As the Year of the Tiger opens, partners at domestic and international firms in China share with ALB the lessons they have learnt from 2021, and how they will use those to navigate market changes. They also discuss their strategies to attract and retain talent, their observations of the profound changes taking place in China’s legal industry, and their outlook for the coming year.
Chinese lawyers ushered in 2022 after bidding farewell to a very busy 2021. When ALB invited the heads of China-based firms to share their outlook for 2021, most of them have talked about “being cautiously optimistic” or “finding opportunities in a crisis.” Their experiences of 2021 justified those predictions. “Compared to 2020, the overall environment in 2021 was even more complicated due to the continuing raging pandemic, increasing international trade barriers and macro-economic uncertainties,” says Wu Gang, director of the management committee of Commerce & Finance Law Offices. “By actively embracing market demand and legal changes, we managed to maintain steady growth and increased our overall revenue compared to the previous year.” The spread of the Omicron variant
at the end of 2021 dashed the hope of the pandemic ending in the new year. Although China has yet to open its borders, the effective control of the pandemic domestically has laid the foundation for steady economic growth. “The legal industry continues to flourish,” says Tong Xin, director of Guangdong Guanghe Law Firm. “As of the end of November 2021, Guanghe’s overall revenue has increased 20 percent year-on-year compared to 2020.”
According to Wang Dong, managing partner of East & Concord Partners, although the final figures will not be available until around the Chinese New Year, the firm’s 2021 revenue has “largely met expectations... And judging from our workload, 2021 has been even busier than before the pandemic.”
Zhang Liguo, chief partner of Grandway Law Offices, also sums up his firm’s overall development in 2021 with the words “growth amid stability.” He expects “revenue to increase in 2021 compared to 2020,” but also admits that “the growth rate would not exceed 10 percent.”
As a representative of international firms in China that managed to record outstanding results despite the pandemic, White & Case also shares its financial performance over the past two years. “In 2020, we completed our five-year 2020 global strategy. In relation to financial performance, White & Case’s total revenue in 2020 rose to $2.39 billion, a 9 percent increase on the previous year,” says David Li, executive partner of White & Case’s Beijing office. “We are yet to release our 2021 financial results. However, in spite of another uncertain and volatile year, we have been extremely busy and have worked with our clients on a large number of first-of-kinds and complex cross border transactions.”
Against an uncertain backdrop, apart from pushing for revenue generation, being smarter with one’s spending is equally important. This thinking is reflected in the changes in the expenditures of law firms.
“Amid the economic downturn caused by the pandemic, refined operation is inevitable for law firms to prevent risks. Accordingly, Grandway has cautiously reduced management costs,” says Zhang. However, in the face of rapid digital transformation during the pandemic, Grandway has made “necessary investments in information technology development, databases, etc.”
East & Concord, on the other hand, has invested heavily in expanding into regional markets in 2021. “We opened new offices in Nanjing and Xi’an. It takes considerable capital to support the development of new offices, such as leasing office buildings in the best locations in town,” shares Wang.
EVOLVING BUSINESS DEVELOPMENT
Two years into the pandemic, many Chinese firms have proven their strength and resilience with stable revenue growth. They have also reshaped their business strategies as they tackle challenges in preparation for a future that is still full of uncertainties.
In 2021, both Grandway and Commerce & Finance have chosen to accelerate the development of emerging business areas while consolidating their capital markets practice.
As Zhang points out: “Grandway steadfastly holds to its deep root in capital markets practice and branches out to related dispute resolution, intellectual property and other practice areas.” He shares with ALB that in 2021, the firm welcomed many partners specializing in criminal compliance, insurance, real estate, banking and finance, etc., and held seminars and workshops on capital markets, compliance and real estate.
As a leader in capital markets practice, Commerce & Finance “maintained its strong position in segmented fields and continued to lead the Hong Kong IPO business” in 2021, according to Wu. In addition, the firm “achieved rapid growth in fields such as data compliance, securities compliance, trade compliance, intellectual property and family wealth management.”
East & Concord, on the other hand, has noticed the increasing specialization of legal services against intensified competition.
Wang gives an example. At the 2021 Tokyo Olympics, East & Concord, as the first-ever external counsel retained by the Chinese Olympic delegation, accompanied the team to Tokyo and provided legal services throughout the Games. “We are now a leader in the field of sports law. This is because our lawyers not only know the law but also the industry,” says Wang. In addition to sports law, data compliance, criminal compliance and antitrust compliance were also industry segments that the firm has focused on in the past year.
Tong shares the same sentiment. He tells ALB that Guanghe, setting its sights on “ legal service opportunities brought about by new economic models, digital economy, e-government and digital society,” developed practices related to online live-streaming and established the “Metaverse Legal Service Center” in 2021.
CORE COMPETENCIES
Although being able to flexibly adjust business priorities is particularly impor-tant in the face of uncertainty, the firms interviewed also pointed out that the changing environment was a more profound test of their visions and struc-tures. It is these robust core values that enable the firms to respond to changes.
"The world has seen change come at a blistering pace over the past few years—not just in China, but all over the world. And this trend does not appear to be slowing down. Whilst we do keep a close eye on changes to regulatory regimes and the market forces impacting our practices, having a long-term vision means we do not change our strategic direction at a whim."
- David Li, White & Case
“The world has seen change come at a blistering pace over the past few years—not just in China, but all over the world. And this trend does not appear to be slowing down. Whilst we do keep a close eye on changes to regulatory regimes and the market forces impacting our practices, having a long-term vision means we do not change our strategic direction at a whim,” notes Li from White & Case.
To Commerce & Finance, what support flexible business changes are information technology development and its functional teams.
As Wang of East & Concord points out, the need for rapid business innovation in the past two years is, in essence, a test of a firm’s management structure: “Our integrated structure provides institutional guarantees for the development of new businesses.” He gives the example of a recent project that required partners of the firm’s four offices in Beijing, Shanghai, Nanjing, and Shenzhen to work together. “It is impossible to have synergy without institutional guaran-tees… In the past 40 years, many Chinese firms have not put management at a strategic level, but the pandemic has prompted more and more firms to think about this.”
ACCELERATING REGIONAL PRESENCE
As Wang mentioned, the pandemic has nudged many Chinese firms to more consciously reap efficiency gains from better management and to step up business thinking and formulate long-term development strategies. With the “14th Five-Year Plan” placing particular emphasis on balanced regional development, accelerating regional presence has also become the strategic focus of many firms in the past year.
Guanghe is a case in point. This Shenzhen-headquartered firm has long expanded beyond southern China. According to Tong, in 2021, Guanghe opened new offices in Changsha, Urumqi, Ganzhou, Xiamen and Los Angeles, and presently has “offices in 25 regions globally.”
Developing regional markets has also been the focus of East & Concord in 2021. Wang tells ALB that choosing Nanjing and Xi’an as locations for opening new offices was “signifi-cant.” This is because the Nanjing office improves the firm’s presence in the Yangtze River Delta region on top of Shanghai and Hangzhou, while the Xi’an office is a response to the growing economic pie of western China in recent years.
INCREASING COMPETITION FOR TALENT
Another important theme in the Chinese legal market in 2021 was “competition for talent.” Almost all firms are talking about the scarcity of high-quality legal talent, and heavy workload has also increased the demand for junior lawyers. By the end of 2021, as some firms raised the monthly salary of first-year lawyers to 30,000 to 35,000 yuan, talks of “Golden Circle” or “30,000 yuan club” emerged on the market.
Will this cause even greater talent anxiety to other firms? Wang says candidly that presently, the remuneration package of East & Concord is not the highest in the market, and that “we will not follow this trend... We believe that outstanding talents are nurtured under the values of long-termism. Fresh graduates need to be constantly challenged to stand out.”
In Wu’s view, apart from salary, a more diverse incentive mechanism is also very important to young lawyers. “Commerce & Finance is committed to building a diversified platform for career progression and long-term development space for young lawyers. At the same time, we also continue to strengthen our internal promotion path.”
Indeed, it is not easy to recruit and retain outstanding young professionals. It is even more difficult to cultivate a new generation of legal professionals who are diligent and down-to-earth in an environment that prefers instant gratification. For this reason, Grandway still retains the “mentorship” training model. “Through the words and deeds of mentors, young lawyers can have a deeper understanding of their practice areas to promote their all-round development,” Zhang tells ALB.
When it comes to training young lawyers, Guanghe has established a complete set of methodologies. Tong shares with ALB that in 2021, Guanghe also specifically encouraged more young lawyers to participate in the firm’s management, to “tap everyone’s collective wisdom and make sure the management of a large-scale firm is more effective.”
Faced with increasingly fierce competition for talent in the Chinese market, are international firms feeling the heat?
“We recognise the highly competitive legal candidate landscape, and are focused on building our employer brand in China and other key markets to differentiate White & Case from our competitors,” says Li. In his view, international firms still have their unique appeals, such as providing young lawyers with a global platform to drive their legal careers, as well as life-enriching pro bono and D&I opportunities.
In the Chinese market where the dividends of scale have not yet disappeared, lateral hiring is also an important way to gain talent advantages. However, as the competition among firms has gradually shifted from “which firm has more lawyers” to “which firm provides better quality services,” law firms have begun to pay more attention to “finding the right people” and “better integrating the right people.”
“Lawyering is a highly specialized profession. Grandway always insists on carefully selecting like-minded partners, rather than blindly chasing after the number of lawyers,” says Zhang. “When having new partners or teams onboard, we attach great importance to having teams that are highly professional and have a good reputation in the industry.”
To Wang of East & Concord, the firm is more willing to take the “niche route” rather than the traditional way of first increasing headcounts and then focusing on integration. “Only those who identify with our structure and culture can become our partners. Of course, this approach will slow down the scaling-up of the firm, but we still believe that only by taking steady and solid steps can we reach far.”
BULLISH ABOUT 2022
What are the aspirations of law firms for 2022? According to the lawyers interviewed, many policy measures are beneficial to the legal industry and have pointed out the directions for the next stage of development.
"The Sixth Plenary Session of the 19th Central Committee of the CPC held in early November last year indicated that China would continue accelerating economic development. Guided by this macro policy, I believe that both the economy and the legal market will remain active. I am bullish about 2022.”
- Wang Dong, East & Concord Partners
“The Sixth Plenary Session of the 19th Central Committee of the CPC held in early November last year indicated that China would continue accelerating economic development. Guided by this macro policy, I believe that both the economy and the legal market will remain active. I am bullish about 2022,” comments Wang.
“Of course, some fields will enjoy more robust development, such as the Beijing Stock Exchange and the newly-defined “high-tech and specialized” industries. Law firms should focus on those areas,” he adds.
Zhang has similar observations. “With the full implementation of the stock listing registration model and the establishment of the Beijing Stock Exchange, capital market reforms have brought about new opportunities to law firms specializing in securities business, although inevitably challenges will follow. In the new year, Grandway will focus on the listing of technologically advanced or specialized small and medium-sized enterprises on the New Third Board and applications for listing on the Beijing Stock Exchange, actively participate in prospectus drafting and business verification for IPO projects, and take on business on the Hong Kong stock market.”
“We continue to be cautiously optimistic towards capital markets, especially overseas capital markets,” says Wu of Commerce & Finance, “dispute resolution, quasi-bankruptcy reorganisation, compliance, intellectual property and family wealth management are among areas that will see new growth opportunities.”
"With the full implementation of the stock listing registration model and the establishment of the Beijing Stock Exchange, capital market reforms have brought about new opportunities to law firms specializing in securities business, although inevitably challenges will follow.”
- Zhang Liguo, Grandway Law Offices
To Li of White & Case, law firms should also seize the opportunities brought about by new social waves represented by digital transformation, as well as environmental, social and governance. “Our teams have advised on a number of transactions in 2021 that are breaking ground in these areas,” he reveals.
In addition to precisely targeting business areas, expanding regional markets continues to feature in the plans of many firms in 2022. East & Concord plans to build up its presence in the Guangdong-Hong Kong-Macao Greater Bay Area. Commerce & Finance intends to ramp up offices in domestic economic hotspots. Guanghe is considering “new offices in Nanjing, Xi’an, Shenyang, Chongqing, Nanchang, Zhengzhou, and some cities in Europe and the U.S.” based on further realising the full coverage of cities in the Greater Bay Area.
In addition, more Chinese firms will turn “digital transformation” from a mere slogan to practice. According to Wang, “the most urgent task is to integrate a firm’s data assets and on that basis form internal resources that can operate effectively.” He predicts that in the future, “law firms will become a plat-form jointly created by lawyers and other professionals, and AI, technology and management talents will all participate in the operations of law firms.”
“Faced with the continuing gravitation of legal services towards leading firms, only by continuously upgrading software and hardware can law firms generate greater market power,” concludes Wu. In 2022, a firm that wants to “achieve even greater results” must focus on strengthening internal management, building up offices, improving the talent mix, forging firm culture, consolidating professional competency and expanding legal service fields, all of which are indispensable, says Wu.