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China - not a bottomless pit for UK lawyers

Posted by: Laurence Simons 02/10/13

The way some analysts talk about emerging markets is reminiscent of the kind of fairytales told about the Far East in less enlightened times - they might not suggest that the streets of Shanghai are paved with gold, but there's certainly a feeling that their businesses are willing to offer plenty of filthy lucre to specialist UK firms.

However, China's ability to out-perform more developed economies such as the UK's does not make it immune to the global slow-down.

Like all international powers, it is vulnerable to changes in the international trading market, and the recent travails endured by law firms in the country suggest it is undergoing something of a cooling-off period.

While leading Chinese firms have been growing and spreading their wings in the international markets, international organisations attempting to establish a base in Asia have struggled, reports the Lawyer.

This was underlined when US firm Vinson & Elkins, which has traditionally been a leading adviser on Chinese companies' outbound acquisitions in the energy sector, decided to close its office in Shanghai.

A former China partner with a magic circle firm told the Lawyer the company's move was "rational" given that its only focus appeared to be the energy market.

"The vast majority of their clients are headquartered in Beijing. There’s no strong case to justify the additional expense and cost base in Shanghai," he added.

"International firms in China have been under tremendous pressure regarding their revenues and profitability since the global financial crisis," the partner concluded.

Regulatory restrictions have also played a part in the problems faced by law firms, as has the increasingly fierce competition from their ambitious Chinese counterparts.

However, some suggest their own model of doing business is also keeping them from fulfilling their potential.

A former partner at the Beijing office of an international business firm argued that the charging models of international firms is unreasonable, especially because their prestige in Europe or the US carries far less weight in mainland Asia.