Law firm mergers form a bridge to China
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When Australian law firm Mallesons Stephen Jaques merged with Chinese firm King & Wood in 2012, lawyers were sceptical. Any merger is challenging, but many thought combining organisations from two such different cultures was a risky move.
Seven years on, those running the first global law firm headquartered in the Asia-Pacific region believe the gamble paid off.
The merger positioned King & Wood Mallesons to capitalise on one of China’s signature policies, to connect Hong Kong, Macau and nine mainland Chinese cities into the “Greater Bay Area”. Beijing hopes the plan will turn the region into a megacity to rival San Francisco, New York and Tokyo when it comes to innovation and economic growth.
As trade and investment flows into the Greater Bay Area, demand for legal services is expected to increase.
International law firms are eyeing opportunities to help companies raise capital in Hong Kong before pushing across the border into mainland China. The mainland presents opportunities to invest in infrastructure, real estate development and telecommunications. For law firms, it brings the international arbitration and dispute work associated with those activities.
“Multinationals are coming into the area and want the business law that enables them to do business,” says Sue Kench, global chief executive at King & Wood Mallesons. “They want to know what their risk profiles are, they want everything documented, they want funding, they want to know their exit plan.”
But Hong Kong and mainland China have different legal systems, currencies and business cultures. Questions remain over how to facilitate the free movement of people between the two jurisdictions and how to reconcile Hong Kong’s maximum corporate tax rate of 16.5 per cent with mainland China’s 25 per cent. It is also unclear how companies will harmonise regulation on data privacy, intellectual property and cyber security.
Stephen Kitts, Asia managing partner at Eversheds Sutherland, says: “Principles of data privacy and cyber security are very different in the mainland compared to Hong Kong or elsewhere in the world.”
As Beijing’s influence strengthens in the former British colony, companies are wrestling with what this means for business. The Hong Kong government introduced legislation in February allowing the extradition of criminals to China for 46 offences including nine commercial crimes such as tax evasion.
Some commercial crimes were struck from the proposed legislation after a backlash from local business communities, worried the legislation could be used as a weapon against anyone passing through the hub. But extradition law continues to concern business leaders, lawyers and professional groups, as do other recent developments in Hong Kong that erode political and civil liberties in the territory, undermine business confidence and create an environment where companies and their employees feel less safe.
Yet the appeal of engaging with the world’s second-largest economy means law firms want to remain in Hong Kong, which is still viewed as a springboard for international corporations in the Greater Bay Area.
“These companies are going to want to be represented by international firms, they will not want to be represented by mainland law firms, or for that matter Hong Kong law firms,” says Henry Fan, a lawyer and former managing director of investment company Citic.
Law firms are experimenting with different structures in mainland China, where foreign lawyers are unable to obtain licences to practice law. International law firms are banned from giving legal advice and presenting before a Chinese court.
“All international firms are generally surveying the scene,” says Mr Kitts. “There isn’t one strategy that is necessarily right. Different firms have different strategies . . . because you can’t ignore the China market.”
Firms such as Baker McKenzie, Holman Fenwick Willan, Hogan Lovells, Ashurst and Linklaters have entered into joint agreements with local Chinese firms in the Shanghai Free Trade Zone, the only experimental zone of its kind in mainland China, in which international firms are able to deliver Chinese legal advice through a local law firm partner.
In contrast, King & Wood Mallesons has local offices in China, which means they can operate like a Chinese law firm. “That’s the beauty of the local platform,” says Ms Kench. “It is not available to the international firms. The way we have structured . . . the entire King & Wood Mallesons platform means we’ve got that depth and breadth in capability.”
She adds: “The universe has delivered the Greater Bay to the firm. It is literally the blueprint for how the firm capitalises on what it has already done, it’s extraordinary.”
The tables below rank law firms and in-house legal teams for the FT Innovative Lawyers Apac awards.
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Explore the Innovative Lawyers Asia-Pacific rankings 2019
- FT Most Innovative Law Firms
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Business of Law
- Data, Knowledge and Intelligence
- Managing and Developing Talent
- Innovation in Diversity and Inclusion
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- New Products and Services
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