Global deeds

In an astonishing growth spurt, Chinese law firms are following their clients by going global with a vengeance. Yun Kriegler reports

Chinese companies are in the process of going global, and Chinese law firms are not far behind. Their internationalisation and global expansion is defining the development of the Chinese market.

“It’s becoming evident that by recruiting high-end legal talent from international firms and leveraging a rich reserve of local ­knowledge, People’s Republic of China [PRC] firms are stepping onto the ­international stage,” says Tom Chau, Beijing partner at Herbert Smith. “They’re not only improving their ability to run cross-border deals, but also spreading across borders into ­various major jurisdictions outside China, such as New York and London.”

Moves such as those of the former ­managing partner of Lovells’ Beijing office Robert Lewis and Clifford Chance Beijing partner Rupert Li to Zhong Lun and King & Wood respectively blazed the trail for a major talent migration from international to Chinese firms. In recent months, Jun He has hired partners from Jones Day and Weil Gotshal & Manges.

These international rainmakers not only bring valuable deal execution and management know-how to local firms, but also allow local firms to compete for some of the work that was traditionally handled by international firms, particularly in the ­corporate and foreign investment areas.

Top trumps

“There’s a growing number of capable ­partners and lawyers in top-tier Chinese law firms who are qualified and trained in the UK or the US and have practised with ­international firms in China for many years,” says Jun Wei, Beijing managing partner at Hogan Lovells. “These firms are taking an increasing market share in certain segments of the inbound foreign investment area, where international firms now face intense competition. Market changes have driven international firms to move up the value chain to target more complex transactions with significant global components and to offer expertise in niche areas and value-added services.”

While there is a certain degree of ­competition, cooperation is mainly the way between international firms and their local counterparts, as foreign firms are still barred from practising PRC law. Broad & Bright, FenXun, Jiayuan, JunZeJun and Concord & Partners, all Beijing-based, are among names commonly cited by international firms doing cross-border deals in China.

Outward bound

Meanwhile, more than 30 Chinese firms have branched out into various ­international locations, with Dacheng and Yingke in the lead. The two firms have seen a ­period of feverish expansion overseas and show no sign of slowing down.

In October Yingke launched an office in London and is planning offices in Sao Paulo, Hong Kong, San Francisco and New York among other locations. In the same month Dacheng opened its seventh overseas branch in Chicago and is planning an eighth in London.

Both firms cite the strong growth of ­Chinese outbound investment as the ­rationale behind their international ­expansion. The foreign offices will provide a point of contact to cultivate closer ­cooperation with leading local firms to ­better service ­domestic clients.

“Many of our long-term domestic clients are increasingly investing and doing business overseas,” says Xiao Jinquan, Dacheng senior partner in Beijing. “We want to follow them and facilitate them wherever they go.”

Xiao is well aware of the wide gap between his firm and the leading ­international firms in many aspects, but he believes Chinese firms are in a position to play a leading role in many cases.

“Our single biggest advantage is our impeccable understanding of our domestic clients from every part of the country,” Xiao adds. “We know their culture, their business, their concerns and their constraints when making investments overseas, and we know the most effective ways to communicate with them.”

As part of Dacheng’s international ­blueprint it intends to establish a China-centric global legal service network. So far, Dacheng has signed strategic alliances with 12 independent law firms around the world, including Australia’s Minter Ellison.

Global illusion?

Many industry participants regard this expansion model as an essentially map-­dotting, marketing and client-sharing exercise rather than true internationalisation. Top-tier global firms do not consider Dacheng or Yingke as competitors because their target clientele is different from these firms.

However, Dacheng and Yingke can fill the gap in the market where certain clients’ overseas matters are underserved.

Nevertheless, for a profession that is only 30 years old this expansion is an encouraging sign and the beginning of a generation-long process. Furthermore, many law firms, ­especially independent ones, outside China will be beneficiaries of Dacheng and Yingke’s international referral strategy.

“We expect  high-quality PRC-based firms to increasingly be seen as global players as more of their clients expand abroad, and this is something we view as a natural ­evolution,” says Paul Hastings Hong Kong office chair Neil Torpey.

King & Wood, the top-tier elite firm in China, has made everyone sit up and take notice with its proposed tie-up with ­Australia’s Mallesons Stephens Jacques. The deal, described by many as “bold” and “interesting”, was first announced in July this year and Mallesons partners gave it their backing last week (TheLawyer.com, 24 November).

Although King & Wood managing ­partner Wang Ling is reluctant to reveal details of the tie-up arrangement, she says her firm is intent on becoming more international.

“Cross-border transactions and matters, both inbound and outbound, have become a large part of our firm’s business,” says Wang. “It’s critical for us to build up our international network, know-how and ­capability if we want to enter the next phase of development.”

King & Wood has previously joined ­international alliances PRAC and the World Group, merged with Hong Kong firm ­Arculli Fong & Ng, opened offices in New York and Silicon Valley and formed a strategic alliance with Australian firm Gilbert & Tobin, which was terminated when King & Wood turned to Mallesons for tie-up talks.

No baggage

“The Chinese legal profession is a young and still developing profession, which has no precedents to inherit,” says Wang. “Firms are trying different ways to support clients’ cross-border needs and realise their ­international strategies. The gap between top-tier international firms and us is still wide. We have much to learn from our ­international counterparts. What we’re doing now is seeking a way that can really help us make the leap.”

Robert Milliner, chief executive partner of Mallesons, shares her vision.

“There are already some significant hard-hitters in the market that have a ­global ­footprint,” he says. “Our strategy will see us become a leading law firm in Asia, and part of a top-tier international network by 2015.”

The international community has ­greeted the news so far with optimism. However, the tie-up between two top-tier large firms in two key Asia Pacific markets may present a threat to international firms.

“People are still talking about the ­competition between US and UK firms,” says a Hong Kong-based partner at a ­leading US firm. “I think they should start to worry about the leading Chinese law firms. It won’t be a surprise to me if a China-based firm takes on US and UK law capability in the next two years.”

King & Wood and Mallesons will undoubtedly face many challenges in the course of making the tie-up work. If it ­succeeds, this will be a game-changing event for the global legal market and the rise of the China-based firms in the global market may have only just begun.