This is part two of a four-part series on current status of the China legal services market, and as promised in the last blog, we will now turn to an analysis of the Chambers rankings of the top 20 Chinese law firms.
In the first part of this series, we already underscored a few key points about the local Chinese firms: (1) there is a 3+1 break-away group of leading domestic law firms, comprised of Zhong Lun, the King & Wood side of KWM (or KWm for these purposes), Jun He and Fangda, (2) the Beijing firms dominate the top 20, taking 16 of the top spots, and (3) size does not directly equate to quality in China.
None of those three points should be controversial. Much of what follows may well be.
Before we reveal the chart, we need to talk briefly about methodology. The intention was to keep things simple. The key elements of our analysis included the following:
- We assigned four points for a band 1 ranking, three points for band 2, two points for band 3 and 1 point for band 4, and the sum was our weighted score. It bears repeating that this weighted score was not created or calculated by Chambers, but is one way of defining relative positioning based on the Chambers rankings as published.
- We did not differentiate between “core” practice areas and “non-core” practice areas. A band 1 ranking in environmental law, for example, was given equal weight to a band 1 ranking in corporate M&A. This seemed to be sensible as a conceptual matter, but as will be shown, it did not always produce sensible results, particularly at the bottom end of the spectrum.
- We did, however, disregard the rankings for regional offices in Sichuan and Zhejiang, but kept the regional rankings for Guangdong, which includes the important Shenzhen market, which traditionally has been fully integrated into the national practices of the top domestic law firms. When Sichuan (principally Chengdu offices of national firms) and Zhejiang (Hangzhou) were included, this introduced some serious distortions into the bottom part of the rankings. It also begged the question of why these regions were included while other regions, like Henan (Wuhan), were not. At the end of the day, the strength of the Chinese legal profession remains rooted in Beijing, Shanghai and to a lesser extent in Shenzhen. In my view, the other regions are not important enough to warrant a separate ranking, and I also am not especially confident that Chambers knows their way around the other regions as yet.
- We also tallied the number of partners in each firm listed as a leading lawyer in the Chambers rankings, but this was used only as a tie-breaker, as there was otherwise a fairly consistent correlation between the number of top rankings and the number of leading lawyers. If the same lawyer was ranked in more than one category, he or she was still counted only once.
Rankings for KWM excluded rankings of the legacy Mallesons side (kwM in this series) under the international law firm categories, virtually all of which were Hong Kong based in any event. See the first blog in this series for a further explanation of the rationale for this separation (which was done by Chambers and not by us). On the same rationale, leading kwM lawyers recognized by Chambers in international firm categories were not included in the KWm tally of listed lawyers.
Otherwise, we accepted the rankings as published by Chambers even where we were of the view that the rankings were in some respects suspect. The Chambers process isn’t perfect, but it is highly professional, and represents the best approximation available in the market in my view. At the same time, it is very possible to quibble with the choices we have made in this analysis as outlined above, so we are more than happy for people to disagree with the methodology and the results.
With that introduction and disclaimer, here are the 2013 composite rankings for domestic firms in China.
|Rank||Chinese firms||Band 1||Band 2||Band 3||Band 4||Total rankings||Listed lawyers||Weighted Score|
|7||Jingtian & Gongcheng||2||3||4||0||9||16||25|
|10||Commerce & Finance||3||2||0||0||5||14||18|
|17||Jincheng, Tongda & Neal||1||1||1||1||4||9||10|
Some observations on the rankings of the domestic firms from the above chart:
Firms on the rise
I suspect some may be surprised to see Zhong Lun at the top of the rankings, with the most band one rankings, most total rankings and most partners rated as leading lawyers among all Chinese law firms. This was a little surprising to me as well, since ZL has traditionally seen itself as the “little brother” in the Big 3 (and that was my view as I joined ZL in 2011), but ZL has actually been at the top of the charts among Chinese firms for the past two consecutive years (2012-2013). This represents a fairly rapid ascent up the charts for ZL. In the mid-2000s ZL was more in the middle of the pack of a dozen or so good Beijing firms, but (no thanks to yours truly) by the end of the last decade ZL had rocketed into the top three along with KWm and Jun He.
The real surprise, though, has to be Grandall’s cracking the top 10 as one of the leaders of the trailing group behind the leading quartet. If the rankings for regional offices were not removed from the analysis, Grandall’s ranking would jump up one notch, since three of its five band 1 rankings were for regional offices. Either way, I personally found Grandall’s performance to be quite impressive and worthy of note.
Moving in the wrong direction?
The other big surprise for me had to be Haiwen’s fall into the second ten. A decade ago Haiwen may have been considered to be one of the top three to five domestic firms, and they are still a very good firm with a strong reputation, so it was surprising to me to see that the firm had no band 1 rankings in its traditional areas of strength. I had expected to see it remain on par with Commerce & Finance, which like Haiwen is more of a super corporate boutique, very strong in its core practice areas with modest additional coverage in other ancillary areas. This may be more a quirk of the rankings, but it may be indicative of a broader trend for the firm.
Not where you might have expected
Overall, I think the list of the top 15 firms is relatively uncontroversial, although some may argue about relative positioning. Some may also have expected Dacheng, the largest firm in China, to be comfortably in the top 10 but it ended up just outside the top 15 at number 16. Still, that is a very respectable result by comparison with the second largest Chinese law firm, Yingke, which was well outside the top 100 law firms in China based on these rankings.
Who are these guys?
I had to ask some other local Beijing lawyers who Run Ming (#15 on our list) and Sunshine (#19) were. My sources also didn’t know these firms. Turns out Run Ming is based in Beijing, and I suspect they just did a superior job with their marketing presentation to Chambers than many of their similarly situated peers. Alternatively, it may be that they are an up-and-coming firm that we should pay attention to.
Sunshine is in Hangzhou, the only regional law firm to make the top 20, even after filtering out the regional office rankings. Sunshine was rated in energy and environmental law categories, nationally, not just regionally. It has to be said – this is a bizarre result. I am guessing this was a junior researcher who was assigned to Zhejiang. The only other rational conclusion would be that the rankings in these categories should be thrown out altogether on the basis that these practice areas are not well enough developed on the domestic law firm side to merit full-on rankings (oops – there goes a band one ranking for ZL in environmental law, but the other Big 3 firms would also take similar hits, so this would not change things at the top).
Of the other firms on the list that may not be as well known outside of China, it is important to give some love to Han Kun and Fen Xun. These are two very strong boutique firms with excellent lawyers and outstanding reputations in their areas of expertise.
Where are they?
Some good firms don’t make the top 20 because they are so highly specialised. IP giant Liu Shen falls into this category. TransAsia rode impressive strength in two care practice areas, employment and TMT, to a mid-20s ranking. Beijing-based Tianyuan was also in the mid-20s, just behind TransAsia.
Concord & Partners and Zhong Lun W&D fell into the third group of 10, while other well-known firms like Broad & Bright and Duan & Duan ended up in the middle of the bottom half of the top 100 firms on the list. I would have expected Broad & Bright and Concord to have rated higher than Run Ming, which made the top 20. It may just be a matter of presentation in the submission to the Chambers researchers. Broad & Bright in particular has long been rumoured to have a close working relationship with one of the Magic Circle firms, which would seem to contradict the surprisingly low ranking of Broad & Bright,
Best Chinese firms you never heard of
Top of my list for best Chinese law firm that no one outside of China has heard of is Tiantong, a specialist Supreme People’s Court appellate firm. (Full disclosure: Tiantong is a member of the Sino-Global Legal Alliance or SGLA, which I set up while at Lovells. After my move to ZL, I have had not continuing connection with the SGLA.) Based on official figures, Tiantong had the top revenue per lawyer in all of Beijing, at RMB 4m, or roughly £400,000. To put this in perspective, this is about double the average revenue per lawyer of the top-tier domestic firms. This result is all the more impressive when you take into account that all of Tiantong’s clients are domestic Chinese clients. Who says Chinese clients won’t pay (at least for litigation work on a scale fees basis)?
Best regional law firm – I would give the award either to Winners in Tianjin or to T&C Law Firm in Hangzhou. (T&C is also an SGLA member firm. Winners is not.)
Ten years ago Winners asked their partners to take some strong medicine in the form of some radical changes to the firm’s management system to move the firm from a traditional structure to something that is perhaps as close to a true western management structure as one will find anywhere in China. In essence they burned down the firm and started over with a small remaining core and have built it back up from there. They are now the clear “winners” (pun intended) in the Tianjin market.
Sunshine’s high rankings notwithstanding, T&C has dominated the local legal services market in Zhenjiang for two decades. The founding partner of the firm once lamented to me that it was not good to be the sole “king of the mountain” in town. Business is better when there are two to three top firms. (Cue old joke: sole lawyer in small town was starving until a second lawyer hung out his shingle.)
For an economy as vibrant as China’s, it is not a good sign that there are so few firms at the top of the heap. It would be better for the overall health of the market to have eight to 10 truly outstanding full-service domestic law firms leading the way, followed by a very strong group of 12 to 15 firms with their particular areas of competitive strength. But that’s not what we have at present, and it is not clear that there is a path to that ideal scenario.
Domestic demand for legal services in not line with the level of overall economic growth, and the local firms outside of the leading group have significant challenges with their basic management infrastructure. There is very little lateral movement of partners between the leading quartet of Chinese firms, but there is movement of top talent from the trailing firms (and from foreign firms) to the top domestic firms, which suggests that the top group will continue to ascend while the trailing firms remain static or decline in relative terms. Undoubtedly, some of the trailing firms will take up the challenge and climb up the rankings, but they will need to do so soon, before the gap widens further. As the overall market demand grows, it will not be a zero sum game, but the winners are likely to gain strength in both actual and relative terms.
In part 3 to come, we will turn to the foreign firms in China. On that side of the ledger, the field is already quite crowded, and many new entrants as well as many long-time players in the market will find significant challenges ahead.