with the acquisition of high profile partners in a variety of practice areas. This included the hire of Peter Yuen (litigation) from Freshfields Bruckhaus Deringer in 2012 to launch the practice. He was later joined by Arnold Pang (capital markets) from Shearman & Sterling and Michael Han (competition) who also joined from Freshfields Bruckhaus Deringer. A number of the other Chinese firms have opted to go down the alliance route in order to strengthen their offering for clients. For example, Zhong Lun entered into an alliance with Boughton Peterson Young Anderson (BPYA) in 2011.
Regardless of how Chinese firms have approached growth in Hong Kong, it has been crucial for them to become as attractive as possible as an employer in order to lure the best talent away from the leading UK and US practices. Growth generally has brought with it quality work as the ‘red circle’ firms take on the outbound investment work previously highlighted, and this has made it easier for Chinese firms to attract candidates.
Now, with firms like King & Wood Mallesons and Fangda offering competitive remuneration packages and a faster partnership track, a move to a Chinese law firm is a real option for lawyers in the region as well as those looking to move to it from further afield. These changes make them attractive even at the highest level, allowing them to compete for the signatures of some leading partners in the region over the last 12 months, including Basil Hwang who moved to BPYA from Dechert and Esther Leung who joined Jun He from DLA Piper.
With the Chinese practices firmly making their mark in the Hong Kong market, we predict that their influence will only continue to grow. More and more opportunities will come to the fore for both law firms themselves looking to expand in the region and candidates looking to develop their careers. At SSQ, we work with all the leading Chinese, UK and US firms in the region and we have an excellent understanding of their growth strategies.
If you would like more information on the market or you are considering a move in the region please contact our team in Hong Kong on +852 3977 0505.
Felix Lee, 23rd September 2014