This week, we published our flagship Global 200 report, which ranks law firms worldwide based on their revenues and other metrics like head count, revenue per lawyer and profit per equity partner. As part of that push, we also published our Asia 50 report, which identifies and ranks the largest law firms in Asia by head count, as well as our China 45 report, which sorts top Chinese law firms based on their revenue.
I can’t begin to tell you what a feat it was to collect financial information from Chinese law firms, but I suspect you can imagine the struggle. There might be parallels here to the U.S. battling to gain access to audit information of listed Chinese companies. OK, I am joking. (Or am I?)
I’m going to do a not-so-subtle plug here: The China 45 demonstrates that Law.com International really is the only legal publication that can produce a revenue report as extensive as this. We’ve been collecting, researching and analyzing law firm revenue and data for years, and our approach is vigorous and steadfast.
We definitely have our methodology down pat. Yet, Chinese firms as a collective are an entirely different beast.
I’ve been talking to international law firm partners about the China 45 project to gain some understanding of the Chinese firms they work alongside and those that they perceive to be leading the market. One question I tend to get from these lawyers when talking about China’s revenue reporting is, “Do you trust their numbers?”
To be fair, I’ve had to make countless calls to Chinese firm leaders about their numbers—when numbers seem “off” or if I need them to make some justifications. We’d argue about their growth, for example, as extensive expansions in head count and footprint would surely mean that revenue takes a hit, at least in the short term.
Some of the firms that initially chose not to participate needed a lot of persuading, particularly when it came to disclosing their net income.
In discussions with three partners at separate Chinese firms, I was told that exposing their net revenue opens up too big a can of worms—there are potential ramifications on tax reporting (yes, you read that right), for example. In addition, many of their younger partners don’t actually know how much the equity partners are entitled to at year-end.
“It’s best kept that way,” one Beijing-based head of corporate at a top Chinese firm said. The partner also indicated that all the leaders of the top Chinese firms gather and talk often. “We don’t need to make our profits public to know how much our competitors are making. We already know!” he exclaimed.
There is also a cultural “face-saving” piece at play too: Some Chinese firm leaders feel that in a Global 200 chart, their practices will never outrank a Kirkland & Ellis or a Davis Polk & Wardwell, for example, and if they are not going to rank right at the top (or at least in the top five), then they’d rather not be recognized at all.
Yet, if you look at how well the Chinese firms are doing, it’s astounding. Together, the 45 highest-grossing Chinese law firms reported $13.8 billion in gross revenue in 2021, up an astronomical 58% from the pre-pandemic year 2018.
And on the Global 200, 11 Chinese law firms made the chart with a collective $9.87 billion in gross revenue.
There are many metrics that point to their success: A handful of Chinese law firms, including Jingtian & Gongcheng, Tian Yuan Law Firm and Commerce & Finance Law Offices, are dominating market share in U.S. and Hong Kong listings. Sure, their portion of the fees or legal work may not be massive, but the volume of deals they work on sure adds up.
To date, everything points to the continued triumph and rise of Chinese firms, which are taking heed as their government implements its “In China, For China” policy by focusing on opening and building up their local provincial offices.
AllBright Law Offices, Beijing Kangda Law Firm, Han Kun Law Offices, Hylands Law Firm, King & Capital Law Firm, Yingke and Zhong Yin Law Firm have all launched two or more offices on the mainland just this year.
China’s M&A deal volume grew this year, although its collective M&A deal value fell due to the lack of blockbuster foreign acquisitions. The country’s shift to focus on domestic growth benefits the Chinese practices. That’s a market that has no room for international firms, and their #FOMO (fear of missing out, for the uninitiated) is really starting to kick in.
It’s no wonder the foreign firms, particularly the British players, are feeling the pressure—sensing that something must be done to preempt or counteract the inevitable competition from Chinese firms as they build their fortresses on their home turf.
However, after speaking to leaders at firms like Han Kun and Commerce & Finance, I’ve come away with a feeling that they aren’t interested in considering the possibility that they can compete with foreign firms. “Not in my lifetime,” one of them said. He is in his 60s, I should add.
Pieces of the puzzle still need to fall into place before a level of competition is even feasible, another said, adding that foreign clients still exhibit a fair amount of skepticism over hiring Chinese firms directly, and there aren’t enough foreign-qualified lawyers in the stables of Chinese practices.
While that may change in the years to come, Chinese firms will still need to work on their compensation models in order to attract foreign lawyers. That said, their appeal to younger Chinese lawyers who have trained overseas is more apparent and is already creating a talent issue at international firms.
At least for now, the mindset of Chinese leaders is one of collaboration—building and sustaining chummy relationships with foreign lawyers and maintaining standards of service so they will be appointed as the Chinese counsel of choice for U.S. and Hong Kong listings, cross-border M&A and private equity work
But that, too, may soon change.
I’ve recently heard from several sources that state companies in China have been instructed to first hire Chinese counsel on any cross-border deals, and it should be up to the Chinese lawyers to then decide which foreign law firm they would like to appoint.
At this point, this is a rumor. But if true, then how the tables have turned!
It’s no wonder that international firms—particularly the British firms and the Swiss Vereins—are actively looking for local partners in China. Because if they are not a local’s favorite foreign practice, then at least they have a Chinese arm to fall back on.
It’s about finding the right partner with whom to tango, Connie Heng, Clifford Chance’s Asia managing partner, told me during an interview earlier this year.
But the elite Chinese practices are already on a great trajectory, with or without foreign counterparts. So why would they want to be wedded to a foreign firm and then be forced to take the back seat?
No, the Chinese firms don’t want to tango. After all, it’s not their kind of dance.