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China’s top law firms are hiring more senior lawyers from international rivals as western law firms scale back their presence in Hong Kong and China following a slowdown in financial activity.
More than a dozen US law firms such as Latham & Watkins, Sidley Austin and Weil, Gotshal & Manges have closed offices in Beijing or Shanghai in recent months as M&A and capital markets work dried up in China. US law firm Winston & Strawn is the latest to shutter its Shanghai office, after closing its Hong Kong branch last year, leaving the firm with no office presence in Asia.
This has presented an opportunity for the biggest and top-grossing Chinese law firms — known as the “red circle”. They are increasingly looking for business outside of the mainland, including in Hong Kong, helped by big-name hires and aggressive fees, sometimes more than half that of western rivals.
The growing ambition of Chinese law firms reflects the changing nature of the Hong Kong market, as Chinese companies favour secondary listings in the territory rather than overseas and western law firms that once earned huge fees from Hong Kong listings of Chinese names retrench.
Over the past year, Chinese legal firms have recruited at least 14 senior lawyers and partners from their US and UK counterparts, including Kirkland & Ellis and Paul Hastings, recruiters and lawyers say, some bringing their team with them. Most are based in Hong Kong and focus on capital markets or finance.
“There is a noticeable trend of partners from international law firms, particularly US firms, moving to top Chinese law firms in the Greater China region, including Hong Kong, over the past six months,” said Warren Hua, a managing partner at JunHe law offices.
Hong Kong-based private equity and M&A partner Gary Li moved from Kirkland to Zhong Lun, a top-10 mainland firm, in February. Capital markets partner Wanda Woo, also based in Hong Kong, moved from A&O Shearman to Jia Yuan Law Offices in October.
“We’ve moved because we think that this [Chinese firms] is a more vibrant side of the market,” Woo told the Financial Times. She brought a team of nine lawyers with her from A&O Shearman.
Of the 70 new listings in Hong Kong last year, Chinese mainland law firms were the lead adviser for issuers on 20 per cent of them — an area traditionally dominated by international firms — according to company filings, up from 15 per cent in 2018. Many offer rates as much as 30 per cent lower or more than their international rivals, lawyers said.
The territory is set to enjoy a $20bn listings revival this year as a flurry of Chinese companies launch secondary listings in the city. “The Hong Kong capital market is filled with Chinese issuers,” said Woo. “To them, they feel that . . . [Chinese] law firms are equally competent to complete a deal.”
Many international law firm partners have also been struggling to pull business in part “given their lack of flexibility to adjust chargeable rates”, said Felix Lee, a Hong Kong-based senior director at legal recruitment agency SSQ.
Top US law firms charge a “killingly expensive” hourly rate globally, said a lawyer who had recently moved from a US firm to a Chinese law firm. “My hourly rate was around US$1,600 [at the former US firm] . . . That kind of hourly rate was just not acceptable to Chinese clients,” he said. “Now that I am with a [Chinese] law firm, my hourly rate is US$500 . . . this gives us a huge advantage.”
International firms still have an edge, said one senior partner at a US firm based in Hong Kong, though he acknowledged that many of the largest US law firms have reduced their footprint in Asia due to “profitability mismatch compared to US, geopolitical issues and dealing with historical baggage like long-term guarantees for partners who ultimately do not perform”.
Many Chinese law firms still “do not have the full infrastructure to do proper” IPO work involving US law opinions or dealing with US regulators effectively — a legal advisory area often required by companies doing IPOs in Hong Kong, he added.
“Before, lots of international law firm partners would say ‘no’ to Chinese law firms,” said one Hong Kong-based recruiter for law firms. “But now they are forced to consider Chinese firms as they are no longer commanding the [same level of] business that they used to bring in [at US law firms].”
