2015.08.21
Warren X. Hua: “Don’t be surprised if one day Chinese firms are leading the business renovation of the international legal market!”
It seems to many that China’s legal service market is a puzzle nut to crack or puzzle to solve. Partially-liberalized in the age of globalization, complex and diversified in terms of languages and cultures, subject to constantly changing markets and regulations…
How does a leading Chinese law firm perceive this battlefield? What are the noticeable trends? What advice may it give to domestic and international competitors? Insights from Managing Partners XIAO, Wei (left on the photo) and Warren Hua of JunHe, one of China’s oldest and best full-service law firms.
Leaders League. How do you understand internationalization?
W. X. With Chinese companies expanding overseas, Chinese law firms need to accompany them. Although in China we have the advantages in history, language and culture, we lack experience and resources to set branch offices everywhere in the world and compete directly with international law firms that are better positioned: long history, high quality, advanced linguistic capacity and many multinational clients… Anglo-Saxon firms also have the widespread common law system as a basic culture.
How to compete? Some firms think that they can solve the problem by simply marrying an international firm, but what is the point of merger if the outbound work is still conducted by the international firms? Now more mature and knowledgeable about the international market, Chinese clients are searching for a firm’s capacity to solve their problems rather than its nationality, so we need to strengthen our self-building.
Leaders League. What do you think of the joint operation between Chinese and foreign law firms under the initiative of Shanghai Free Trade Zone (FTZ)?
XIAO, Wei. It could be beneficial to some Chinese boutique firms or to foreign law firms who can now participate in legal work in China. But we are going in a different direction with the same rationale as we view the merger.
We stick to independence because of our values, and because we are not worried about waiting in the wings. The first to move are not necessarily the winners. But we are not inflexible. If the future market proves that merger is the only path, then why not? I believe if we are doing well our work, we will find a good partner. But for the moment we can find alternatives to achieve the same objectives. If the so-called “merger” is a bundle of weak firms joining for a wider reputation and larger combined revenue, we prefer to develop real strength and integration and to have high revenue per lawyer.
Leaders League. Where do you see Chinese firms in the future international legal market?
W. X. In ten or twenty years’ time, Chinese law firms will absolutely gain more visibility, because China’s legal market is growing. Our local capacity will grow in line with the Chinese market, which will support our development.
W. H. Don’t be surprised if one day Chinese firms are leading the business renovation of international market, because western firms have a long historic tradition to defend and a heavy burden to innovate rapidly, whereas we can go anywhere we want.
Leaders League. Warren, why did you choose to join JunHe after having worked for a long time in international firms?
W. H. I would attribute this to the scale and platform of Chinese law firms, and I’m not the only person to think so. Big international firms have at most a few hundred on staff in China, and their work scope is restricted, as they cannot participate in some capital market work, issue legal opinions or plead.
Before 2008, foreign law firms experienced a golden time in China because of prosperous inbound work flow. After the credit crunch, they were hit hard as their primary source of revenue – inbound work – was significantly reduced, thus losing talent to their Chinese competitors, who gradually gained competitiveness. Coupled with their disadvantage in terms of price, foreign firms are experiencing a downturn and have largely reduced to a dozen or even a few head figures, and the existing firms are shifting from inbound to outbound work. The survival space of international firms is shrinking, which limits the quality of cases and the career development of lawyers, so an increasing number of lawyers in international firms returned to Chinese law firms after the crunch. Another factor is cultural adherence. Even though we can understand English, it is hard for us to share nuanced sentiments with foreign partners.
As for JunHe, the most attractive factor for me is its outstanding quality, of which my peers in international firms stand in consensus.
Leaders League. How do you think Chinese firms can attract more talent with international background like you?
W. H. They need to improve their overall management level. As far as I know, many lawyers who return to Chinese firms from international firms had a difficult time re-adapting, being used to a corporate-like operational structure with many rules.
This said, Chinese firms are progressing really fast. At JunHe, I think our soft and hard environments are at least on the same level as international firms, and even surpass them in some ideas or values. For example, we are building a mobile app to provide interactive communication services for domestic and international law firms and clients, which is still rare in international firms.
W. X. As an independent firm, you need to first build your body. At JunHe, apart from training, we have been engaging in major internal re-organization and re-structuring projects over recent years, from centralization of resource management, lawyer allocation, cost and efficiency control, CRM system, to marketing & communication department and PR relationship building…
Leaders League. What advice would you give to foreign law firms in China?
W. X. Although there are legal restrictions to foreign law firms’ work, I think their biggest challenge is the Chinese law firms that have grown in maturity. In the past, at first foreign firms led deals and Chinese firms were doing some adjunctive work, later we both led the deals, and now it is the Chinese firms that are leading deals, especially in inbound work. Foreign firms still have a relative advantage in outbound work, but the sum of work is relatively limited in spite of the large number of deals.
Chinese companies are difficult to deal with, but China is simply a market too big to miss. I think there is still some work for big law firms, but there is little meaning for smaller regional firms to force themselves to be there. In order to survive in the Chinese market, international law firms need to further localize and reduce their costs.
Leaders League. What are the trends you have observed in the Chinese market that can generate business for law firms?
W. X. In recent years, Public-Private Partnership (PPP) is rising in China, as local governments lack financial resources. Other hot topics include the securitization of corporate equity, equity management of banks and corporates, debt or derived product issuing, anti-monopoly, anti-commercial bribery, the development of the new national agency share transfer system, red-chip return and the dismantling of well-erected Variable Interest Entities (VIEs)…
Leaders League. Will the recent turbulence in the stock market significantly affect the work of law firms?
W. X. I don’t think so. There is indeed a threat that if the market cannot be stabilized, corresponding activities will drop significantly and the market will go through big transformation, and that’s why the government has stepped in to intervene directly. But in practice as a lawyer for 30 years, I have seen storms much graver than this, so I think this is the new normal for China’s economy, and we shouldn’t worry about a breakdown.
W. H. As a matter of fact, in terms of IPO work, only the listing is suspended, but the examination and verification is still going on.
W. X. On the other hand, I think it’s also good to cool down the previous craze. Can you imagine that we were so busy not long ago that we had to refuse some mandates? The market evaluation became irrational and everybody was creating new projects. If this continued, the cost would have become too high.
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