In Hong Kong, two major service industries—finance and real estate—continue to shrink, with several foreign law firms exiting the market. The increasing number of law school graduates and practicing lawyers are facing a scarcity of opportunities, potentially leading to a phenomenon known as “Leftover Children”.
The term “Leftover Children” originates from China’s “Leftover Buildings” phenomenon, which refers to purchased properties that are ultimately left unfinished. In light of the challenging job market for university graduates due to economic difficulties, the term has been extended to describe young individuals who struggle to enter the workforce. As Hong Kong becomes increasingly influenced by mainland China, this trend is becoming more prevalent in the city as well.
According to data from the Hong Kong Law Society, since 2020, 32 law firms have either relocated or closed their operations in Hong Kong.
On July 3 this year, Dechert, a law firm, announced the closure of its offices in Beijing and Hong Kong. The firm’s website stated that it had 14 lawyers in Hong Kong, including 4 partners, and 3 lawyers in Beijing. The firm had previously applied to deregister its Shanghai office. The statement mentioned that they will continue to serve clients through their Singapore office.
LC Lawyers, the legal branch of Ernst & Young in Hong Kong, ceased operations on January 23 this year. SF Lawyers, the associated law firm of KPMG in Hong Kong, ended its operations on April 30 this year.
According to the Hong Kong Law Society, the number of registered foreign law firms decreased from 91 in 2019 to 74 as of June this year, marking an 18.7% decline. The number of foreign lawyers registered in 2023 was 1,476, a 13% decrease from 2019’s 1,688. Even local law firms saw a decrease of 10 firms from 2019 to 922 firms.
Furthermore, global law firms like DLA Piper and Hong Kong’s long-standing Deacons, along with other legal advisors such as Clyde & Co. and MinterEllison, have scaled back their operations in Hong Kong.
A report from legal recruitment consultancy Lewis Sanders highlighted a continuous decline in in-house legal positions within corporations since 2021, partly due to some companies relocating their Asian headquarters from Hong Kong to Singapore.
Quoting a law graduate with the last name Zhu, Bloomberg reported that it is taking a year to secure internship opportunities. The graduate estimated that 20% of their classmates may not pursue the Professional Certificate of Legal Practice (PCLL) program.
To become a qualified solicitor in Hong Kong, one must complete a two-year traineeship at a law firm as a trainee solicitor, pass the PCLL, and receive confirmation from a responsible person before applying to qualify as a solicitor. With the surge in law degree holders in the 23/24 academic year, competition for trainee positions is becoming fiercer, posing a challenge for entry into the profession if the industry continues to contract.
An anonymous practicing lawyer in Hong Kong named Mr. Chen mentioned that in the past, even interns had no trouble finding work during the peak of new stock listings. However, with the current sluggish property market, opportunities to transition to in-house legal roles are becoming scarce.
The Hong Kong Law Society’s data revealed an increase in the number of solicitors to 11,553 in the first half of 2024, while the number of barristers rose from 1,560 in 2019 to 1,664, a 6.7% increase. The quantity of LLB degree holders showed no decline, with three universities offering law programs reporting a 33.5% rise in total student enrollment to 510 in the 23/24 academic year. However, the number of PCLL candidates dropped from 741 in the 19/20 academic year to 720 in the 23/24 year.
Data from the Hong Kong Stock Exchange (Stock Code: 0388) indicated that the total fundraising amount for equities in 2023, including new shares and the secondary market, was HK$150.711 billion, a drastic 80% drop from the peak of HK$770.735 billion in 2021. By the first seven months of 2024, fundraising amounted to HK$81.233 billion, estimating a total fundraising amount of approximately HK$139.387 billion for the year, even lower than the previous year.
Data from Hong Kong’s Rating and Valuation Department indicated a significant decline in property transactions across all categories from the peak period (see table). The value of first-hand residential properties decreased by 44% from HK$230.888 billion in 2023 compared to the peak in 2021, while second-hand residential property transactions totaled HK$261.623 billion in 2023, down by 48% from HK$503.017 billion in 2021. The combined value of all types of property transactions in 2023 declined by 47% from 2021.
The legal industry plays a crucial role in both financial market activities and real estate transactions, with each assigned transaction requiring legal representation. Based on the total transaction values and the number of practicing lawyers, a rough estimate showed a decline from an average of HK$141 million per lawyer handling financial and real estate transactions in 2021 to HK$50 million in 2023, dropping further to HK$29 million per lawyer as of July this year.
While not all practicing lawyers handle financial and real estate transactions, the significant decline in Hong Kong’s core industries of finance and real estate reflects the prospects of the legal profession. The once highly sought-after legal profession for Hong Kong’s elite is now facing the predicament of “Leftover Children”.