As Chinese companies expand beyond the mainland and foreign interest in the country grows, Hong Kong is the perfect launching pad for PRC law firms hoping to break into new territory.
It’s no secret that Chinese cross-border dealings are huge. According to a report by PricewaterhouseCoopers, there were 142 overseas merger and acquisition (M&A) deals valued at $21.2 billion in the first quarter of this year.
Last year, Chinese companies announced a total of $170 billion in overseas investments, which grew by more than 40 percent from a year earlier. Even amidst a tightening of capital constraints, the value of announced outbound deals from China still amounted to $23.8 billion for the first three months of this year.
In a year-on-year comparison, Chinese outbound real estate transactions also soared 84 percent for the first quarter of 2017 to $7.5 billion.
With so many overseas transactions, it’s clear that Chinese companies require legal assistance abroad. Many Chinese law firms are setting up in Hong Kong to leverage on the flow of capital and business between their Chinese clients and the rest of the world.
According to the Law Society of Hong Kong, there are 80 foreign law firms in Hong Kong as of May 2017. Ten are limited liability partnerships formed pursuant to the Legal Practitioners Ordinance.
“Hong Kong is the centre for Asian fund raising, merger and acquisition activity, banking, litigation and arbitration. It is still the gateway to China and much activity is generated through Hong Kong’s close connection with the mainland,” says Richard Mazzochi, a partner and head of banking and practice at King & Wood Mallesons.
“Setting up in Hong Kong is also made easier because its people are very well educated and hardworking. Many international clients have a presence in Hong Kong, which provides a wide variety of new and challenging work,” he adds.
King & Wood Mallesons has Chinese roots through its predecessor firm King & Wood, a member of the Red Circle of leading Chinese law firms. The global law firm has held a presence in Hong Kong since 1989.
“The strategic importance of Hong Kong to China and vice versa is obvious and grows stronger every day as China’s globalization continues. Keep in mind that Hong Kong has always been an entrepôt,” says Clifford Ng, co-managing partner at Zhong Lun Law Firm, of the firm’s decision to open an office in Hong Kong.
Zhong Lun is one of the more recent Chinese law firms to establish itself in the Special Administrative Region (SAR). The Beijing-based multinational law firm set up shop in Hong Kong in October 2009, after combining with two long-established local firms.
“Our work is fairly evenly divided between inbound into China, outbound from China and purely Hong Kong into one-third each. We are in the service industry and the ability to serve clients seamlessly as they expand on either side of the jurisdictions and seeing the strategy come to fruition is very rewarding,” Ng adds.
He also pointed out that even “pure Hong Kong work will often involve cross-border issues”.
“The world is more and more regulated and China is also becoming more regulated, increasing the need for pragmatic and adaptable lawyers who can operate in both jurisdictions,” Ng explains.
A Natural Step
Ciaran Foy, associate director at executive search firm Aquis Search, which focuses on private practice recruitment, is of the view that launching operations in Hong Kong is a natural step for PRC firms wishing to expand their offering to clients.
“Hong Kong is a very fluid location to transact business so it makes sense to set up there. In terms of its unique positioning as a gateway to China and its proximity to the emerging Southeast Asian markets, it is an auspicious platform to take PRC firms to the next level,” he says.
Recently, Shanghai-based firm Llinks Law Offices announced that it had opened an office in London, making it the third PRC firm to have a base in the UK after King & Wood Mallesons and Zhong Lun. All three firms already had offices in Hong Kong prior.
“In order to have a true international presence, law firms typically seek to position themselves in the key global legal hubs: New York, London and Hong Kong. Having successfully developed a presence in Hong Kong, it is unsurprising that PRC firms are setting their sights towards the London market and perhaps other PRC firms will follow suit,” says Foy.
The growth of Chinese firms means an expansion in hiring. Foy claims he has seen an increase in the number of Chinese law firms seeking recruitment services, particularly in the last year. He has helped recruit for Chinese firms in Hong Kong and believes that working for PRC firms can be a rewarding experience.
“PRC firms are keen to attract the top talent in the legal market and have been successful in hiring lawyers from leading international firms with stellar academics, language skills and exposure to big ticket, global deals. Lawyers are increasingly buying into the platform that these PRC firms can offer,” he says.
Foy cites a number of factors that make Chinese firms an increasingly attractive option, such as leading partners with international backgrounds, an impressive pipeline of global work and a lean structure that means a lack of the same bottleneck in career progression.
“Another advantage to working at a PRC firm is the robust remuneration structure in place. They can pay very competitively, often matching Magic Circle or mid-Atlantic rates to attract top talent,” he reveals. “In essence, it is a great environment for those that are entrepreneurial and hungry for opportunity.”
Foy notes that international law firms are paying close attention to the rise of Chinese firms as well.
“It is our observation that competitor law firms in Hong Kong are more interested in the market positioning of PRC firms as they are now seeing lawyers from these firms across the table at negotiations on deals and at tenders for new work,” he says.
“They are also losing some of their best talent to PRC firms so it is fair to say their presence is adding a further competitive edge to the Hong Kong legal market.”
The PRC firms seeking to set up operations in Hong Kong are typically very well known in China (such as King & Wood Mallesons and Zhong Lun). They usually come with substantial financial backing to expand in the Hong Kong market.
Industry observers have noted that the firms have the luxury of referral work from China. But there is no room for complacency and they are aggressively pushing to develop more business locally.
Many mainland firms in Hong Kong are capitalizing on their core strengths, often in the areas of corporate, litigation and finance. But of course, setting up business in a new market is never an easy affair. Ng of Zhong Lun understands the challenges for a Chinese firm setting up shop in Hong Kong.
“Professional services businesses rely on people and individual relationships. These take time to build. Client needs and the economic expansion of our markets sometimes exceed our capability to serve our clients in all areas in all markets,” says Ng.
In the Hong Kong legal industry, it seems that fortune and opportunities favor the multi-lingual.
“Native language capability is critical. Most of our staff are now trilingual (English, Cantonese and Mandarin),” says Mazzochi.
“As ever within the Hong Kong market, language skills are essential with a preference for fluency in Mandarin and English, and Cantonese is also very desirable,” adds Foy.
“Lawyers by training are jurisdiction focused. In a multi-jurisdiction environment, lawyers need to be pragmatic and adaptable so they can appreciate the differences and nuances between different jurisdictions – legal, linguistic and cultural. This is the case whether the jurisdictions involved are China and Hong Kong or any other jurisdictions,” Ng says.
A one-stop shop for lawyers able to deal with legal matters in different jurisdictions seems to be the unique selling point of Hong Kong’s mainland firms. And that trend looks set to continue going strong thanks to government policies.
“We work for global clients and Chinese clients. The mix of work varies according to changing economic circumstances and regulatory developments. It is widely recognised that when it comes to China (as opposed to other Asian work) the current trend is for Chinese clients to invest offshore. The best example of that is One Belt One Road, which is producing considerable activity across Asia,” says Mazzochi.
“Our Hong Kong and mainland based offices already work closely together in combined teams for our clients. This is a trend that will continue and accelerate with growing offshore activity by PRC entities.”
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