China’s top “Red Circle” law firms are accelerating their overseas expansion, aiming to seize a larger market share abroad, sometimes charging fees as low as half of their Western competitors.
With China’s significant expansion in global trade and investment, especially in countries with favorable diplomatic relations with the Chinese Communist Party, Chinese law firms are following suit and entering the international market. In recent years, due to concerns over tightened security laws in mainland China and Hong Kong, some well-known foreign law firms have withdrawn from operations there.
Since the beginning of 2023, several major law firms in China (commonly known as Red Circle firms) have opened offices in Asia and the United States, with plans to establish more offices.
Political commentator Li Lin pointed out that the most worrying aspect of these Chinese law firms going global under the control of the Chinese Communist Party is the potential export of the Party’s ideological ecosystem and the distortion of local legal systems overseas.
He expressed concerns that as the Chinese law firms venture abroad, they may bring China’s practice of prioritizing Party over law, turning places with laws but no rule of law into extensions of the Chinese legal environment. Another concern is that the Chinese regime might further leverage so-called “legal” means in its Belt and Road Initiative projects in other countries.
According to a report by the Financial Times on Thursday (April 18), in the past year, China’s top law firms have opened nearly a dozen new offices in Asia and the United States.
One of China’s highest-earning law firms, Beijing Law Firm, announced plans to set up offices in South Korea and Japan in 2024.
Hankun Law Firm opened its New York branch in December 2023, just months after establishing an office in Singapore. Deheng Law Firm set up its first office in Southeast Asia in Laos in 2023, offering legal services related to the Belt and Road Initiative. Yingke Law Firm opened an office in South Africa, one of the BRICS countries.
These overseas outposts primarily serve Chinese clients, although some firms express intentions to compete with foreign counterparts in those regions.
Xu Mo, managing partner of Zhong Lun Law Firm, told the Financial Times, “Chinese law firms are rapidly expanding and intensifying their competition in the international market by hiring experienced lawyers from international law firms and increasing their global influence.”
Zhong Lun Law Firm, a top 10 Chinese law firm, has expanded its presence in the United States, the United Kingdom, and Japan over the past decade.
Xu mentioned that Zhong Lun aims to challenge “renowned international law firms that serve some of the best clients in the global market.”
There remains a significant gap between Chinese companies and their Western competitors. Last year, the combined annual revenue of eight Red Circle law firms that expanded internationally was less than $3 billion by 2022. In contrast, the highest-grossing law firm globally, Kirkland & Ellis, had a revenue of $6.5 billion in 2022.
Zhong Lun’s office in Kazakhstan, opened in 2019, has seen increased demand for legal services related to infrastructure projects under the Belt and Road Initiative.
Xu mentioned that Chinese investments create “significant potential” for Chinese law firms to expand into the Middle East, Latin America, and Africa.
Three lawyers from an international law firm in Hong Kong stated that mainland law firms are ready to operate at lower profit margins in Hong Kong, charging fees 50% lower than their Western counterparts, highlighting Hong Kong’s independent legal system.
However, some lawyers from international law firms believe that their Chinese competitors cannot usurp most of the legal services they provide to multinational clients, especially those from the United States.
One lawyer mentioned that while Chinese law firms are increasingly competitive in capital market businesses like initial public offerings in Hong Kong, they lose their pricing advantage when it comes to cross-jurisdictional mergers and acquisitions.
“Entering more specialized legal fields actually takes a generation to catch up,” he told the Financial Times.