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China’s top law firms employ more senior lawyers from international rivals as Western law firms are shrinking their presence in Hong Kong and China as financial activity slows down.
Gotshal & Manges, a more than 12 US law firms, including Latham & Watkins, Sidley Austin and Weil, has closed offices in Beijing or Shanghai for the past few months as M&A and capital markets deplete in China. US law firm Winston & Strawn has closed its Hong Kong branch last year, and has had an office in Shutter, with no offices in Asia.
This presented the opportunity for the largest and top Chinese law firm known as the “Red Circle.” They are increasingly looking for businesses outside the mainland, including Hong Kong. Helped by Hong Kong employment and offensive fees.
The growing ambitions of Chinese law firms reflect a shift in the nature of the Hong Kong market, as Chinese companies support a secondary list of territories rather than foreign and western law firms that once earned a large fee from the list of Hong Kong with Chinese names.
Over the past year, Chinese legal companies have recruited at least 14 senior lawyers and partners from US and UK counterparts, including Kirkland & Ellis and Paul Hastings. Some recruiters and lawyers bring in teams. Most are based in Hong Kong, with a focus on capital markets and finance.
“There has been a noticeable trend for international law firms, particularly partners in US companies, who have moved to top Chinese law firms, including Hong Kong, over the past six months,” said Warren Hua, managing partner at Junhe Law Offices.
Hong Kong-based private equity and M&A partner Gary Lee moved from Kirkland to Zhong Lun, the top 10 mainland company. Wanda Woo, a partner at Hong Kong-based Capital Markets, moved from A&O Sheaman to Jiayuan Law Firm in October.
“I think this (the Chinese company) is a more lively aspect of the market, so we moved,” Wu told the Financial Times. She brought a team of nine lawyers from A&O Shearman.
Of the 70 new lists in Hong Kong last year, mainland Chinese law firms were the chief advisors of 20% of publishers traditionally controlled by international companies, up from 15% in 2018.
The territory is expected to enjoy a $20 billion revival this year as Chinese companies launch secondary listings in the city. “Hong Kong’s capital market is full of Chinese issuers,” Wu said. “For them, they feel that. (China) law firms are equally capable to complete the transaction.”
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Felix Lee, senior director of Hong Kong-based legal recruitment agency SSQ, has also struggled to cite business “without the lack of flexibility in adjusting billable fees.”
The top US law firm said the lawyer who recently moved from a US company to a Chinese law firm said that the top US law firm charges an hourly fee “killing and expensive” around the world. “My hourly rate was around $1,600 (formerly a US company). That kind of hourly rate was not acceptable to Chinese clients,” he said. “I’m with a law firm (in China) now, and my hourly rate is $500. This gives us a huge advantage.”
A senior partner at a US company based in Hong Kong said international companies still have the advantage, but many of the largest US law firms admitted that they reduced their Asian footprint in order to “deal with geopolitical issues, and ultimately, historical baggage like the long-term baggage of partners that don’t run, compared to us.”
Many Chinese law firms “do not have the full infrastructure to properly do their IPO work, including effectively dealing with US legal opinions and US regulators,” he added.
“Previously, many international law firm partners would say ‘no’ to Chinese law firms,” said a recruiter with a Hong Kong-based law firm. “But now they’re not ordering the (same level) business they used to bring Chinese companies (at US law firms), so they’re forced to consider Chinese companies.”
