Reopened borders, scrapped restrictions, and conciliatory policies have come as relief to PRC law firms in Hong Kong, with economic activities in Greater China expected to steadily pick up following a difficult pandemic period. While lawyers are wary of an uncertain regulatory landscape and moderate investor confidence, they are also banking on their unique positioning as a bridge between China and the rest of the world. 

As the border between Mainland China and Hong Kong reopened after three COVID-battered years, all eyes are on the Hong Kong legal market, hoping it can score a strong revival in 2023.

And amongst all firms aspiring to stage a comeback, longing for a swift taste of victory are PRC law firms with a Hong Kong presence after stringent COVID restrictions that paralysed both jurisdictions have now been completely scrapped.

As Nicolas Aguzin, the head of Hong Kong Exchanges and Clearing, put it, “Hong Kong is the most international city of China and the most Chinese city outside of the mainland,” and PRC lawyers in the SAR are convinced that they are offering a unique proposition that will cement success in the long run.

“For China, Hong Kong is irreplaceable and of utmost importance because of its contribution to China’s foreign exchange trading, offshore financing, transnational services and more,” says Wang Qingjian, Hong Kong managing partner at Haiwen & Partners. “Admittedly the pandemic and geopolitical tensions have taken some of Hong Kong’s sheen, but the pain will only be transitory.”

The Hong Kong office of the Red Circle firm has not just survived, but actually thrived in the past three years with continued profitability. Riding the momentum, Haiwen is poised to expand its Hong Kong partner ranks, with several additions of capital market specialists while relocating to the swanky Exchange Square.

Zhang Jiping, managing partner of Haiwen in Beijing, explains the decision was partially prompted by accelerated movements in Hong Kong’s long-dormant capital markets in the first three months of 2023, and that lawyers in this space are starting to get the magic back.

“After pandemic controls were lifted on the mainland and in Hong Kong with the resumption of cross-border travel, our lawyers have been busy going on work trips,” says Zhang.

“The Hong Kong capital market is more active than last year. M&A activities might be slower to pick up, but undoubtedly, 2023 should be a much better year overall and we have already seen a more robust IPO scene,” he adds.

STRONG BOOST

Indeed, Hong Kong’s position as the world’s prime fundraising destination has already received a strong boost near the end of 2022. According to Refinitiv’s data, the Asian financial centre managed to clinch the third spot among the world’s largest IPO markets for last year, with the Hong Kong Stock Exchange trailing only the tech-savvy Shanghai Star Market and the ChiNext market in Shenzhen. This has brought Hong Kong-based lawyers of PRC firms plenty of cheer.

“Hong Kong traditionally has been an important legal market for the PRC headquartered firms, and it will remain so,” says Colin Law, a capital markets partner at Fangda Partners, founded in Shanghai.

“As the PRC administration prioritises data and other security issues in the midst of rising geopolitical tensions, Hong Kong will continue to be a preferred jurisdiction for purposes of fund-raising and listing,” Law adds.

He backs his point by citing the latest overseas listing regulations issued by the China Securities Regulatory Commission (CSRC) in February. The new rules, widely hailed by lawyers and industry insiders alike as an injection of market confidence, give CSRC the power to vet applications for offshore listings, which the Commission underscored as a “key component” of China’s capital markets opening.

“The new rules will serve to pivot certain Chinese issuers toward Hong Kong as a listing venue. PRC-headquartered firms with a strong Hong Kong presence will benefit from policy moves of this kind,” notes Law.

Wang of Haiwen notes that around 70 percent of companies in Hong Kong are now Chinese enterprises, and more mainland firms will arrive to occupy the market vacuum vacated by some U.S.- or Europe-headquartered companies, which retreated due to geopolitical or macroeconomic calculations. Wang believes this process has benefited PRC law firms and will continue to do so.

“Our focus are mainland clients, and we speak the same language and share the same culture with these Chinese companies. That has given us an upper hand when vying for market share with international firms,” says Wang.

CUES FROM BEIJING

With Hong Kong becoming increasingly integrated with China’s strategic development blueprint, PRC firms in the city have also been taking cues from national policy direction when charting their operational course.

“We have seen our GBA offices in Shenzhen and Guangzhou become a more active part of our practice, with emphasis on M&A, dispute resolution and IP. We have catered to those processes by more frequent cross-border collaboration with our teams in Shenzhen and Guangzhou, in addition to developing other joint GBA practice areas.”
— Peter Yuen, Fangda Partners

Peter Yuen, Hong Kong managing partner at Fangda Partners, emphasises the strategic alignment of Hong Kong’s role – and hence the ones of PRC firms in Hong Kong - with the development of the Greater Bay Area spearheaded by China’s 14th five-year plan.

“We have seen our GBA offices in Shenzhen and Guangzhou become a more active part of our practice, with emphasis on M&A, dispute resolution and IP. We have catered to those processes by more frequent cross-border collaboration with our teams in Shenzhen and Guangzhou, in addition to developing other joint GBA practice areas,” notes Yuen.

He says the secret behind Fangda’s solid Hong Kong presence - stretching beyond a decade - involves structured talent acquisition and retention programmes that are adjusted to the changing legal market landscape in Hong Kong and on the mainland.

And to get through the pandemic, “we have been building on our innovative practices such as contentious regulatory and investment protection. These two practices continue to grow along with the traditional practice areas that grow in times of crises, such as bankruptcy and restructuring, litigation, and alternative dispute resolution. There has been a slowdown in a number of transactional practices, but we expect those to be on the uptake in the near future,” adds Yuen.

Haiwen’s Wang, on the other hand, attributes his office’s successful navigation of the pandemic period to cautious adaptation, instead of pre-emptive measures, along the way.

“In the past few years, we have been prioritising and premising the healthy and sustainable development of our practice before contemplating expanding offices or increasing headcount,” explains Wang.

“As a result, we were under a lot less pressure during this tough period even with the hiatus in some practice areas. For example, we expanded our capital markets team by hiring one or two lawyers each time while other firms might have propped up theirs with double-digit hires,” he adds.

The “hands-on” attitude and approach of Haiwen’s partners also contributed to the firm’s steady performance, according to Wang, who prizes customer service as one of his firm’s strongest suits.

As more PRC firms are eyeing a slice of Hong Kong’s legal marketplace, Zhang admits that Haiwen has been subject to intensifying competition, and his secret weapon is to attract more talent.

And with that, “we, highly integrated between our mainland and Hong Kong offices, can provide our clients with truly one-stop service, which is increasingly in demand,” says Zhang, adding that Haiwen’s unified remuneration structure is likely to prove more competitive and advantageous in the long run.

Wang is confident that there is still a long way to go before PRC firms in Hong Kong have to vie for work with each other in a zero-sum game. The day will eventually come, he says, but right now, there’s still room for them to work together even with the accelerated arrival of new entrants.

“Back in 2004 when I was working in Shanghai, international law firms basically dominated the market. Now, Chinese firms are the major players,” says Wang.

“If this trend were to play out in Hong Kong, then whoever may survive will have to be the fittest,” he adds.