The legal sector in Hong Kong is feeling the impact of China’s economic slowdown and security clampdown, as foreign law firms are reducing their staff and operations in the city and mainland China. According to a report by Nikkei Asia, one international law firm has laid off at least 20 lawyers this year, while others have scaled back their presence or relocated some of their partners to other regions.
The report cites lawyers and legal recruiters who say that the redundancies reflect not only the downturn in the market, but also the dependence of top international firms on Chinese activity. Many of them have invested heavily in China and Hong Kong in recent years, hoping to capitalize on the booming cross-border deals and disputes involving Chinese clients. However, as China’s economy faces headwinds from the trade war with the US, the Covid-19 pandemic, and the regulatory crackdown on its tech and financial sectors, the demand for legal services has declined.
Moreover, Beijing’s imposition of the national security law on Hong Kong in 2020 has also curbed the dealmaking activity in the city, as well as raised concerns over the judicial independence and rule of law that have made Hong Kong an attractive hub for international arbitration and litigation. Some foreign lawyers have expressed fears that they could be targeted by the authorities for representing clients who are deemed to endanger national security.
Linklaters confirms ‘modest reduction’ of lawyers in Greater China
One of the firms that has confirmed its staff cuts is Linklaters, a UK-based Magic Circle firm that ranks among the top 20 global law firms by revenue. The firm has announced that it is making a ‘modest reduction’ of lawyers in its Beijing, Shanghai and Hong Kong offices, affecting about 30 roles out of its 220-strong legal workforce in Greater China.
The firm said in a statement that the decision was made ‘in response to the prolonged downturn in the China market’, but added that it remains ‘fully committed’ to China and continues to have ‘the strong capabilities required to service the ongoing needs of our global clients in that market’.
Linklaters is not the only firm that has downsized its operations in China and Hong Kong. According to Nikkei Asia, other international firms that have reduced their presence or relocated some of their partners include Baker McKenzie, Clifford Chance, Herbert Smith Freehills, Hogan Lovells, Norton Rose Fulbright and Simmons & Simmons.
Challenges and opportunities for foreign law firms in China
The challenges faced by foreign law firms in China are not new. For decades, they have been subject to various restrictions on their scope of practice, such as being barred from advising on Chinese law or hiring Chinese-qualified lawyers. They have also faced increasing competition from domestic firms that have grown in size, quality and global reach.
However, despite these difficulties, some foreign law firms still see opportunities in China, especially in niche areas such as intellectual property, antitrust, compliance, environmental and energy law. Some also hope that China will open up its legal market further as part of its commitments under the Phase One trade deal with the US or under the Comprehensive Agreement on Investment with the EU.
In addition, some foreign law firms are exploring alternative ways of expanding their presence and influence in China, such as forming joint operations with Chinese firms, establishing representative offices or alliances with local bar associations, or offering online legal services or training programs.