Mid-tier and regional mainland Chinese law firms are expanding into Hong Kong, driven by cross-border demand and Beijing's global push.
- Regional PRC firms entering Hong Kong for global expansion.
- Dispute resolution driving new demand in the Hong Kong market.
- High costs challenge newcomers despite growth opportunities.
Hong Kong has always been a critical springboard for China Inc's global ambitions, serving as a vital platform for China’s outbound investment and offshore wealth planning initiatives.
However, Beijing’s recent concerted "going global" campaign has ignited a surge in demand for cross-border legal services, catalysing a new wave of PRC law firms entering the Hong Kong market.
The past year has witnessed a flurry of expansion activity from mid-tier and regional mainland firms into Hong Kong. Shanghai-based Everbright, Zhenghan, and SGLA Law Firm have established a presence, alongside Beijing's Docvit Law Firm. Firms from the Greater Bay Area, including Kingpound, Wang Jing & GH, and Zhuoxin, have also joined this expansionary spree.
In a notable development, five firms in Sichuan – located in China’s traditionally secluded Southwest – have announced their entry into Hong Kong. Even boutique firms such as Shanghai's Mankun and Beijing's Zhinuo have unveiled plans to launch Hong Kong outposts, underscoring the geographical breadth of this scramble for a share of the Hong Kong market.
This current wave of expansion marks a shift from previous patterns. While earlier movements were primarily driven by marquee mainland firms from Beijing and Shanghai, specialising in overseas capital markets, the latest influx showcases a more diverse mix. Regional powerhouses, speciality boutiques, and firms focused on practices apart from capital markets and cross-border services are now at the forefront of this Hong Kong foray.
The Law Society of Hong Kong reports that 35 mainland-based "foreign law firms" currently operate in the city. Additionally, 21 PRC firms have established joint ventures, with some successfully transitioning to full domestic practice status after a three-year joint venture period. Sundial Law Firm is a recent example of this evolution, highlighting the dynamic nature of Hong Kong's legal market and its pivotal role in China's global economic and industrial strategy.
DRIVEN BY CLIENTS
In July, Guangzhou-based Wang Jing & GH's registration as a foreign law firm in Hong Kong shed the spotlight on regional mainland firms’ endeavours to secure a foothold in the Chinese Special Administrative Region. Director Yang Jie emphasises that this strategic move was primarily driven by the surging demand from clients pursuing global expansion.
"Under the Belt and Road Initiative and the broader environment encouraging enterprises to go global, many clients from the Greater Bay Area and across the country are actively seeking to internationalise their business operations. Hong Kong, with its unique geographical location and status as an international business hub, has become a crucial bridge connecting mainland China with overseas markets," Yang says.
Yang noticed many of the firm’s clients have such business needs, leading it to open its Hong Kong office to better serve clients and support their international efforts.
"Under the Belt and Road Initiative and the broader environment encouraging enterprises to go global, many clients from the Greater Bay Area and across the country are actively seeking to internationalise their business operations. Hong Kong, with its unique geographical location and status as an international business hub, has become a crucial bridge connecting mainland China with overseas markets."
- Yang Jie, Wang Jing & GH
In a similar vein, Shanghai-based SGLA Law Firm, jointly established by several leading regional firms, has adopted an innovative "two-step" approach in Hong Kong. In mid-August, it announced the establishment of a foreign law firm office while simultaneously entering into a joint operation with local firm Iu, Lai & Li.
Zhou Bo, one of the founders of SGLA's Hong Kong office and chairman of the firm’s National Executive Committee, attributes this decision to both policy encouragement and the firm's rapid internal growth.
"By 2022, SGLA had over 1,000 lawyers, and as of October this year, we have 18 regional offices and 32 branches across Mainland China. With our domestic presence largely in place, overseas expansion became a natural choice to meet the firm’s strategic planning and client demands,” says Zhou.
Since the end of the COVID pandemic, SGLA has started to see a gradual recovery in client demand for legal services related to investment, mergers and acquisitions, capital markets, and dispute resolution in the Hong Kong market. As it was initially uncertain about the volume of demand, SGLA opted for a collaborative strategy that fostered mutual referrals with local Hong Kong firms.
"We’ve received a significant amount of business through referrals with our Hong Kong partners in the past two years,” says Zhou. “Therefore, we decided to take things a step further and form a joint operation. We hope that, with the partnership’s support over the next three years, we can eventually localise our presence.”
A SHIFTING MARKET
SGLA's Zhou, drawing from extensive discussions with industry peers during the establishment of their Hong Kong office, observes a shifting landscape spearheaded by a surge in demand for dispute resolution offerings.
“Starting from 2023, more PRC firms are opening offices in Hong Kong, and some of these firms are not focused on capital markets or transactional matters but are instead specialising in dispute resolution. The demand for Hong Kong-related legal services in this area has been increasing, and I believe the practical business needs are driving everyone forward,” Zhou tells ALB.
Despite Hong Kong's capital markets experiencing a lull over the past two years, Zhou notes persistent client needs in this sector. Additionally, he has spotted burgeoning demand and business opportunities in areas including wealth inheritance and management. But dispute resolution, mainly related to previous cross-border investment and financing projects, is the one area these law firms are putting heavy bets on.
“Starting from 2023, more PRC firms are opening offices in Hong Kong, and some of these firms are not focused on capital markets or transactional matters but are instead specialising in dispute resolution. The demand for Hong Kong-related legal services in this area has been increasing, and I believe the practical business needs are driving everyone forward.”
- Zhou Bo, SGLA Law Firm
“Mainland clients are increasingly seeking litigation in Hong Kong, arbitration at the Hong Kong International Arbitration Centre, or the mutual enforcement of judgments and arbitral awards between the two regions,” Zhou says.
And with Beijing turbocharging its push for Chinese firms to “go global”, many companies making their first foray into international markets have favoured Hong Kong as a strategic gateway. Its familiar yet international business environment often makes it an ideal stepping stone, easy to navigate yet sufficient to launch these companies onto a path towards international investment.
SGLA, with its newly minted Hong Kong office, is keen to capitalise on these evolving dynamics. The firm aims to swiftly address the emerging needs of its clientele while also exploring fresh business opportunities in this vibrant market.
Yang of Wang Jing & GH shares a similarly ambitious vision for its Hong Kong operations. He tells ALB that in the future, its Hong Kong office will be "committed to providing Chinese legal advisory services to both domestic and international clients, focusing on meeting the diversified needs of Chinese enterprises going global, particularly in areas such as overseas investment and financing, maritime and admiralty law, data compliance, and dispute resolution."
VIABLE PLAYBOOK
This ongoing influx has not only awakened the curiosity of market watchers but also perked up legal recruiters following a relatively muted period.
Brian Chan, head of legal and governance for Greater China at recruitment firm Ethos BeathChapman, confirms to ALB a recent surge in PRC law firms seeking guidance on entering the Hong Kong market and local recruitment strategies.
“With increasing business activities between Hong Kong and mainland China, driven by initiatives like the development of the Greater Bay Area and the Closer Economic Partnership Arrangement (CEPA), there is a growing demand for PRC legal advice not only from large corporations but also from SMEs, startups, and individual clients in Hong Kong and overseas,” Chan notes.
This evolving landscape presents an opportunity for newly arrived PRC law firms to carve out their niche. "They can differentiate themselves by offering tailored legal services to a broader client base at competitive rates,” he adds.
According to him, medium-sized and regional PRC law firms even possess a unique advantage: Their in-depth understanding of regulations and court procedures across various mainland provinces.
"This expertise in PRC law adds substantial value to clients requiring cross-border legal services, particularly corporations using Hong Kong as a corporate hub and regional headquarters while operating across different mainland cities or provinces,” says Chan.
To achieve long-term success in the Hong Kong market, Chan believes PRC law firms must transition from their initial status as registered foreign firms towards localisation.
This shift necessitates the recruitment of local legal professionals. Chan acknowledges the challenges in building brand awareness and credibility among Hong Kong peers. He suggests that newcomers might need to "offer enhanced financial incentives to attract partners with established client bases."
But not all hope is lost. With some international law firms downsizing, there's a unique opportunity for these newcomers to recruit talented lawyers due to reduced competition for talent, he adds.
WEATHERING THE STORM
Zhou of SGLA admits that under the current subdued market conditions, along with the high costs of operating in Hong Kong, law firms are hard-pressed to maintain the business viability of the bottom-line. "Considering the three-year joint operation period, the operating costs of a Hong Kong office are no small figure,” he says.
Nonetheless, SGLA recognises the critical importance of early internationalisation for its next phase of growth. And since the official announcement of their Hong Kong office, SGLA has already witnessed encouraging business indicators, validating their strategic move.
"Shortly after the news of SGLA Hong Kong's establishment, a general counsel of a company reached out to us. This person had just recently been transferred to the Hong Kong branch of a central state-owned enterprise and urgently needed a trusted legal team to provide services in Hong Kong. This opens the door for future collaboration between the Mainland and Hong Kong markets," says Zhou.
On the revenue side, Zhou expects the firm to weather this initial phase, eventually breaking even before reaching profitability.
"For large law firms, having a Hong Kong office has become a 'standard configuration,' signalling to peers and clients that our presence is being continuously improved and that we have the capability to offer services in Hong Kong and even globally."
Guangzhou-based Wang Jing & GH has already allocated a sufficient budget for its Hong Kong office, which is strategically positioned with a dual focus.
Firstly, it will serve as the firm's overseas headquarters, acting as a crucial link between domestic and international operations. Secondly, by capitalising on Hong Kong's status as a global financial hub and the largest offshore Renminbi clearing centre, the office is poised to facilitate worldwide collaborations and streamline financial transactions.
Yang anticipates that this strategic location will significantly enhance the firm's future development and global partnerships.
High operational costs, a prolonged market slowdown, and credible competition might have prompted many established players to pull away and keep new participants waiting and seeing. But there is a viable playbook, and room in the market for these regional PRC firms to survive and grow in Hong Kong.
From the recruiters’ perspectives, Chan of EBC notes that many PRC law firms adopt the so-called "eat-what-you-kill" partnership model, where partners' earnings are directly linked to their business and billings.
“While competition for acquiring legal work and talent recruitment among law firms will likely intensify, maintaining an open legal market for firms and lawyers to enter Hong Kong is crucial for preserving the city's status as an international legal hub in Asia."
- Brian Chan, Ethos BeathChapman
Furthermore, the structures of PRC law firms in Hong Kong are typically much leaner, which, albeit with less market and administrative support, could enable cost efficiencies and allow them to offer competitive pricing while remaining profitable.
"While competition for acquiring legal work and talent recruitment among law firms will likely intensify, maintaining an open legal market for firms and lawyers to enter Hong Kong is crucial for preserving the city's status as an international legal hub in Asia," Chan adds.
