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China’s Latest Export: Legal Services

Oct. 6, 2015, 2:30 PM

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm and a regular contributor to Big Law Business.

By Mark A. Cohen, Chief Executive Officer, Legalmosaic

China is known for its exports, but legal services? Chinese law firms have begun to export legal services beyond its vast domestic market and to create an international footprint. The domestic success of China’s largest firms, liberalized trade agreements, key alliances with Hong Kong firms, and international strategic planning are all factors in fueling the outward reach of China’s legal services.

It has been a Good Year for China’s Biggest Law Firms

China’s top thirty law firms had a very good year according to “The Lawyer China Elite 2015” survey that was just released. It found that all but one of the thirty largest Chinese law firms posted revenue growth in the past year with many enjoying substantial gains. This uptick is particularly noteworthy given China’s stock market crash and slowed economic growth. Though the gross revenue and profit per lawyer figures pale compared to many of the top AmLaw and Magic Circle firms, their skyrocketing trajectory suggests that these firms are enjoying a white-hot market fueled, in no small measure, by the international stampede seeking to tap into the vast Chinese market. But it is not all inbound traffic for these Chinese firms.

Chinese Firms are now Players in the Global Legal Marketplace

Chinese firms have quietly emerged as players in the fast-growing Asian legal market and beyond. Consider that BigFour giant Ernst&Young has recently acquired a Chinese law firm and is now engaging in the practice of law there. Within the past few years, some of the world’s largest firms have struck deals to tie-up with large Chinese firms, while other firms are pursuing other international strategies.

Baker&McKenzie entered into a Joint Operation Arrangement with FenXun, Dentons is set to merge with Dacheng, and King & Wood Mallesons (an amalgam of Chinese, Australian, and UK-based firms) has now established its global headquarters in Hong Kong. And make no mistake about it: the Chinese arms of these new global Goliaths will not simply facilitate legal work in China for their foreign partners; they will, increasingly, be involved in representing outbound foreign investment by their domestic clients. And, as a recent survey by Baker & McKenzie points out, Chinese investment in Europe was at an all-time high last year, totaling $18 billion. This helps to explain the Chinese firms’ appetite to strike deals with foreign firms as they service their clients abroad and “follow the money.”

Chinese law firms’ outreach is not limited to tie-ins with global giants. China’s “One Belt One Road”-often referred to as “OBOR”- development strategy announced in 2013 was designed to promote greater cooperation between and among 66 countries along the so-called Silk Road economic belt and 21st century maritime Silk Road. Like its eponymous antecedent, the new Silk Road created by OBOR consists principally of developing countries across Asia, Africa, the Middle East, and Europe. This dovetails with China’s rapid emergence as a net exporter of capital and its desire to forge ties to those nations with whom it is investing.

Shanghai-based Boss & Young, utilizing OBOR, has recently initiated an international alliance of law firms in a bid to tap into participating countries and, so, become a player in the global legal marketplace. It is a Chinese member of International Referral (IR), an established network of law firms practicing in all 66 of the OBOR nations. The benefits are obvious: Boss & Young can now provide its Chinese clients with legal expertise in these far-flung outbound investment markets — albeit with the assistance of their referral firms — and also maintain tighter control over its legal business across a wide and rapidly developing swath of the globe. The firm’s managing partner summed it up this way: “Our OBOR alliance initiative is driven by the foreseeable increase in Chinese companies’ outbound investments into developing countries.”

Another Strategy: Going International on its Own

While attention has been focused on Chinese firms’ recent tie-ups with Western firms, Zhong Lun, China’s third largest-and second most profitable firm-on a per lawyer basis-has elected to pursue internationalism on its own. The firm has integrated its Hong Kong associated firm, Boughton Peterson Yang Anderson, into the Zhong Lun fold and intends to utilize this as a springboard for companies to invest abroad as well as a gateway for foreign investors coming into China. The firm is taking a more autonomous, deliberate approach to join the global ranks by building up its domestic brand, leveraging it across the Asian market, and later, developing its own “best friends” global network. For now, the firm handles work outside Asia through its participation in two global alliances, Terralex and World Law Group. World Law is an inter-disciplinary alliance, enabling Zhong Lun to tap into accounting as well as legal member firms.

Conclusion

China is a hotbed of legal activity, both inbound and outbound. A Chinese firm recently launched an IPO and more will surely follow. Merger-mania is in full bloom, and OBOR is Red Bull for Chinese law firm expansion throughout Asia and beyond. Hong Kong serves as a two-lane legal highway from and into China. All told, China is emerging as a serious player in what is increasingly a global legal marketplace. It may not be too long before legal services become another major Chinese export.