Future tense

Chinese businesses have shown significant resilience in reacting to challenges thrown at them this year, be it the trade war or the pandemic, and the market continues to offer plenty of opportunities for international law firm, but presents unique hurdles, too. The key to staying on top is being patient, watchful, agile and constantly evolving. Mithun Varkey reports

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The primary factor in the Chinese growth story of the past few decades has been its ability to attract unprecedented levels of foreign capital. The country has become one of the biggest investors internationally, but it continues to be a magnet for global investment, especially in manufacturing and technology.

The past few years, however, have been less than ideal, with a host of issues including rising costs, a trade war and now the pandemic weighing on the country’s attractiveness. Refusing to sit back, China has reacted by delivering on its commitment to open to the world, and has taken several legislative measures to allow freer access to its markets for foreign businesses.

From a new foreign investment regime and a spruced-up intellectual property (IP) framework to a complete overhaul of the country’s civil code, China is responding with a flurry of measures that make investing in the country easier and more attractive.

The legal market here hasn’t been free of challenges either, and recent times have seen a number of international law firms exiting the market. Bryan Cave Leighton Paisner, Stephenson Harwood and Vinson Elkins were a few notable exits from China earlier in the year, which came following the exits of Orrick and Osborne Clarke from Hong Kong. However, some of the other international firms have doubled up on their commitment to China, for example, Magic Circle firm Allen&Overy kicked off its joint operation in the Shanghai pilot free trade zone with Lang Yue in February this year.

The impact of the covid-19 pandemic has yet to be fully accounted for. While China seems to have brought the spread under control, the rest of the world being under the grip of the virus bodes poorly for investment across the world, including for China.

Cheung Kwok-kit, a partner at Deacons in Hong Kong, says the outlook for China is cautiously optimistic. “Due to the economic downturn, there seem to be more disputes between parties,” he says. “Although we are receiving a lot of enquiries about China-related businesses, clients tend to be more cost-conscious. As a result, the market is more competitive now and we have to negotiate fees with them frequently.”

Chong Ik-wei, Shanghai-based partner and managing director for Asia at Clyde & Co, says: “We remain cautiously optimistic with our China-related business. Business activities are starting to pick up now that normality has returned to corporates in China. In sectors that we focus on such as insurance, marine and trade, we have in fact seen an uptick in advisory and dispute work all through the year.”

Christopher Bickley, partner and head of the Hong Kong office for offshore firm Conyers, says his firm has seen less interest in PRC businesses investing or raising capital overseas. “This was a trend that started a few years ago, but it has been exacerbated by the trade war with the US,” he says. “The net result is reflected in strategies where PRC companies are concentrating on Asia and markets closer to home.

“Our outlook for China-related businesses is quietly optimistic. By all accounts the PRC is likely to be one of the first economies to emerge from the covid-19 crisis. China-based business will continue to look to raise funds to support their growth strategies as the economy recovers.”

Roy Chan, co-country managing partner for DLA Piper based in Shanghai, says the pandemic has had a minimal impact on the firm’s China business. “Naturally, our firm is not exempt from the impact of external global factors such as a slowing economy and geopolitical tensions,” says Chan. “However, we have always invested in developing long-term strategic relationships with our Chinese and international clients … which stands us in good stead during uncertain economic times.”

He says that while there are understandably fewer greenfield projects, many of the firm’s practice areas are stronger than ever. “In particular, we have seen a substantial increase in restructuring and insolvency work and advised Air China on its participation in the HK$39 billion (US$5 billion) high-profile recapitalization plan for Cathay Pacific earlier in the summer. Our finance and corporate practices are also performing well.”