David Liu, the managing partner of Jun He, one of China's most prestigious independent law firms, tells Elizabeth Broomhall why his firm plans to remain independent, and how changes in the Chinese market are sparking growth

Ever since the merger of China's King & Wood and Australia's Mallesons, the Asian legal market has been rife with speculation about how local independents might respond. The consensus has been that many will take a more ambitious approach to expansion abroad amid growing competition from foreign players in their domestic market, not to mention a push by Chinese corporates towards outbound investment.

But for some firms, such as Jun He, international growth still seems far from the agenda, with management questioning the need for a global presence given the firm's prominence in the domestic market.

"Last year, from a national point of view, we saw a 15% increase in revenue," says managing partner David Liu. "This market has created a lot of new opportunities. For example, areas like antitrust and compliance are busier.

"We do not want to practise English law at all – we are not pretending to be an English firm. There is demand from Chinese clients [for advice] in Europe and the UK but we work with our friends. We're not really competing with foreign lawyers."

Despite the fact many local practices lack an international presence, Chinese law firms are expecting to get a bigger chunk of outbound work as the next generation of Chinese corporates looks beyond the country's borders. Traditionally, state-owned enterprises have veered mainly towards global outfits for advice on their investments abroad, with local firms generating most of their work from inbound deals. However, this dynamic appears to be shifting.

"Things are changing – there are more privately owned companies [doing deals] rather than just state-owned energy and natural resources companies," Liu explains. "These private or listed companies sometimes prefer to work with our firm and a foreign outfit together, rather than just using a one-stop shop. One reason is the fees, and another is the local expertise. International one-stop shops have limited [local] resources. We know the clients, we know the culture and we know their needs, so we can go out and advise on a deal along with foreign lawyers."

Limited expansion

Jun He has 500 lawyers and nine offices in total, located in Beijing, Shanghai, Shenzhen, Guangzhou, Dalian, Haikou and Hong Kong, with two representative offices in New York and Silicon Valley. While it is significantly smaller than local rivals such as Dacheng – China's largest independent law firm, which has 3,200 attorneys, 42 China offices and eight international bases – it continues to be highly regarded in the market.

And although the firm has no plans to open any new offices in the near term, it is certainly keen on boosting capacity internally. "Building up talent is fundamental for us," says Liu. "International talent [in particular] is important to all Chinese firms in the high-end market, including King & Wood and Fangda Partners. 

We don't take a merger approach – we just grow by organic growth or lateral hires. We usually add two, three or four [lawyers at a time] to fill a gap where we don't already have expertise in that office, or to enhance in certain areas."

In 2013 the firm promoted eight salaried partners and made two senior lateral hires – Xu Chumeng from CCPIT Patent and Trademark Law Office in its intellectual property (IP) practice in Beijing, and IP litigation partner Zhang Xiaodu from the Supreme Court of Shanghai. It is currently looking to grow teams in IP, outbound investment, antitrust and in the Hong Kong office in general.

"In Hong Kong we have been looking in corporate, capital markets and litigation, and we have been talking about a potential candidate in banking," explains Liu. "The capital markets are coming back again so we want to add people there. I think this year we will promote around eight to 10 people but it depends on the potential candidates and which practice groups they are in."

Liu's intention for the firm is to remain focused on high-end work in the capital and other top-tier cities in China, rather than moving into smaller places and focusing on smaller deals, which would be less profitable. Naturally it will also continue to rely heavily on cross-selling and referrals from firms in other markets. 

"We are aiming to stay at the high end of the market," he says. "In China we still want to concentrate on the big cities where we already have offices. We are not planning to move into the second-tier cities where we do not feel there is a business case for a top firm. It is also a matter of people – if we want to open we need the right lawyers in that locality, rather than just sending people there. The other thing to consider is client requirements. With our map currently, we can satisfy our clients' needs."david-liu-web

New areas of work

Liu acknowledges that the changes in the Chinese market have sparked a surge in client demand within certain practice areas, and the firm will look to capitalise on these opportunities. "We added several practice groups last year," he says. "The first for us was pharmaceuticals – we saw a big increase in that industry, not only for mergers and acquisitions but also for compliance. In China nine big pharmaceutical multinationals are under investigation, and we were involved in eight. That's a big market share."

Other new groups launched include bankruptcy and restructuring, environment, compliance, private equity, outbound investment and entertainment, media and sport.

A less traditional addition is a government procurement group – formed in response to an expected flood of work from central Government, which has previously used outside counsel infrequently. The five-partner team focuses exclusively on tendering, research and business development associated with all Government-led projects, working with other partners in corporate and litigation as and when required. 

"Now the Chinese Government at a central level will procure legal services and use and pay for external lawyers," explains Liu. "In China the Government has only just started to do this. Previously the Government's legal department helped them but they didn't have a panel of firms and didn't spend money on legal services. So it is useful to study, follow up and do marketing. We believe all of the main departments in central Government are starting to, or will, look into this."

An example, he says, was the move by the Ministry of Commerce (Mofcom) in October to establish its first legal panel of external law firms. It selected 20 international outfits and 16 local firms as its preferred legal services providers, appointing one group to advise on economic and trade agreements, negotiations relating to investment and international investment dispute cases, and a separate group to provide counsel on World Trade Organisation and regional trade agreements and cross-border dispute resolution. Jun He was among the domestic firms that won spots on both sub-panels, and has since secured several mandates. 

"It is not only a matter of legal expertise but also a cultural issue," Liu explains. "[The lawyers] need the skills to deal with the Government. They need to know the Government processes."

There is no doubt that the way legal services are being procured in China is shifting, and how law firms respond will be important. "The general market conditions are changing – investment is not as active as before," says Liu. "Companies are developing their in-house teams, cutting their legal budget for external lawyers and tightening up on fees, legal costs and the use of legal teams. This is universal – not just for Chinese firms but also the multinationals in China."

Although Chinese growth has been slowing, official data in January showed that its gross domestic product grew 7.7% in 2013, matching that in 2012 but down from 7.8% in the previous quarter. 

Liu is not too worried. The firm saw an uptick in almost all practice areas in 2013 except for commercial and services, and he is anticipating continued progress this year. "I definitely expect further growth, but it's hard to say a percentage," he says. "I believe it can be done even though the market has been down. I expect no less than 10%." 

Proof, if needed, that global expansion is not the answer for everyone.

Jun He – key dates

1989 – Firm formed

1991 – Becomes the first Chinese law firm to hire an American lawyer, with the recruitment of John Sullivan from Graham Campaign & McCarthy

1994 – Becomes the first Chinese law firm to open an office abroad with the launch of its New York base

2001 – 9/11 attacks. Jun He's New York office, on the 77th floor in Tower One of the World Trade Centre, is destroyed. Luckily all staff are unharmed

2006 – Firm opens second office outside of mainland China with Hong Kong base 

2010 – Firm opens third overseas office in Silicon Valley

Best friend firms

Australia – Clayton Utz, Gilbert + Tobin
France – Bredin Prat
German – Hengeler Mueller
India – Amarchand & Mangaldas & Suresh A Shroff & Co, Dua Associates
Indonesia – Ali Budiardjo Nugroho Reksodiputro, Soewito Suhardiman Eddymurthy Kardono
Italy – Bonelli Erede Pappalardo
Japan – Anderson Mori and Tomotsune, Mori Hamada & Matsumoto, Nagashima Ohno & Tsunematsu
Korea – Kim & Chang, Shin & Kim
Malaysia – Rahmat Lim & Partners
Netherlands – De Brauw Blackstone Westbroek NV Beijing Office
New Zealand – Bell Gully
Norway – Advokatfirmaet BA-HR DA
Philippines – SyCip Salazar Hernandez & Gatmaitan, Romulo Mabanta Buenaventura Sayoc & De los Angeles
Singapore – Allen & Gledhill
Spain – Uria Menendez
Taiwan – Lee and Li, Tsar & Tsai
UK – Slaughter and May
Vietnam – YKVN

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