Expertise trumps price as Chinese companies remain undeterred by rising legal costs. Vandana Chatlani reports

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With Chinese companies enhancing their presence both locally and overseas through investment, acquisitions and fundraising, law firms have their work cut out for them. Initial public offerings (IPOs) by companies such as Pinduoduo, iQIYI and Bilibili; investments by Ant Financial, Didi Chuxing and JD Finance; and acquisitions such as Shandong Ruyi’s purchase of a stake in Swiss luxury brand Bally, Three Gorges’ US$10.9 billion offer for Portuguese electricity giant EDP-Energias de Portugal, and Qumei Home Furnishings Group’s proposed purchase of Norwegian furniture manufacturer Ekornes, are just a few examples of this year’s headline-making mandates.

As clients become more savvy, lawyers must step up their game, offering guidance not only through China’s complex and ever-changing regulatory maze, but keeping abreast of changing laws in overseas jurisdictions where Chinese investments are targeted. International law firms jostle with domestic veterans, and some strike up local partnerships to deepen their credibility.

Homegrown firms are also adjusting their revenue models. Some have built client confidence through robust deal portfolios, while others expand in the Asia-Pacific region to win international mandates that their foreign counterparts would otherwise snap up.

Corporate counsel say they are willing to pay for high-quality, prompt, precise and comprehensive legal advice. “We believe price consideration should in no way defeat the quality of the work we look for when we instruct a law firm,” says an in-house counsel at a Chinese Insurance Company.

But many still scrutinize fee options in order to better manage their legal budgets. They have also started to claw back much of the work they once outsourced, turning to private law practitioners only when absolutely necessary. Many have mastered the art of running a tight ship to manage their legal spending – training lawyers in-house, relying on technology, standardizing templates and documents, and sharpening their negotiation skills if money is to be spent on hiring external lawyers.

This focus on controlling legal budgets has translated into fee pressure and increasing rivalry among domestic and international law firms. Across China, firms are looking for ways to stay profitable by offering competitive rates, strengthening practice areas and hiring new talent.

Paul Zhou, the managing partner at Wintell & Co, points out that although rivalry between firms has driven rates down to some extent, clients may not always benefit. “Some law firms use low prices to attract clients, but in the end they enjoy services equivalent to these low rates, which is counterproductive,” he says.

Zhang Zhi, co-founder of V&T Law Firm in Beijing, says legal services in China have become “a buyer’s market” due to a substantial rise in the number of legal practitioners and “fierce competition between law firms”.

“We see many firms trying to win with low prices, but clients often fire them due to lack of disclosure,” says Peter Pang, chairman and managing partner at IPO Pang Xingpu.

But competition between law firms and their charge rates isn’t the only factor driving legal costs down. Fee structures have also been affected by the use of artificial intelligence in legal work, online legal documentation and advice, the increasing participation of non-lawyers doing legal work, and the multi-jurisdictional provision of legal services.

“In particular, the emergence of legal technology and the application of big data has improved the efficiency of legal services, but has also reduced hourly profit,” says David Lin Wei, the managing partner at Dare & Sure Law Firm.

Andrew Zhang, a senior partner at Commerce & Finance Law Offices, predicts that in the long term, “low-price competition will fade away and the market will become more sensible”.

For now, smaller firms fight for survival while larger ones work out where they stand, and how to justify the invoices they issue. “The hourly rate charged by Chinese law firms today is very close to the rate charged by international law firms,” says Tom Yu, legal and corporate affairs director at Anheuser-Busch. “The big firms are, to some extent, monopolizing the market for big transactions.”

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