If recent press reports are to be believed, the economic disaster that hit Asia in 1997 has been replaced by fresh confidence and the market is set to take off once more.
Journalists may be predicting a new Asian boom, but lawyers on the ground – many of whom have seen their firms ride out the recession – are more reticent about the prospects.
“Vietnam business is dead. Indonesia business continues to be dead,” says George Crozer, chairman of White & Case's Asian co-ordination committee and executive partner of its Hong Kong branch.
“China's debt is perhaps a ticking time bomb. We have seen some defaults in the last few weeks. The banking system has a huge volume of bad loans, but we don't know yet how deep they go,” he adds ominously.
There are positive signs. “Malaysia has signs of life, Thailand is capable of generating new securities transactions, Korea is increasingly active and there are interesting developments in Japan,” Crozer says. There are even some “vital signs” beginning to show in Indonesia.
Still more encouraging are reports emanating from Singapore (see page 7) that the region is on the verge of relaxing some of the rules that restrict UK and international law firms practising local law following the lead set by China (The Lawyer 10 May).
Economic analysts are also offering mixed signals. The Centre for Asian Research forecasts that Korea and Taiwan will see positive year on year growth again in 1999 and an end to the decline in interest rates but also claims that Hong Kong, Singapore and Thailand have not seen the end of the recession.
Problems began in 1997. When the crisis hit, Allen & Overy's Asian managing partner Paul Monk says, the most difficult problem was assessing the extent of the disaster and rationalising a strategy to cope with it.
“It was unclear how far the rot would spread. We thought it might be restricted to South East Asia, and that Taiwan, Korea and Hong Kong in the north would be spared. That this was not true became apparent from beginning of 1998,” he says.
It wasn't until well into the second quarter of last year that it became clear that this was no “patch of choppy water” but a semi-permanent situation.
“Securities were worst hit. The number of new issues fell off a cliff and there are some fairly howling statistics,” says Monk.
The crisis had a range of effects on law firms. Securitisations, project finance and capital markets work continue to suffer but the economic shockwaves brought with them a growth in what Monk terms the “darker” side of the lawyering business, in insolvency and litigation work.
Mark Johnson, a litigation partner in Herbert Smith's Hong Kong office, says that arbitration work increased dramatically as the crisis deepened.
The firm's dispute resolution practice has been phenomenally successful, says Johnson.
This, he explains, is partly driven by the state of client companies which have been forced, because of the crisis, to opt for dispute resolution as the most cost-effective way to resolve problems.
Schinichi Saito, chairman of the Asia Pacific region for Baker & McKenzie, says that all project finance and global securities work dried up when the crisis hit and that debt and corporate restructuring began to present the greatest opportunities.
The firm was able to exploit the fact that many local lawyers in Thailand, Indonesia and Malaysia had no experience of debt restructuring. Saito says the firm and its correspondent local law firms were able to transfer its lawyers to service those areas and exchange know-how and training.
Lawyers, of course, win boom or bust and many firms with significant operations in Asia claim to have grown significantly in the past two years but this has not been on the back of core business areas.
Although certain fields such as debt restructuring, litigation and dispute resolution have grown during the crisis, lawyers are still waiting for the core business areas such as project finance and capital markets to take off again.
Firms have been happy to remain and even expand their Asian presences in the hope of such a recovery. Different firms have taken different strategies to ride out the recession.
As the crisis deepened, assets fell dramatically in value so asset disposition, joint ventures and mergers and acquisitions presented attractive and lucrative new opportunities to international firms.
As this shift happened, the big challenge, says Monk, was to reshape Allen & Overy's practice to meet client demands. Staffing and general resourcing, he says, was made very difficult because the nature of work kept shifting as the crisis changed.
Richard Slater, now head of Slaughter and May's banking stream in London, but who was based in Hong Kong between 1981 and 1986, says the firm rode the crisis by maintaining a lean operation and diversifying the practice areas of the lawyers based in Asia.
“[The firm] is not organised into specialist departments. Some partners who do project finance one day will be doing derivatives and flotations the next,” he says.
Allen & Overy however argues against having its lawyers switch specialisms as the market changes.
“The problem is that Hong Kong is a small place. If you are an international securities partner one week and then claim to be a litigation lawyer the next, you will have only a small amount of street cred,” Monk says. “Clients are not keen to pay international rates for people to learn on the job.”
Baker & McKenzie adopted an altogether more aggressive strategy in order to ride out the crisis. The firm has strenuously resisted the temptation to redeploy project finance lawyers elsewhere.
“We do not decrease the number of lawyers,” says Saito simply.
“The reason to keep and maintain the practice groups, even though it has cost us a lot, is that we do have some reputation in these areas and we don't want to lose that, or our profile.”
The firms may have tried different ways to make the most of the turmoil in the Asian markets but they are all now looking to the future.
Saito is bullish. “There is no doubt that Asia will again be a major player,” he argues, “and now is the best time to recruit the best troops because firms are firing or have at least stopped hiring.”
McKean is also looking at expansion. “Given what's happening in Europe we will probably see, in the next five years, UK firms merging with Asian firms over here. It is inevitable,” he says.
It is not just the law firms that are looking to the future of the Asian markets. The big accountancy firms are already making inroads. Arthur Andersen, for instance, already has associations with local law firms in Singapore and Malaysia. However, its association with a Hong Kong practice collapsed last year.
UK firms' attempts to court Asian partners are not a one-sided thing. Local firms are themselves keen to forge closer links with the international firms.
“Many Asian firms in the market are beginning to think in the same way as German and other European firms. If they don't become part of a global network they run the risk of being marginalised,” says Crozer.
Lawyers then are upbeat and the fact that many have expanded their practices while the crisis has been working itself out bears out that they believe there is money to be made in the area, but there remains a feeling that the traditional core areas or their 21st century replacements are yet to achieve stability.
Thailand and Korea, two of the first countries to be hit by the crisis, are becoming increasingly active markets for privatisation, mergers and acquisitions and restructuring work.
White & Case, for example, recently relocated its Korean practice group to Hong Kong to service Korea and is currently representing the Korean government in the sale of two government owned banks, Korean First Bank and the Seoul Bank.
IT and communications is also looking to be an early area of expansion. McKean says the Silicon Valley companies are beginning to get interested in Asia, particularly China, with the big media companies looking at the area and the convergence of the internet and TV industries. The infrastructure sectors such as telecoms are also set to see a growth in activity.
Saito, however, warns against excessive enthusiasm. “There is still a significant amount of non-performance loans in Thailand. Approximately, 50 per cent of bank loans are in a default situation and Indonesia is much worse,” he says.
“Unless or until each country invests in re-capitalisation and completes reform of the financial institutions,” he says, a full and complete recovery is simply not possible.
For law firms, the fact that pundits are predicting a reborn Asian economy is welcome news. They may disagree about the speed of recovery in the sectors in which they do business but the promise of once again working in the areas of project finance rather than in debt restructuring is welcomed across the board.
Firms have remained loyal to the area on the promise of such an upturn and are hoping that their clients to do the same.
Current Restrictions on foreign firms operating in Asia
Limited number of licences available for foreign firms.
Firms can establish only one representative office.
Business scope limited to advice on UK law, internationatreaties and practice.
Not permitted to interpret Chinese law; appear in China's courts; employ Chinese lawyers; act in partnership with Chinese lawyers; or handle any business reserved to Chinese lawyers.
Lawyers must have practised outside China for no less than three consecutive years.
English solicitors required to take the HK Overseas Lawyers Qualification Examination to requalify as HK solicitors. This examination cannot currently be taken in London.
Foreign lawyers must be registered and only advise on law or laws for which they are registered and or the law of any third country where the individualawyer is also qualified.
Must have five years' prior practice experience (to be reduced to three years from August).
There is a prohibition on partnership. A Japanese bengoshi must at altimes have his own separate practice for purely domestic Japanese law matters in addition to any joint enterprise.
Foreign lawyers must pass the Korean Bar exam which is set in Korean and which has a pass rate of only 3 per cent among locacandidates.
Practice restricted to Thai persons only. Foreign lawyers must apply for a work permit as a business consultant.
Thai persons must hold a majority stake in practices.
Firms may only operate as branch offices and may not engage in profit-making activities.
Each law firm is permitted to have only two offices.
Only allowed to practise for five years, subject to possible extensions of three years.
Any amendments to the licence requires MoJ approval.
Not entitled to advise on Vietnamese laws or to employ local lawyers.
Branch office must employ at least one foreign lawyer in addition to the resident partner.
Foreign lawyers to have at least five years' prior practice.
Information provided courtesy of the InternationaDirectorate of the Law Society which monitors restrictions on the rights of English solicitors to establish overseas offices and lobbies for better access rights for English solicitors to overseas legaservices markets through links with, amongst others, the OECD, the DTI and the European Commission. (0171 320 5803).