Riding China's record-setting outbound investment boom, the country's largest law firms are catching up with their global counterparts in financial performance.

A historic volume of $221bn in M&A during 2016, as measured by Thomson Reuters, brought high demand in legal services.

This year, our ranking of the top-grossing Chinese firms has expanded to 40 firms, with total revenue of $6.1bn. Global giant Dentons remains at the top of the list with $2.2bn in revenue, while King & Wood Mallesons (KWM), despite the crisis that led to the collapse of the firm's European arm, has managed to hang on to second place with $806m in revenue. Third-ranked Zhong Lun increased its revenue by 18.4% to $373m.

In 2016, eight Chinese firms, including AllBright, Grandall, DeHeng and JunHe, exceeded $200m in revenue, up from six the year before. Ten firms had revenue that would qualify them for the Am Law 200, if they were US-based.

For the first time ever, we have a sneak peek of leading Chinese firms' profits per equity partner

To compile the rankings, we asked Chinese law firms to report their gross revenue for the 2016 calendar year alongside their full-time lawyer equivalents. In a few cases, when firms did not provide census or financial figures, we made estimates based on our own reporting.

Twelve firms also reported valid profit figures; and so for the first time ever, we are able to have a sneak peek of leading Chinese firms' profits per equity partner (PEP), one of the most important benchmarks to assess a law firm's profitability.  

Only two Chinese firms, Dentons and KWM, are on this year's Global 100 revenue ranking. Both draw significant revenue from outside China, where fees tend to be higher. But 1,436-lawyer Zhong Lun, which is almost entirely China-based, is getting closer. Its $373m in revenue is only $38m below that of the lowest-ranked firm on the Global 100.

Fourth-ranked Yingke broke the $300m mark for the first time during 2016, with a year-on-year revenue increase of 51% to $305.5m. The firm, which is more loosely organised than Dentons or KWM, is already the second-largest in China by number of lawyers, and grew headcount by 27% to 6,278 lawyers during 2016.

Global managing partner Mei Xiangrong says that one strong driver was a spike in cross-border work. "Our international work increased by at least 50%," says Mei, thanks to Chinese clients' outbound investment boom. Yingke also benefited from the Chinese Government's 'Belt and Road' Initiative, a strategy to develop a China-centered trade and economic network in Asia, Russia and the Middle East. 

Further down the rankings, Beijing-based Guantao saw the largest revenue growth. The 680-lawyer firm reported $68m in gross income last year, up 70% from 2015's $40m. A full-service firm, Guantao is better known for projects and finance work and has a non-exclusive alliance with Ashurst. 

Revenue per lawyer at Chinese firms is still dramatically lower than at their global counterparts

Managing partner Cui Liguo attributes the growth largely to the two mergers the firm did in Shanghai last year to build a stronger base in eastern China. In April, the firm merged with 40-lawyer real estate and construction boutique Zhongmao; a deal followed by the August merger with 60-lawyer full-service firm Shenda Partners. In addition, Cui says, Guantao was able to keep a 20% growth rate thanks especially to strong performance in its litigation and arbitration practice.

Last year, Guantao successfully helped a Hong Kong subsidiary of a German timber trading company win two parallel arbitration cases before the China International Economic and Trade Arbitration Commission and the Lithuanian Court of Arbitration over a cyberattack dispute. 

Revenue per lawyer (RPL) at Chinese firms, however, is still dramatically lower than at their global counterparts. The 40 Chinese firms we ranked had an average RPL of $167,672. That's almost $20,000 lower than the average RPL of the 35 firms ranked in 2015 - and it's just a fraction of the average RPL for the Global 100 ($813,150) or The Am Law 100 ($907,765). 

Nor are China's highest-grossing firms necessarily the most productive in terms of RPL. Shanghai firm Llinks, number 25 on the revenue chart, retained the top spot on the RPL ranking with $540,000 in 2016. Eight firms reported $300,000 or more in RPL, up from six in 2015. These included two of this year's newcomers, 48-lawyer MWE China ($375,000) and 83-lawyer Jia Yuan ($330,000). 

MWE China, which has a decade-old alliance with US firm McDermott Will & Emery, has focused on compliance and government enforcement work. Since 2014, through cooperation with McDermott Discovery, the firm also runs MWE China Data Center in Shanghai to review and analyse digital evidence for investigations and compliance clients. 

Beijing-based Jia Yuan is strong in capital markets and public M&A transactions. Last year, it served as Chinese counsel to home appliance maker Midea on a $5bn acquisition of German robotics company Kuka and China Resources Pharmaceutical's $1.8bn Hong Kong listing. 

As Chinese firms achieve better results, international firms are showing more interest in teaming up with them

The small group of firms with higher RPL includes Han Kun ($390,000), Haiwen & Partners ($345,000) and Fangda Partners ($305,000), all of which have strong cross-border practices. Han Kun, alongside Davis Polk & Wardwell, advised Uber on its $7bn sale of China business to rival Didi Chuxing, represented by Fangda and Skadden Arps Slate Meagher & Flom. Haiwen served as Chinese counsel to the Postal Savings Bank of China's $7.4bn listing on the Hong Kong Stock Exchange, the largest initial public offering in the world in 2016.

When it comes to profitability, however, Chinese firms can come closer to their international counterparts. Our China 40: Profitability chart shows PEP figures for 12 Chinese firms, based on Global 100 data or profit data reported by the firms. (Because this group is largely self-selected, it is likely to include firms with higher than average profits.)

Han Kun, which has 30 equity partners, had the highest reported PEP of $1.435m in 2016; on a global level, that is slightly above Morrison & Foerster's $1.41m. Shanghai-based shipping law boutique Wintell & Co had $1.355m in PEP last year; the firm's equity is tightly held by just seven partners out of 41. Both Han Kun and Wintell, as well as JunHe, which reported $1.04m in PEP, have profit margins higher than 60%. 

As Chinese firms achieve better financial results, international firms are showing more interest in teaming up with them to acquire Chinese law capability. In 2016, Wintell formed an association with Holman Fenwick Willan in the Shanghai Free Trade Zone (FTZ). Hogan Lovells also struck an FTZ alliance last year with China's Fujian Fidelity. 

But following the collapse of KWM's European arm, Chinese firms are more cautious about internationalisation. Guantao's Cui Liguo says that Chinese firms are still relatively less experienced in globalisation, and should take a step-by-step approach based on clients' needs. Outbound investment may be going gangbusters for Chinese companies, but for law firms, Cui says, "making mergers and acquisitions overseas can be quite risky."