Riding China’s record-setting outbound investment boom, the country’s largest law firms are catching up with their global counterparts in financial performance. A historic volume of $221 billion in mergers and acquisitions, as measured by Thomson Reuters, brought high demand in legal services.

This year our ranking of the top-grossing Chinese firms has expanded to 40 firms, with total revenue of $6.1 billion. Global giant Dentons remains at the top of the list with $2.2 billion in revenue, while King & Wood Mallesons, despite a crisis that eventually placed the firm’s European arm under administration in the United Kingdom, has managed to hang on to second place with $806 million in revenue. Third-ranked Zhong Lun Law Firm increased its revenue by 18.4 percent to $373 million.

In 2016, eight Chinese firms, including AllBright Law Offices, Grandall Law Firm, DeHeng Law Offices and JunHe, exceeded $200 million in revenue, up from six the year before. Ten firms had revenue that would qualify them for the Am Law 200, if they were U.S.-based.To compile the rankings, we asked Chinese law firms to report their gross revenue in calendar year 2016 alongside their full-time lawyer equivalents. In a few cases, when firms didn’t provide census or financial figures, we made estimates based on our own reporting. Twelve firms also reported valid profit figures; for the first time ever, we are able to have a sneak peek of leading Chinese firms’ profits per equity partner (PPP), one of the most important benchmarks to assess a law firm’s profitability.

Only two Chinese firms, Dentons and King & Wood, are on this year’s Global 100 revenue ranking [see chart, "Most Revenue," page 33]. Both draw significant revenue from outside China, where fees tend to be higher: Dentons has strong roots in the U.S. and U.K. markets, and King & Wood had a large part of its revenue coming from its Australian arm. But 1,436-lawyer Zhong Lun, which is almost entirely China-based, is getting closer. Its $373 million in revenue is only $38 million below that of the lowest-ranked firm on the Global 100.

Fourth-ranked Yingke Law Firm, broke the $300 million mark for the first time, with a year-on-year revenue increase of 51 percent to $305.5 million. Already the second-largest law firm in China by number of lawyers, Yingke, which is more loosely organized than Dentons or King & Wood, also grew by 27 percent in head count to 6,278 lawyers. Mei Xiangrong, global managing partner, says that one strong driver was a spike in cross-border work. “Our international work increased by at least 50 percent,” says Mei, thanks to Chinese clients’ outbound investment boom. Yingke also benefited from the Chinese government’s Belt and Road Initiative, a strategy to develop a China-centered trade and economic network in Asia, Russia and the Middle East.

Further down the rankings, Beijing-based Guantao Law Firm saw the largest revenue growth; the 680-lawyer firm reported $68 million in gross income last year, up 70 percent from 2015′s $40 million. A full-service firm, Guantao is better known for projects and finance work and has a nonexclusive alliance with Ashurst. Cui Liguo, firm managing partner, attributes the growth largely to the two mergers the firm did in Shanghai last year to build a stronger base in eastern China. In April, the firm merged with longtime partner firm, 40-lawyer real estate and construction boutique Zhongmao Law Firm; and in August, with 60-lawyer full-service firm Shenda Partners. In addition, Cui says, legacy Guantao was able to keep a 20 percent growth rate thanks especially to strong performance in its litigation and arbitration practice. Last year, Guantao successfully helped a Hong Kong subsidiary of a German timber trading company win two parallel arbitration cases before the China International Economic and Trade Arbitration Commission and the Lithuanian Court of Arbitration over a cyberattack dispute.

Revenue per lawyer (RPL) at Chinese firms is still dramatically lower than at their global counterparts. The 40 Chinese firms we ranked had an average RPL of $167,672. That’s almost $20,000 lower than the average RPL of the 35 firms ranked in 2015—and it’s just a fraction of the average RPL for The Global 100 ($813,150) or The Am Law 100 ($907,765).

Nor are China’s highest-grossing firms necessarily the most productive in terms of revenue per lawyer. Shanghai firm Llinks Law Offices, number 25 on the revenue chart, retained the top spot on the RPL ranking with $540,000 in 2016. Eight firms reported $300,000 or more in RPL, up from six in 2015. These included two of this year’s newcomers, 48-lawyer MWE China Law Offices ($375,000) and 83-lawyer Jia Yuan Law Offices ($330,000).

MWE China, which has a decade-old alliance with U.S. firm McDermott Will & Emery, has focused on compliance and government enforcement work. Since 2014, through cooperation with McDermott Discovery, the firm also runs MWE China Data Center in Shanghai to review and analyze digital evidence for investigations and compliance clients.

Beijing-based Jia Yuan is strong in capital markets and public M&A transactions. Last year, it served as Chinese counsel to home appliance maker Midea Group Co. Ltd. on a $5 billion acquisition of German robotics company Kuka A.G. and China Resources Pharmaceutical Group Ltd.’s $1.8 billion Hong Kong listing.

The small group of firms with higher RPLs includes Han Kun Law Offices ($390,000), Haiwen & Partners ($345,000) and Fangda Partners ($305,000), all of which have strong cross-border practices. Han Kun, alongside Davis Polk & Wardwell, advised Uber on its $7 billion sale of China business to rival Didi Chuxing, represented by Fangda and Skadden, Arps, Slate, Meagher & Flom. Haiwen served as Chinese counsel to the Postal Savings Bank of China Co. Ltd.’s $7.4 billion listing on the Hong Kong Stock Exchange, the largest initial public offering in the world in 2016.

When it comes to profitability, however, Chinese firms can come closer to their international counterparts. The chart above shows profit per equity partner figures for 12 Chinese firms, based on Global 100 data or profit data reported by the firms. (Because this group is largely self-selected, it likely includes firms with profits higher than average.) Han Kun, which has 30 equity partners, had the highest reported PPP of $1.435 million in 2016; on a global level, that’s slightly above Morrison & Foerster’s $1.41 million. Shanghai-based shipping law boutique Wintell & Co. had $1.355 million in PPP last year; the firm’s equity is tightly held by just seven partners out of 41. Both Han Kun and Wintell, as well as JunHe, which reported $1.04 million in PPP, have profit margins higher than 60 percent.

As Chinese firms achieve better financial results, international firms are showing more interest in teaming up with them to acquire Chinese law capability. In 2016, Wintell formed an association with U.K. firm HFW in the Shanghai Free Trade Zone. Hogan Lovells also struck an FTZ alliance last year with China’s Fujian Fidelity Law Firm.

But following the collapse of King & Wood Mallesons’ European arm, Chinese firms are more cautious about internationalization. Guantao’s Cui Liguo says that Chinese firms are still relatively less experienced in globalization, and should take a step-by-step approach based on clients’ needs. Outbound investment may be going gangbusters for Chinese companies, but for law firms, Cui says, “making mergers and acquisitions overseas can be quite risky.”

Email: azhang@alm.com.