Many of the biggest global law firms are closing some of their offices in China. Most of these are key US firms, including Latham & Watkins, Reed Smith and Skadden, which are closing their Chinese branches due to increasing geopolitical tensions between China and the US.
Why are firms leaving?
Due to China’s increasing regulatory scrutiny, legal operations have become more complicated, meaning law firms find it harder to get around new political frameworks. This includes the recently enacted Personal Information Protection Law which limits the collection and transfer of personal information. It is very difficult for firms to operate with such a limit set to day-to-day practices, needed to advise clients.
Furthermore, US firms, like Weil, Gotshal & Manges (having left both Beijing and Shanghai), have pulled out of China due to worsening geopolitical tensions between China and the US. These tensions include cybersecurity concerns, with the US accusing Chinese corporations of targeting sensitive government data, as well as the US imposing substantial tariffs on Chinese exports leading to a trade war. This will cause further tensions, particularly with Donald Trump entering his second term in the White House.
Additionally, China’s deepening economic slump has caused firms to become concerned about lower profit margins. Indeed, the Magic Circle firm Linklaters has cut headcount by 15% in Beijing, Shanghai and Hong Kong. As a result of a worsening economy and a reduction in Real GDP, Chinese clients are not as willing to pay the huge sums that their global counterparts are, meaning that firms in the area will be less profitable, hence causing firms to lay off employees.
How are firms getting around this?
Because non-Chinese firms can’t operate as a single entity in China, they are forced to partner with Chinese firms. For example, Linklaters has partnered with Zhao Sheng and Herbert Smith Freehills has partnered with Kewei.
Many firms, however, have decided to simply move elsewhere due to these significant requirements. For example, Ropes & Gray and Gibson Dunn have recently opened offices in Singapore to continue their focus on the South-East Asia market.
References and further reading:
“Dentons is going through a breakup”(Little Law)
“The China conundrum - why so many US law firms are pulling out” (Legal Business)
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