On the eve of the Oct. 1 national holiday marking the 60th birthday of the People's Republic of China, associates at one of the nation's largest law firms got some welcome news. Jun He Law Offices announced that it was rolling back cost-saving measures introduced in April. Back then, the Beijing-based firm had mandated a four-day work week and made a larger portion of associate pay contingent on hitting billable targets.
Jun He partner Kirk Tong says that China's improving economy, which is barreling out of recession ahead of the West, has obviated the need for such austerity. "[Initial public offering] work has been picking up," says Tong. "[Mergers and acquisitions] is getting busier."
But Tong warns that China's recovery -- at least as it applies to law firms -- shouldn't be overstated. "It's getting somewhat better," he notes, "but it's still not at the level it was before."
Jun He is not the only firm taking a cautious approach. Arch-rival King & Wood, China's largest firm, is continuing with a hiring freeze and ban on non-essential spending. At Zhong Lun Law Firm, another leading Chinese firm, Shanghai partner Lefan Gong notes that new hiring, while not frozen, continues to be restricted.
Why hasn't China's strengthening economy -- the International Monetary Fund recently revised its 2009 GDP forecast to 8.5 percent growth, up from 7.5 percent -- spurred more optimism at the country's top law firms? One big reason is that China's economy is still far from the only one that matters to such firms.
Most of China's big-name law firms say that, for half or more of their work, they continue to count on multinational corporations and global financial institutions doing business in China. Gong thinks that Zhong Lun may be doing better than its peers because of a larger ratio of domestic clients, but he says that 40 percent of the firm's clients still hail from abroad.
By all accounts, foreign investment in China has taken a steep dive and has yet to come back. That dropoff helps explain why Baker & McKenzie, O'Melveny & Myers, Paul, Hastings, Janofksy & Walker and other U.S. firms all laid off lawyers in China in recent months.
Moreover, Tong notes that China's recovery is largely being powered by government spending. The kind of public infrastructure projects favored by the government have not spun off a huge amount of legal work.
"We are ready for a long recession," he says.
The downturn has at least ensured that Chinese firms are debating the same kinds of management and compensation issues as their American counterparts. While there is movement at some firms to embrace lockstep compensation, others are looking to continue with the existing system, which is more flexible.
Even after the end of Jun He's austerity period, associates at the firm -- the most junior of which earn around $18,000 a year -- will still find half of their pay dependent on performance.
"If there is any change, we will move even more towards a merit-based system," says Tong.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.