The China 45 Are Growing Rapidly—and Not Just the Elites

This year's list remained at 45 firms, so for the first time since launching the Chinese law firm revenue ranking in 2015, a year-over-year comparison is available for all financial metrics.

Seventeen firms (more than one-third of the list) reported 2018 revenue above $100 million, compared with 10 the prior year. In 2017 there were five firms between $100 million and $300 million, and that group doubled to 10 in 2018.

Dentons and King & Wood Mallesons—both of which have more than 40% of their lawyers based outside China—remain the only two firms north of the $1 billion mark, but Yingke and Zhong Lun both exceeded $500 million for the first time last year.

With 2,600 lawyers, AllBright is one of the largest firms in Shanghai. Last year, its revenue grew 24.6% from 2017 and broke the $400 million mark for the first time. In 2018, the firm opened its very first foreign office, in London, following a cooperation agreement with the U.K.'s Bird & Bird the previous year. Domestically, the firm added a new office in Guangzhou, taking advantage of the Chinese government's Greater Bay Area plan that aims to better integrate special administrative regions in Hong Kong and Macau into the neighboring areas of the mainland. Most of the firm's growth came from corporate M&A and restructuring, bankruptcy and dispute resolution practices, according to managing director Gu Gongyun, who says the firm's revenue in the first six months of 2019 is already up more than 20% from a year earlier and he is ­confident it will exceed this year's revenue target of roughly $500 million.

As global and regional trade disputes persist, AllBright was able to capture international trade remedy work, such as anti-dumping investigations for Chinese parties in jurisdictions including the U.S., the European Union, India and New Zealand. Other firms with strong international trade practices saw revenue growth. In addition to large full-service firms such as King & Wood Mallesons and Zhong Lun, Jincheng Tongda & Neal's revenue increased 12.5% to $116.5 million and Gaopeng & Partners grew 47.6% to $41.4 million. East & Concord Partners ($45.4 million) and Guantao Law Firm ($113.8 million) saw growth of 53.3% and 28.1%, respectively.

RPL Ramps Up

Many firms are growing revenue per lawyer as they gradually move away from the traditional expansion model of adding head count. Average RPL for the China 45 was $203,867 in 2018, up 20.3% from 2017. That number may be roughly one-quarter of the Global 100's average, but the gap is narrowing. Shanghai-based Llinks, which has 108 lawyers, topped the list with RPL of $531,000. JunHe ($524,000), Zhong Lun ($508,000) and MWE China Law Offices ($506,000) also broke the $500,000 mark last year. MWE China, McDermott Will & Emery's alliance partner, was the only one in that group a year ago.

Zhong Lun, Jingtian & Gongcheng ($439,000), Commerce & Finance Law Offices ($399,000) and FenXun Partners ($378,000) are newcomers to the RPL top 10. The rest of the group held their spots for the fourth year in a row.

The gap between the elites and the rest of the China 45 is still wide. In 2018, the average revenue per lawyer at the 10 Chinese firms with the highest RPL was $440,400, more than twice the average of the 45 overall and nearly six times the average for the 10 firms reporting the lowest RPL, all of which fell below $100,000. But firms outside of the top group are catching up. The 10 firms with the lowest RPL grew by 21% in 2018, while the top 10 grew by 13.2%.

Similar patterns emerge in the ­China 45's profits per equity partner figures, where a small group of firms have been leading the pack by a mile. For the third year in a row, MWE China retained the top spot with $1.45 million PEP. Four partners continue to tightly hold the equity at the white-collar defense, compliance and data privacy boutique. Four other firms reported PEP over $1 million in 2018: Fangda Partners ($1.17 million); Chang Tsi & Partners ($1.16 million); JunHe ($1.14 million); and Han Kun Law Offices ($1.1 million). King & Wood Mallesons cleared that number last year, but fell 22% to $921,000.

As in other metrics, the PEP disparity between the top and bottom of the list is shrinking. The average PEP for the full list was $518,844 in 2018, up 9.3% from 2017. But that growth didn't come from the top. The 10 firms with the highest PEP reported an average of $1.05 million in 2018, virtually the same as the prior year, while the 10 firms with the lowest PEP reported a 29.2% jump on average, to $111,100.

Picking Up Profits

Commerce & Finance ($984,000), Jingtian ($853,000) and FenXun ($850,000) are new faces in the PEP top 10. Beijing-based FenXun has managed to triple its lawyer head count in the three years since it formed a formal alliance with Baker McKenzie. The firm, which focuses on cross-border transactions and disputes, had 100 lawyers in 2018, including 20 partners; in 2015, it had about 30 lawyers and five partners.

Jingtian, Han Kun, Tian Yuan Law Firm and Commerce & Finance benefited from the IPO boom last year in both Hong Kong and the United States. The Hong Kong Stock Exchange, in particular, had a record-breaking year in 2018, with 218 new listings raising $36.6 billion. Jingtian and JunHe shared roles as Chinese counsel on phone maker Xiaomi Corp.'s $4.7 billion Hong Kong IPO. Tongshang, alongside King & Wood Mallesons, advised on China Tower Corp. Ltd.'s $6.9 billion Hong Kong listing. On the U.S. listing side, Commerce & Finance and Tian Yuan both worked on live-­streaming site Bilibili's $824 million Nasdaq IPO, and Jingtian and Han Kun shared roles on streaming platform iQiyi's $2.3 billion Nasdaq IPO. All four firms saw revenue grow at least 35%; Jingtian, Commerce & Finance and Tian Yuan increased PEP by at least 75%.

Working on cross-border matters helps Chinese firms go global, and their financial success is both the result of recruiting experienced lawyers from global firms and their reason for doing so. In 2018, both Jingtian and Commerce & Finance set up new alliances in Hong Kong to access local law practice. Others, including Tian Yuan, Han Kun and Fangda, continued to expand their existing Hong Kong practices by hiring away lawyers from global firms.

A Market in Turmoil

The first half of 2019 looked upbeat for the China market, as hiring continued and the IPO pipeline remained relatively stable.

But things soon took a turn for the worse. Trade talks between China and the United States fell apart in May, and the Trump administration ramped up enforcement actions against Chinese companies. And unprecedented political turmoil in Hong Kong has resulted in continuous violence, disrupting the city's rule of law and deeply destabilizing society. By August, Hong Kong's IPO market nearly came to a total halt, with only one offering.

Tian Yuan's Beijing-based managing partner, Zhu Xiaohui, says the firm's core practices in capital markets, commercial transactions and dispute resolution are still going strong this year, and he's optimistic about the firm's overall outlook for 2019. He says a steady expansion plan is still in place as the firm adds two more offices in Hangzhou and Xi'an, a traditional gateway from western China to central Asia and countries along China's Belt and Road routes.

AllBright also added two new offices in northeastern China's Changchun and central China's Wuhan. Gu is cautious about the rest of the year.

"The prolonged trade war with the U.S. is adding a lot of uncertainties to China's legal services market, especially for those engaged in cross-border matters," he says. "We have to look for new development and breakthroughs."

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