Think the March blockbuster combination between China's King & Wood and Australia's Mallesons Stephen Jacques portends a coming wave of tie-ups between Chinese and international law firms? Think again.
"Why should I settle down when I can continue to enjoy the company of 25 suitors?" asks Zhang Hongjiu, a senior partner at 250-lawyer Jingtian & Gongcheng, one of Beijing's top corporate firms.
Zhang's blunt words echo those of many other top partners of leading Chinese firms. They way they see it, King & Wood was always a bit of an outlier in terms of its international ambitions. The others say they have more to lose -- mainly in terms of referrals from other overseas firms -- than to gain from more exclusive arrangements with international firms.
Top Chinese firms Jingtian & Gongcheng, Jun He Law Offices, Zhong Lun Law Firm, Haiwen & Partners, and Fangda Partners all say they have received proposals to establish closer relationships from international firms over the past few years but have declined.
Of course, there are still questions of permissibility hanging over any proposed combination between Chinese and international firms. Foreign firms are banned from practicing Chinese law so true mergers would be illegal. King & Wood Mallesons has adopted a Swiss Verein structure that keeps the Chinese and Australian arms financially distinct, with only the two firms' Hong Kong offices truly combining.
But several international lawyers in the region say it is unlikely that that model would be acceptable to the Chinese government if a large foreign firm were clearly in the driver's seat. "I think it's a challenging strategy that has many risk issues since it essentially circumvents the rules that prevent firms from practicing Chinese law," says the Asia managing partner for a major U.S. firm.
Still, he says his firm is currently discussing some sort of arrangement with a smaller Chinese firm. They are not alone. Norton Rose chief executive officer Peter Martyr told Bloomberg in April that his firm is looking for mergers in the U.S. and in China.
Though Orrick, Herrington & Sutcliffe is not currently looking at a China tie-up, Hong Kong partner Christopher Stephens says he understands why other foreign firms are interested.
"International firms are always clamoring to get deeper into the Chinese market, mostly because they want to be able to say that they have full-service offerings, even in China," says Stephens. "I don't think having a strong relationship with a Chinese firm is critical now, but it's certainly trending towards that, especially as Chinese firms are becoming more capable in advising both local and cross-border deals."
The U.S. firm Asia managing partner says that his firm and others have long had a strategy of trying to practice local law where possible, and would be particularly eager to do so in an important market like China. But it's not just the Chinese government that's an obstacle; though he is confident about the state of firm's current talks, he says there just hasn't been much interest from Chinese firms.