Against the flow

In the face of fierce market competition and increasingly complex demands from clients, both foreign and domestic law firms are looking for suitable ways to develop, writes Frankie Wang

Like a boat going against the current, both Chinese and foreign law firms must find a way forward or be swept downstream. The firms are looking for suitable ways to develop amid increasingly stiff competition, as well as their unpredictable and capricious markets. The current year has witnessed the rise of Chinese law firms. Under China’s tightened financial regulatory policies, further implementation of the Belt and Road Initiative (BRI) and the uncertainties stemming from the trade war between the United States and China, both mainland and foreign law firms are consistently exploring and growing.

Also, from the lawyers’ perspectives, they have received increasingly diverse and complex requests from clients. In addition, their knowledge bases face the likelihood of being exceeded by those of clients and even artificial intelligence (AI). Amid such challenges, perhaps, as Liu Guangchao, the Beijing-based founding partner of DOCVIT Law Firm, says, the “differentiated competition” and the “ability to create ‘non-standard’ products of legal services” are the keys to development.

MACRO TRENDS

The Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (new rules on asset management), released in April, have raised extensive concerns in the market. Zhang Cheng, a senior partner at Hiways Law Firm in Shanghai, says the new rules on asset management are “unprecedentedly” strict. “The penetrating regulation has brought a great impact on the law services for financial business this year, especially on the asset-management business. However, while this change in policy causes a temporary shrinkage of business, it increases the enterprises’ demands for compliance, which become a new growth driver of legal services,” he says. “In addition, as the default risks in the security market rise, the financial litigation business is likely to show an upward trend.”

Tightened capital flow resulted from the strict regulation and the impact of the trade war between the United States and China lead to pessimistic market predictions. It appears that China’s stock market, as one of the reservoirs of money, is entering the “winter of financing”, which brings about new requirements for the businesses of law firms.

Paul Zhou, a senior partner at Wintell & Co in Shanghai, says that, currently, many listed companies have high ratios of pledged shares. “The decline of share prices brings up risks of insufficient guarantee. It is expected that there will be an intensive occurrence of disputes in respect of the buy-backs and the disposal of the pledged shares,” he says. “And the development of asset-backed securitization, as a new financing model, has been driven since the banks constrained lending in the first half of the year. Although it will not bring high incomes, it expands the service areas of law firms.”