As Wall Street's top law firms push into local law in Hong Kong, can the magic circle retain their dominance?

Though Hong Kong formally reverted to Chinese rule 14 years ago, it often feels as if the British are still in charge. Place names like Victoria Peak and Queen's Road remain unchanged and expatriates from Essex and Kent continue to throng the bars of Lan Kwai Fong. Pub favourites are as easily available as dim sum.

And, in the Hong Kong legal profession, Britannia has continued to rule the waves well after the handover. UK firms rank among the largest in town, with several boasting more than 100 lawyers. Over the decades, they have also developed close ties to the local financial and business community.

But the growth of leading US law firms in Hong Kong and their more recent expansion into local law practice have called UK firms' continued market leadership into question.

"They still have a leg up," says Akiko Mikumo (pictured), Asia managing partner of Weil Gotshal & Manges, which launched a Hong Kong law practice in 2009 with a partner recruited from Simmons & Simmons. "In this industry, you don't build something overnight. But they're going to be 
losing ground."

Drawn by the boom in capital markets activity, American law firms that used to practise only US law in Hong Kong have pushed hard into local practice, an area where British firms have long been active. Davis Polk & Wardwell, Shearman & Sterling, Cleary Gottlieb Steen & Hamilton, Simpson Thacher & Bartlett and Sullivan & Cromwell have been among those launching Hong Kong law practices recently. Most have recruited partners from British firms to do so.

But do London firms still have an edge? The large UK firms tend to be full-service in Hong Kong, offering a range of transactional, disputes and regulatory practices. In contrast, most of the recent US entrants into Hong Kong practice have been focused exclusively on capital markets.

And the UK law firms, by and large, are still much bigger. Most US firms have only two or three partners specialising in Hong Kong law, with not many more US law partners. Even with its recent foray into local practice, Simpson Thacher still only counts around 30 lawyers in Hong Kong.

By comparison, Clifford Chance (CC) has that many partners and 160 lawyers overall in Hong Kong. Freshfields Bruckhaus Deringer has 120 lawyers in Hong Kong. Linklaters, Herbert Smith, and Allen & Overy all also have large offices in Hong Kong.

"What do they have, two or three partners? Oh, I'm really scared," says Peter Charlton (pictured), CC's Asia managing partner, referring to recent lateral Hong Kong recruitments by Simpson Thacher and Sullivan from Linklaters and Freshfields. "If they said they were going to get 30 partners, then that would be something."

But Charlton does not see Britishness per se as an advantage in modern Hong Kong. Rather, he thinks any edge CC may have over its US peers in the market derives from its extensive localisation.

"People may think of CC as this Brit firm that is made of all white people, but actually we employ [mostly] Asian people," says Charlton, who estimates that only 10% of the firm's lawyers in Hong Kong are non-Asian. "We started off as a very white expat firm, a little like Americans are now."

Still, the vast majority of the Hong Kong partners that have jumped from UK to US firms have been Chinese – like Linklaters' joint Greater China managing partner, Celia Lam, who is due to join Simpson Thacher later this year, and Freeman Chan, who moved to Cleary from Norton Rose in January. The war for local talent is bound to intensify over the next few years.

Hong Kong native Paul Chow, who left Linklaters to help launch Davis Polk's local practice earlier this year, says that an earlier generation of Hong Kong lawyers clearly gravitated towards the UK. Before the 1997 handover, English law and Hong Kong law were one and the same, meaning UK lawyers could practise freely in Hong Kong. Most Hong Kong locals looking to study law abroad looked to the UK, and then wound up at London firms.

"You didn't really have a choice if you wanted to be able to come back and practice in Hong Kong," recalls Chow, who studied law at the London School of Economics and later became a partner at Slaughter and May before moving 
to Linklaters.

But now the choice is not so clear cut. British and US lawyers alike need to take an exam to qualify in Hong Kong, and the local conveyancing law section bedevils them in equal measure. The UK firms still have much larger training classes, offering new recruits more of a peer network, but the US firms usually pay more.

In terms of work, Chow says City firms still have a stronger client base among local bankers and old-line Hong Kong conglomerates like Jardine Matheson, which recruited its current general counsel, Giles White, from Linklaters.

But mainland Chinese clients, who have powered Hong Kong's recent capital markets boom, are still seen as up for grabs. In last year's $21bn (£12.8bn) initial public offering (IPO) of the state-owned Agricultural Bank of China, a US firm (Davis Polk) handled the global offering while a UK firm (Freshfields) advised on the Hong Kong law aspects. Such division of labour is common in Hong Kong IPOs, and both sides would like to grab more of the work for themselves.

Charlton sees that, too. "It's probably the most level playing field in the world now," he comments. "It's all about experience, what you can do, and price."

The Asian Lawyer is a US affiliate title of Legal Week.