Hogan Lovells Bucks China Exodus Trend, Playing ‘Long Game’

Hogan Lovells is staying put in mainland China as several of its US rivals reduce their headcounts or get out altogether.

“China is going to be a very relevant trade player to the world,” Miguel Zaldivar, the firm’s CEO, said in an interview. “We’re a global firm that caters to G-20 economies—we’re not an American firm—so we are playing that long game.”

More than 15 US law firms exited or slashed their presence in mainland China since last year, thanks to deteriorating international relations, a sluggish economy, and concerns about data security laws from Beijing. Hogan, the product of a transatlantic merger, is among those who see the exodus as an opportunity to grow their business in the country as rivals shift operations elsewhere in the region.

The firm last month hired M&A partners David Wang and Meka Meng from Paul Hastings. Hogan Lovells has fewer than 40 attorneys in offices in Beijing and Shanghai, about the same as its headcount in Singapore and smaller than its nearly 50-lawyer roster in Hong Kong.

Zaldivar, who is based in the US and previously led the firm’s Asia practice from Hong Kong, said relationships on the ground spur work across markets. The firm’s lawyers guided Shanghai’s Baowu, the world’s largest steelmaker, on investments in the soon to be online Simandou iron ore project in Guinea and advising automaker Stellantis on a $4.3 billion joint venture with Chinese battery manufacturer CATL.

“Our clients are not pulling out,” he said.

Big Law Recedes

K&L Gates is one of the latest Big Law firms to trim its China operations, announcing in September that it will close its Beijing office after 21 years in the city and consolidate in Shanghai.

Cleary Gottlieb, Orrick LLP, and Morgan Lewis have also scaled back their presence on the ground. Paul Weiss, Winston & Strawn, Milbank LLP, Dechert LLP, and Weil, Gotshal & Manges have left the mainland completely.

“There was an adjustment,” Shawn Chen, who leads partner search firm SSQ’s China business. “Law firms closed one of their offices, or consolidated their multi-offices into one or two, to reduce their costs or regulatory burden, because to operate an office in China you need to meet various regulatory requirements.”

The cost-cutting moves came in a slow deals market—a crucial revenue driver for many firms—that is now showing signs of life. China M&A activity jumped by 22% to nearly $100 billion in the third quarter, a four-year high for the quarter, according to Bloomberg data.

Chinese state-owned companies continue to target massive investments in Latin America, Africa and other emerging markets, free from the trade and national security-related restrictions that come with doing business in the US.

“The Chinese have been investing outbound into energy, oil infrastructure, natural resources, rare earth for 20-odd years,” said Carl Hopkins, a Hong Kong-based legal recruiter. State-owned entities “have always been looking at outbound investments, whether it is in Latin America, the Middle East, Africa or anywhere else those with those resources for manufacturing.”

President Xi Jinping last year inaugurated a deep-water port in Peru, the result of a $1.3 billion investment from Beijing and positioned as a major shipping hub between Latin America and Asia.

Brazil is poised to benefit from recent bilateral cooperation and investment pledges from China, according to Isabel Costa Carvalho, managing partner for Hogan Lovells’ São Paulo office.

“Over the last couple of months, almost every day, I receive emails from my partners in China about a Chinese client wanting to buy an asset in Brazil or do a [joint venture], said Costa Carvalho, a capital markets and corporate governance lawyer. “Brazil is a friendly country for foreign investments.”

Boots on Ground

Some international law firms operate in China through affiliations with local firms. These arrangements are said to alleviate some privacy and data concerns for firms by treating affiliates as separate legal entities.

“In the past few years, more and more international law firms set up PRC joint operations in China,” said Vicky Liu, a Hong Kong-based director at search firm Hughes-Castell.

Hogan Lovells, the result of the 2010 merger of US firm Hogan & Hartson and the UK’s Lovells, has nearly 3,000 lawyers worldwide. It runs an association with Fujian Fidelity Law Firm in the Shanghai Pilot Free Trade Zone to broaden its client offering in China.

Hogan Lovells lawyers advised China’s Baowu in its investment in the massive Simandou mine in Guinea, which is set to begin iron ore production next month.

Photo by PATRICK MEINHARDT/AFP via Getty Images

The firm advised Baowu over several years to steer the company’s investment in the Simandou project in Africa. Beijing M&A partner Liang Xu lead the Hogan team, along with lawyers from Shanghai, Hong Kong, Singapore, London, Paris, and Washington DC, according to the firm.

Having a presence on the ground in mainland China “for us, is essential,” Zaldivar said. The Big Law exodus is an opportunity to grow that presence.

“I’m trying to continue to recruit talent from the American firms that are pulling out of China,” said Zaldivar. “So every time the Americans pull out of China, we take a look.”