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Legal Market Overview

In December 2019, reports started emerging of a novel disease outbreak in the Chinese city of Wuhan. A month later, the government notified the World Health Organisation and, soon after, the entire country faced quarantines and restrictions on domestic travel. Over the course of the next few months, what would become known as COVID-19 infected millions of people worldwide. The pandemic is a thread that runs through the story of 2020; but GDP data suggests that although the Chinese economy shrank by 6.8% in Q1, as manufacturing plants shut their doors, it grew by 4.9% in Q3, as the economy began to re-open.

The international economic landscape in 2020 drove increased M&A activity in China, with Chinese companies looking at domestic consolidation. Lawyers noted that outbound transactions, particularly related to the so-called Belt and Road initiative, slowed down quite dramatically as a result of the pandemic, in the midst of general economic uncertainty and difficulties in performing due diligence abroad. More broadly, the last few years have seen steady economic growth and structural reform to encourage inbound investment, although the failure of some high-profile unicorns to achieve their planned initial public offerings in 2019 has held valuations back.

In April 2020’s Global Financial Stability Report, the IMF praised the PRC for its financial stability throughout the COVID-19 pandemic, which it puts down to limited external financial exposure and the omnipotent role of government-owned financial institutions that were able to proactively stabilise market conditions with a stimulus package for financial institutions worth RMB1.5tn. That being said, at a transactional level, cross-border and aviation financings were affected by a slowdown in activity in these sectors. Practitioners expect non-performing loans (NPLs) to rise and are reporting that restructuring work and NPL portfolio transactions are a hot area of the market.

A sector that benefitted from the upheaval of the pandemic was China’s fintech market, an area that the Government has earmarked for particular growth. Payment platforms, which are interconnected with the jurisdiction’s thriving e-commerce and social media platforms, dominate the fintech space in China. Fintech companies are increasingly prominent in the financial services industry, as new market entrants begin to disrupt traditional players in banking and insurance.

For capital markets, the major news is that following the success of the Shanghai Stock Exchange’s experimental Science and Technology Innovation (STAR) board, which reduced the burden on hi-tech-sector companies to access equity investments, a similar initiative was launched on the Shenzhen Stock exchange, aimed this time at mid-market enterprises. Both initiatives operate a subscription system, benefitting from reforms that came into force in March 2019 that bypassed the traditional approval-based system.

This year sees the introduction of a data protection section into our rankings. Differing from the approach of other jurisdictions (for instance of the European Union to the General Data Protection Regulation), the Chinese government places a premium on national security over personal data protection. Data security, and issues such as cross-border data transfer, are of particular concern to foreign companies with operations in the PRC, and impact on the ability to share financial information with parent companies abroad. On the enforcement front, the Chinese regulators focus on cybersecurity, as well as data assets and content censorship; and civil and criminal enforcement are commonplace. Domestic firms that have a particularly impressive offering are Fangda Partners, under the leadership of Kate Yin and Han Kun Law Offices, which is home to regulatory compliance expert Min Zhu.

In law firm news, international firms continue to strengthen their position on the Chinese market via the increasing use of joint-operation agreements with local firms, enabling them to draw on locally-qualified lawyers on the ground. The Linklaters joint-operation firm Zhao Sheng Law Firm continues to grow apace under the leadership of Richard Gu and Collette Pan, who moved over from the international firm. Allen & Overy LLP has just established a joint operation with Lang Yue Law Firm, which is based in the Shanghai Free Trade Zone. McDermott Will & Emery LLP pulled out of its joint operation with Yuanda China Law Offices, which is now part of Winston & Strawn LLP’s network. Other international firm moves are less positive, however, and in 2020, Stephenson Harwood and Vinson & Elkins shuttered their Beijing operations.

The Legal 500 Client Service Survey

Data extracted from The Legal 500 Client Service Survey. Data point size indicates number of firm rankings in this jurisdiction in The Legal 500 this year. Color strength indicates positive client scoring. All firm scores on display are above the Global Benchmark score for this criteria.