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Chinese market sees drop in international firms for the first time

Posted by: Laurence Simons 09/10/15

Since the early 1990s, mainland China has held its doors firmly open to foreign firms. However, the number of non-domestic organisations have fallen for the first time in their history.

The official stats, from China’s Ministry of Justice, revealed that during 2014/15, there were 170 foreign firms with 225 representative offices in China. Yet both figures were down on the previous year, which saw 178 firms and 232 offices.

So why is this? Well it can be partly attributed to a high number of mergers that have occurred in the last few months – some notable examples including Allens and Linklaters’ new alliance, and Mallesons merger with Chinese firm King & Wood. Yet on the other side of the coin, there have also been a few notable cases of international firms collapsing.

So does this mean that the Chinese market is seeing a slow-down in international investment? It would be easy to assume so, especially after the stock market crash in August. But no, this does not seem to be the case – and according to official statistics, Shanghai is still the most popular destination for foreign firms, with the city housing 124 representative offices – compared with 87 in Beijing.

However, many business leaders have re-iterated the difficulties international firms have encountered whilst operating in China – and have emphasised their predictions of a deteriorating economy. The Chinese president, Xi Jinping, has even sought recently to reassure business leaders in a wide-ranging speech covering China's economic reforms at a conference in the US. But will it be believed? The US itself is a critical investor as it currently has the highest number of firms in China – their 87 make up 51% of the total 170. Continental European firms are the second most common, and the UK comes in at third with 19.

So what next: will China continue to be a hub for international law firms, or will an increasingly unsteady economic market put off investors? To be continued…