For more than a decade, law firms have seen China overshoot its annual economic growth targets, often by a long way. In 2007 a projection of 8 percent growth was well off of the eventual 14 percent.

But those days seem well over. This year, China has set a gross domestic product growth target of 7.5 percent, its lowest in over a decade. Speaking at conference in Washington, D.C., last month, Chinese finance minister Lou Jiwei suggested the country might well fall short of that figure.

"Reaching this year's target shouldn't be too big a problem,” said Lou. “But we also don't think there is any big problem with 7 percent or 6.5 percent."

Along with growing concerns about the stability of China’s credit system, the downward growth projections have effectively killed firms’ hopes for a revival in capital markets activity in China and Hong Kong, which have been mired in a downturn for almost two full years now. Lawyers in the region are also coming to realize they will be dealing with slower growth from China on a permanent basis.

Certainly the short-term picture has worsened. “Many people expected a comeback in the third quarter,” says Davis Polk & Wardwell Hong Kong partner Kirtee Kapoor, “but that doesn’t seem to be happening.”

There have been a handful of sizable initial public offerings by Chinese companies on the Hong Kong Stock Exchange, including China Galaxy Securities Co.’s $1.07 billion listing and Sinopec Engineering Group’s $1.8 billion offering in May, but capital markets activity is still generally low. Hong Kong was the top venue for IPOs globally for three straight years from 2009 to 2011, according to data from Dealogic, buoyed by large Chinese listings. So far it ranks third this year with $5.1 billion in listings, far behind New York’s $20.9 billion.

Hopes that a potentially massive Hong Kong $100 billion initial public offering by Chinese e-commerce giant Alibaba Group might revive the market early next year have also recently been dampened by reports that control issues may lead the company to list in New York instead.

Debt issues have slumped too. “The debt market was very active in the first half of the year but that has now slowed,” says Tien-yo Chao, a Hong Kong partner at British firm Linklaters. “The restrained growth is partly attributable to the China market growing at a much slower speed.”

A factor in the slowdown has been China’s recent credit crunch, largely engineered by the government as a way of cracking down on the country’s so-called shadow banking system. “Chinese banks have long preferred to lend to state-backed companies,” explains Graham Lim, a Hong Kong partner at Jones Day. “Smaller Chinese companies therefore have had to turn to their own networks and curbside lenders for funds and capital.”

But the Chinese government is concerned that much of this lending is reckless and has been fueled by cheap loans from the central bank filtered down through large state-owned banks and into the smaller lenders. The big fear is that the potentially massive volume of bad loans could eventually send the Chinese financial system into a tailspin.

While partners at international firms generally regard the Chinese government’s steps as sensible, there is worry about how they will affect private practice.

“Now, there is a general decrease in cash, liquidity in China,” says Rocky Lee, Asia managing partner at Cadwalader, Wickersham & Taft. “No liquidity means companies will start to cut costs, and hire more in-house lawyers rather than hire outside counsel.”

Lee says the market uncertainty will inevitably hit firms. Cadwalader has a relatively small team in Asia—24 lawyers in Hong Kong and Beijing—and Lee says he’s grateful for that at the moment.

“Hong Kong’s legal industry has not gone through the necessary shake-up that it needs, a lot of firms are still over capacity,” he says.

But others say they are still expanding. “Davis Polk is committed to China for the long haul, and while we have significant resources already committed to China,” says Kapoor, “I can only see us increasing resource allocation going forward. The pace may vary but not its direction.”

According to Kapoor, there’s still plenty of work, though it’s coming from different places than before. “There are less listings by state-owned companies these days,” says Kapoor. “Most of the activity is coming from sectors like consumer and technology. You will also see them, the nontraditional acquirors, in the pickup of China’s outbound mergers and acquisitions.”

Kapoor points to Chinese Internet search giant Baidu Holdings Ltd., which recently paid Hong Kong online games operator NetDragon Websoft Inc. $1.9 billion for a majority stake in 91 Wireless Websoft Ltd., a smartphone applications distributor. Davis Polk acted for Baidu in that deal and also in its $370 million acquisition in May of Shanghai-based online video service PPS, which was represented by Cadwalader.

Paul Hastings Hong Kong partner Steven Winegar also expects more work will be coming from China’s consumer and real estate sectors, rather than large state-owned enterprises. He further notes that China’s slower growth is still greater than most of the other BRIC nations. Brazil’s GDP grew by only 1 percent last year and Russia’s may grow by barely 2 percent this year. India, which grew 11.2 percent in 2010, saw its GDP rise by just 4 percent last year.

Winegar also says higher growth in other Asian markets, especially in Malaysia and the Philippines, has benefited Paul Hastings.

Kapoor also sees growth elsewhere in the region. “The Thailand, Indonesia markets are very active,” says Kapoor. “Asia has shown over and over again that even when the markets are down, there will be a part of this region that will be active.”

He also remains optimistic about what he says is the firm’s strong pipeline of China deals, including four planned IPOs, “I think based on what we see, there is enough going on under the surface waiting for the window to open,” says Kapoor. “Soon you will find a deluge of activity when that happens.”

But others are more skeptical. Lee notes that the fixed fees that firms typically charge on major Asia transactions only make economic sense if deals close relatively quickly, as opposed to sitting in a pipeline.

“I don’t want to discount pipelines entirely, but I also don’t want to rely on it,” he says, “Especially with Asia-based clients, unlike Western companies, having deals in the pipeline doesn’t necessarily mean firms are getting paid. It just means that we are doing work.”