China’s top “red circle” law firms are stepping up efforts to expand into other markets, rapidly increasing their international presence and working for fees that are sometimes half those of western rivals.
At least eight of the largest law firms from the Chinese mainland have opened offices in Asia and the US since the start of 2023, with more planned.
The expansion by big Chinese firms, collectively known as the “red circle” in counterpoint to London’s legal “magic circle”, comes as some international rivals retreat from the mainland and Hong Kong amid slowing economic growth and concern about tightening security laws.
The nearly dozen new offices in Asia and the US over the past year are a signal of mainland firms’ ambition to win multinational clients and to tap into the markets of China-friendly nations.
Beijing-headquartered Jingsh Law Firm, one of China’s highest-grossing law firms, has announced plans to set up offices in South Korea and Japan this year. Han Kun Law Offices opened a New York outpost in December, just months after setting up a Singapore office.
DeHeng Law Offices established its first south-east Asian office in Laos last year to provide legal services linked to the Belt and Road Initiative, China’s $1tn global international infrastructure investment programme. Yingke Law Firm opened an office in South Africa, a fellow member with China of the Brics bloc of emerging markets.
Such overseas outposts still mainly serve Chinese clients. But Alan Xu, a managing partner at Zhong Lun, a top-10 mainland firm that has over the past decade opened offices in the US, UK and Japan, said this was changing.
“Chinese law firms are rapidly evolving and increasingly competing in these areas by hiring experienced lawyers from international firms and expanding their international presence,” said Xu.
Zhong Lun wanted to challenge “well-established international law firms for some of the best clients in the international markets”, he said, but the need for strong expertise in international deals and to work across different legal systems meant winning such business would “not be easy”.
There is still a huge gulf between Chinese firms and western rivals. The eight “red circle” firms that expanded internationally in the last year had combined annual revenues of less than $3bn in 2022, according to industry estimates. By comparison, Kirkland & Ellis of the US, the world’s highest-grossing law firm, reported $6.5bn in revenue in 2022.
But the vast expansion of China’s global trading and investment presence smoothed the path to international markets for mainland law firms, lawyers said, especially in countries with good diplomatic relations with Beijing.
Zhong Lun’s office in Kazakhstan, which opened in 2019, particularly benefited from demand for legal services related to projects stemming from the BRI infrastructure programme, said Xu.
Chinese investment also created “significant potential” for mainland firms to expand in the Middle East, Latin America, and Africa, he said.
They may also have new opportunities in the mainland and Hong Kong as international law firms leave or downsize.
Dentons, previously the largest western law firm in China by staff, last year hived off its operation in the country in response to intensifying regulation.
Kirkland and UK firm Linklaters have cut the number of lawyers they employ in China in recent months as the market weakens, according to people familiar with the firms’ operations. Kirkland declined to comment on “internal matters”, while Linklaters said it had made a “modest reduction” to lawyer numbers in Beijing, Shanghai and Hong Kong.
In Hong Kong, mainland law firms are ready to work for lower margins and charge fees up to 50 per cent lower than western peers, according to three lawyers at international law firms in the Chinese territory, which has a separate legal system.
“It is only a matter of time before Chinese law firms can further penetrate the Hong Kong legal market and expand into areas beyond Chinese clients,” said Warren Hua, managing partner at JunHe, a large mainland firm.
But several lawyers at international firms said they were confident Chinese rivals would not be able take away the bulk of the legal services they provided to their multinational clients, especially those from the US.
Chinese firms were increasingly competing for capital markets work such as initial public offerings in Hong Kong, one of the lawyers said.
But such work was “not particularly complicated” compared with cross-jurisdiction mergers and acquisitions or corporate restructuring, the lawyer said. “When you get to the more specialised areas of law, it takes a generation, really, to be able to get up to speed.”
JunHe’s Hua said Chinese firms still lacked expertise in some specialised areas compared with western rivals, but insisted they were catching up. “This gap is narrowing rapidly,” he said.
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