U.S. law firms' Hong Kong practices are changing.

In October, it was announced that Davis Polk & Wardwell Hong Kong partner Bonnie Chan will rejoin the Hong Kong Stock Exchange as head of the listing department. Chan is the last of the three partners that launched the firm's Hong Kong law transactions practice to exit the firm.

Once Chan leaves, the practice will primarily be led by partner Yang Chu, who was just made up in July. Two former partners in the practice, Antony Dapiran and Paul Chow, already left the firm. Newly appointed Asia head Martin Rogers says the firm has no immediate plan to make additional lateral hires in the practice.

For years now, Davis Polk has had the largest Hong Kong law practice among its peer U.S. firms, with most of its lawyers working in transactions. While the firm scaling back may mark a significant progression in U.S. firms' changing views of Hong Kong practice, it is not exactly a new trend. The tide has been turning for a while.

Earlier this year, Shearman & Sterling recruited local law transactions partner Max Hua in Hong Kong. Hua and two additional lawyers replaced a much larger Hong Kong listing team that included two partners, at least two counsel and several more associates; the majority of that team left Shearman over the past year. And, like Davis Polk, Shearman expressed no intention to hire beyond Hua's team.

Before those moves, Orrick, Herrington & Sutcliffe decided to shift its focus in Hong Kong away from listings in 2017 after a nine-partner, mostly local law transactions team defected to Morgan, Lewis & Bockius. And in 2014, Milbank quit practicing Hong Kong law only four years after starting.

Davis Polk, Shearman and Milbank entered Hong Kong law practice around the same time in 2010, following a slew of mostly Chinese companies raising tens of billions of dollars in Hong Kong IPOs. Without Hong Kong law capability of their own, the U.S. firms had to share roles on mega deals with others, usually Magic Circle firms, which until then had something like a monopoly on higher-end deals.

The American firms then launched an attack, snatching away leading Hong Kong IPO partners from the U.K. firms and elsewhere. (To be fair, British firms went ahead and launched U.S. law practices, too, albeit at a smaller scale.) Also joining the party were Latham & Watkins, Sullivan & Cromwell, Simpson Thacher & Bartlett and Kirkland & Ellis.

But megadeals soon dried up, and the pressure on fees persisted. It's no news to the market that some U.S. firms have been operating their Hong Kong IPO practices at a loss. Compared to their British peers, elite U.S. firms are less likely to offer discounts, although many have since grown accustomed to that practice.

There's another important factor in all this: Chinese firms. Mainland firms started to move into Hong Kong IPOs around the same time as the U.S. firms, but back then they were less financially capable and less experienced in handling deals. After nearly a decade, they are now able to compete with global firms, at least for mid-market deals. It's true that Chinese firms will still need American firms for the U.S. law component of deals, but their rise will soon change the balance of competition in Hong Kong law listing practice.

Make no mistake, Davis Polk hasn't given up on Hong Kong IPOs. Newly appointed Hong Kong office co-head Li He has been an active deal-maker, and the firm's strength in U.S. securities law—both He and Hong Kong partner James Lin are U.S.-qualified IPO veterans—gives it an advantage in taking on big-ticket global work, as well as a strength in prospectus drafting.

But the latest moves indicate that the days of U.S. firms invading Hong Kong appear to be over.

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