Success stress

Guangdong’s legal market is robust, diverse and sitting pretty for future growth, but there remain crucial challenges, writes Winny Zhang

Guangdong’s law firms are feeling the strain of success. More lawyers have been hired as demand for legal services remains robust, buoyed by record economic output even as the risk of a global economic slowdown has increased. Added to that is the prospect of new growth opportunities, including emerging green industries and the growing focus on corporate governance in the state sector.

But some say they’re finding it harder to get noticed in their home market because bigger, better-known brands have set up business and they’re outgunned in the battle for the richest veins of legal advice. The stakes are high as China’s biggest legal market continues to be a focal point for industrial and regulatory innovation, just as it was when China began its unprecedented march from poverty to become the world’s second-biggest economy.

Home to modern-day China’s first law firm, provincial bar association and legal partnership, Guangdong played a pioneering role in the creation of a legal system from the disarray of the Cultural Revolution. As the country embarked on reforms and opened up to foreign companies and investors, it urgently needed trained lawyers able to service the needs of the new and more complex markets-oriented economy.

Strategically located on China’s southern coast and with the colonial – at the time – entrepôts of Hong Kong and Macau as neighbours, Guangdong prospered as the bridge connecting overseas companies and capital to the mainland’s vast pool of workers. Today, the traffic is more two-way: Chinese companies going global; overseas firms and investors eyeing the growing wealth of China’s consumers and its world-class companies as much as its unrivalled manufacturing and logistics resources.

After more than four decades of mostly blistering expansion, Guangdong is China’s wealthiest province, as well as its top exporter. The provincial capital of Guangzhou and the tech hub of Shenzhen, together account for about 5% of national GDP, while the province’s economic output in the first nine months of 2022 passed RMB900 billion (USD129 billion) for the first time.

Guangdong’s solid economy and diverse mix of businesses from phones and communications equipment, to children’s toys and unmanned drones, has helped underpin the confidence to take on more professional staff. The number of lawyers in Guangdong has grown twice as fast as the number of law firms, providing a constant supply of skilled workers, but also creating a more intense talent battle.

Fierce competition from local rivals isn’t the only front on which Guangdong’s law firms are defending their market share. Big national firms from Beijing and Shanghai, alongside well-known global names, are all jostling for a slice of the pie. And in July, lawyers from Hong Kong and Macau joined the fray under an initiative to encourage integration of the Greater Bay Area (GBA).

Still, Guangdong’s legal market is the country’s biggest and the resilience of local players should not be underestimated. Outsiders are finding it no easy task to overcome the barriers of local firms, with branches of national-scale firms failing to dominate.

As the competition heats up, how will the cake get divided?

NO HEATED CHALLENGES

“Guangzhou, for example, has seen a large increase in the number of lawyers in the past few years, and with the significant economic slowdown caused by international conflicts and the pandemic, the legal services market is now more competitive,” says Zhang Ping, managing partner of the Guangzhou office of JunHe.

The number of lawyers in Guangdong grew 12.4% in 2021 from a year earlier to 61,946, making it the biggest pool of legal professionals in the country. The province added law firms at about half that rate, indicating that local firms are bulking up.

There is still room for expansion. For every 10,000 residents in the provincial capital Guangzhou and the tech hub of Shenzhen, there are about 10 lawyers, with 14 in Shanghai and 17 in Beijing. The number in the US is 40.

While China’s weak employment market has ensured sufficient new lawyers to enlarge law firms across the board, there is a shortage of talent to meet the needs of some practice areas. “There are areas where the specialising lawyer’s quantity has not caught up, or the quality may not be there yet,” says Zhang Baisha, a partner in Zhong Lun Law Firm’s Guangzhou office.

In areas like antitrust, only one or two big firms can handle complex cases. “Given the professional requirements of antitrust practice, which require years of study and accumulation, few lawyers are qualified in this area,” he says. “Even though there are some who can occasionally handle merger filings, they still have a large gap if compared [with the top-level firms] in terms of project size, complexity and professionalism.”

The Guangzhou Law Society shows firms’ revenues grew by about 30% per year between 2014 and 2019. However, the outbreak of covid-19 slammed on the brakes, with sales growth plummeting to 8.5% in 2020. The city’s law firms bounced back to RMB9.6 billion in revenue in the next year, increasing 15% year-on-year.

Zhang Ping says Guangdong has been affected by US trade policies and the pandemic in the past three years. “The demand for legal services in certain areas is actually declining, while of course there may be areas that will increase, such as dispute resolution,” he says.

Zhang Baisha holds a similar idea that the zero-covid policy has temporarily created demand for legal services in areas such as dispute resolution, labour law and bankruptcy. But at the same time, he questions “when these companies are gone, what about your legal fees next year?”, and argues that the long-term development of the legal market relies on the overall growth of the economy.