Opinion | 13-04-17

What are the current trends in the Chinese legal market?

It is no secret that the economy in Asia has seen its challenges over the last few years and has indeed slowed down; foreign direct investment is less than it once was and the Hong Kong capital markets space remains quiet. As a result, international law firms are manning up and shifting focus to outbound projects and the fast maturing private equity (PE) market.  In this article Levana Huang outlines how firms are taking advantage of these markets. 

‘Belt Road’ Outbound Projects

The ‘One Belt One Road’ initiative (implemented on 28 March 2015) to invest US$1 trillion in infrastructure extending from Asia to Europe and Africa has fueled many Chinese SOEs and private companies  to spearhead high-profile deals overseas.  According to statistics released by the Ministry of Commerce, Chinese companies signed contracts worth US$126.03 billion with 61 countries along the Silk Road in 2016, accounting for approximately half of outbound projects.  

While representing governmental projects overseas may seem like a sustainable and rewarding area to build a team around, not all international law firms are interested due to various reasons.  Heavyweight players in the Silk Road tend to be those with deep roots in China, which presents good opportunities for firms such as those in the Magic Circle and sizeable international firms with a cohesive global network.  

‘Chinese Roots’

International law firms with a desire to participate in outbound projects are expanding and strengthening their capacity by hiring lawyers with very specific skills. Having Chinese roots is essential for business development and forming long-term relationships with clients.  This means that a deep understanding of the culture and the way of doing business in a developing country is crucial.  While strong academic qualifications and technical skills will help candidates get through the initial stages of a recruitment process, in the end, what differentiates top talent is ‘street-smart’ soft skills and the ability to work within this unique culture.    

Private Equity

In the early years following the millennium (until 2009), China’s fast growing private equity market was dominated by globally renowned western private equity firms, e.g. CVC Capital Partners, Bain Capital, and the Carlyle Group.  Naturally, these PE firms relied on global expertise and the local capability of international law firms to open up opportunities. 

Since 2009, the emergence of large Chinese PE firms and RMB denominated funds have profoundly changed the private equity market in China.  According to a report published by PwC , while the global private equity (PE) and venture capital (VC) investment markets declined by 38 percent in 2016, Chinese PE and VC investments grew substantially by 49% over the last year, raising a total of US$72.51 billion. 

‘Business-savvy’ Minds 

The primary challenge for international law firms has always been adapting to China’s fast paced economy while operating with a relatively lean team.  Over the years, survival of the fittest has triggered the exit of several US firms.  The ones that survive and are able to grow revenues are those expanding with and learning from their clients.  Consequently, business looking to enter the market (whether this be law firms or corporates) are going to look to recruit business savvy people who will do their best to harness opportunities across the market. In our market update this month we noted that two law firms have launched in the region over the last month alone, suggesting there is no end to the optimism around and law firms particularly continue to see the benefits the Chinese legal market has to offer.

For more information about the current legal market in China please contact Levana Huang.