Legal Market Overview
Further to the late December 2019 outbreak of COVID-19, the pandemic remained the Chinese economy’s dominant theme throughout both 2020 and 2021. Nonetheless, China was the only major economy to report positive GDP growth in 2020; and assuming the continued suppression of COVID-19, China’s economic growth is projected to reach 8.5% by the end of 2021.
China’s trade and political tensions with the US, as well as increased internal regulations, is the most significant development over the past year and has resulted in a significant downturn in Sino-American transactions. This has, in turn, generated a large amount of divestment, restructuring and repositioning work for China-based practices and has been largely offset by a greater focus on domestic and regional transactions. Instructions from Europe were generally observed to have remained steadfast though some noted a decline. The overall picture however is that, despite political uncertainties and a global pandemic, firms enjoyed a busy end to 2020 and first half of 2021, which was also partly bolstered by a backlog of transactions that stalled during the initial outbreak of Covid.
Furthermore, recent changes in domestic industrial structure are expected to bring potentially lucrative opportunities, including new technological revolutions in 5G, new energy sources and materials, an ever-important online economy, and import substitutions as a result of the global supply chain transformation. Fintech (an area in which law firms are increasingly investing in) is one of the fastest-growing segments in the financial services marketplace, with China publicly voicing its desire to be the leading country in financial technology development. Payment platforms, which mainly derive their user base from robust e-commerce and social media platforms, by far dominate the fintech space in China. Another buoyant area is healthcare and life sciences, with China’s healthcare industry now the world’s second-largest and expected to surpass the US within the next few years. In 2020, a record number of cross-border licensing partnerships were agreed between multinational and Chinese pharmaceutical companies, and pharmaceutical spending in China is expected to reach between $140bn-$170bn by 2023.
The pandemic has also presented crisis opportunities, including the global economy’s slow recovery, low-interest rates in developed countries, net capital inflows and financing opportunities, the return of US-listed Chinese shares and acquisition of quality assets, and overseas investments. However, a note of caution must be sounded; China’s reform agenda is languishing, tariffs and other trade curbs are disrupting access to global markets and advanced technologies, and the Covid stimulus has lifted debt to striking levels. Unsurprisingly (considering the pandemic), restructuring and insolvency has been a particularly active area for several leading law firms; and in May 2021, the Supreme People’s Court and the Hong Kong government agreed on a framework of judicial co-operation for corporate insolvency and debt restructuring, the pilot areas currently including the Shanghai, Xiamen and Shenzhen municipalities.
Banking and finance practices also continued to advise clients on COVID-related issues surrounding existing and new deal structures, as well as advising on loans to support pandemic relief; and the market experienced more deals involving repack structures, triggering a broader investor base for loans to include funds and alternative credit providers. Firms in China additionally reported growth in activities in capital markets-related deals, such as pre-IPO financing, post-IPO share-backed financings and take-private financings; and private equity firms have gained increased confidence in the China market and larger investment stakes in China, while domestic private equity firms have gained strong ground and expanded overseas.
When it comes to the big-ticket, multijurisdictional M&A transactions, the Chinese market has traditionally been dominated by major international firms. Generally, this type of work is led from Hong Kong though is supported by the Shanghai and Beijing offices, or through alliances with local PRC firms. That having been said, there is a general consensus in the market that the domestic players have become increasingly competitive over recent years. Among other factors, many lawyers at leading PRC are fluent in English, have prior experience at international firms and are able to provide greater availability at a lower cost. The result is that, local firms are handling an ever-increasing amount of high-end work, as reflected by a significant expansion to our Corporate and M&A: PRC Firms table where an additional 9 firms achieved a ranking for the 2022 Guide.
Both foreign and domestic law firms remain committed to providing integrated international and PRC legal advice through the utilisation of joint-operation agreements with local firms in the Shanghai Free Trade Zone. Linklaters enjoys a joint operation with Zhao Sheng Law Firm; Ashurst and Herbert Smith Freehills LLP can deliver PRC law advice through Guantao Law Firm and Kewei Law Firm, respectively; and Allen & Overy LLP‘s own operation with Lang Yue Law Firm was approved in 2020. On the PRC firm front, Anjie Law Firm and Broad & Bright Law Firm merged in September 2021, maintaining offices in seven major cities across the country, as well as their association firms in Hong Kong. In 2020, Sino-Global Legal Alliance (SGLA) became one of the largest domestic integrated law firms as member firms of the alliance joined SGLA Law Firm, which now has a network of branch offices across China.
At an individual partner level, high-profile moves within mainland China include the April 2021 recruitment by K&L Gates of Shanghai-based China tax practice head Roberta Chang from Hogan Lovells International LLP, which itself hired TMT specialist Don Williams, who divides his time between Shanghai and Silicon Valley, from Sheppard, Mullin, Richter & Hampton LLP‘s Shanghai office in July 2020. Meanwhile, Pinsent Masons recently boosted its finance and projects offering in China, when it welcomed Beijing finance expert Kanyi Lui from Jones Day. On the PRC firms side, Rong Fang joined Han Kun Law Offices from King & Wood Mallesons; life sciences regulatory expert Jason Wu joined Fangda Partners from Global Law Office; insurance disputes focused Shuo Cai joined Jincheng Tongda & Neal from Zhong Lun Law Firm; and Wintell & Co Law Firm‘s entire insurance team joined SGLA Law Firm.
On a less positive note, despite certain international firms bolstering their presence in mainland China, some foreign practices are retreating from the market. Examples include the 2020 closing of Stephenson Harwood and Vinson & Elkins LLP‘ Beijing offices.