King & Wood Mallesons sign

The global law firm King & Wood Mallesons plans to continue expanding in China, despite the COVID-19 crisis and the escalating U.S.-China trade war.

The firm's global chief executive, Sue Kench, told Law.com International in an interview that she expects China to gain economic momentum despite geopolitical tensions and pandemic pressures.

"While the current geopolitical tensions have created uncertainty and volatility for trade and investment into China for some areas of the economy, business has not and will not grind to a halt," she said.

Trade tensions with the U.S. have continued to escalate, culminating Wednesday with U.S. Secretary of State Mike Pompeo stating that Hong Kong is no longer autonomous from China. His remarks indicated that the U.S. may end the special trade status it has given Hong Kong.

The other obstacle many global firms have been struggling with is the economic fallout of the COVID-19 pandemic. But Kench said King & Wood Mallesons (KWM) has weathered that crisis well. While other law firms have responded to the economic shock wrought by the pandemic by reducing staff hours, cutting salaries and reducing partner drawdowns, for example, KWM has so far not needed to go that route.

"For the moment we're reasonably OK, so we're not cutting salaries and we haven't had to move to any of those measures yet. Hopefully, we don't," said Kench, who is based in Hong Kong.

How did it manage? "When the global economy started feeling the impact of the pandemic, KWM still had a lot of existing work for which it had been hired months earlier, and that work did not immediately disappear," she said.

Sue Kench Sue Kench

Then, as clients around the globe started to confront the effects of the health and economic crisis, they kept several of the firm's practice areas busy, providing them with steady work. The restructuring and insolvency and employment practices have been busy; the workplace teams also have been advising on employers' obligations around stand-downs and health and safety; and the M&A and banking teams remain "really busy" raising capital.

"In the early days we just had this flurry of what I'll call COVID-19-related work and some of that still continues," Kench said.

Still, the firm does expect profits to drop, which in turn will reduce payouts to partners, she said.

"The firm performed strongly in March and April, with a solid pipeline of COVID-19-related work offsetting any slowdown in business-as-usual matters," Kench said. "We expect to see that pipeline begin to taper off and we expect to see a decline in revenue over the coming months, but it is difficult to predict the degree of impact at this stage. We are preparing for a range of scenarios."

Meanwhile, the firm's offices in China and Hong Kong have been gradually reopening since early May, but many people continue to work from home. The firm is starting to make return-to-work plans for its offices around the world, and these will take place in a phased manner, based on local government advice, Kench said.

Global Ambitions but Focus on Asia

Before moving into management, Kench was a longtime partner at Australia's Mallesons Stephen Jaques, which merged with China's King & Wood in 2012 to form today's firm. After a stint as managing partner of Australia, she came to the chief executive role in 2017 following the end of the firm's disastrous European expansion and merger with U.K. firm SJ Berwin. The European and U.K. arm of the firm filed for administration in January 2017.

The firm still has global ambitions, however. Kench said she wants it to be "a really strong top-tier international firm—neither Chinese nor Australian—headquartered in Asia."

But for now, KWM's focus is very much on China, whose economy Kench expects to gain momentum in the wake of the crisis. The firm does not plan to rush to expand outside of the Asia-Pacific region, Kench said. But it will continue expanding in the Greater Bay Area—a megalopolis composed of economically strong cities in Guangdong province, Hong Kong and Macau.

"It's leveraging what we've got," she said. "It's a case of getting the foundation right and then looking for opportunity. The opportunity for us at the moment is here."

In time, KWM aims to have "strong local offices" in Europe, the U.K. and the U.S. to help existing clients invest in trade with Asia more than to pursue new clients. "Those offices are not what I'd call the motherships of China and Australia, but they're still important," she said.

Being headquartered in Asia gives the firm an "enormous advantage" over U.K. and U.S. firms, Kench said, noting that KWM has a deep knowledge of the local culture and operating environment and can help Western businesses that want to enter China negotiate their way through some of the geopolitical and trade tensions that arise with Western governments.

China's tensions with trading partners are not limited to the U.S. Australia's government has been at odds with the Chinse government over its calls for a full-scale inquiry into the origins of the coronavirus pandemic, while China this month imposed additional tariffs on several Australian exports.

"It may at least in the short-term become harder for Australian and other Western businesses to enter China, but a Sino-Western firm like KWM is ideally placed to help them navigate the changing business environment."

Kench describes the current trade tensions as "disappointing" but added that China and Australia are economically mutually dependent and that is not going to change overnight.

KWM reported revenue of A$565 million ($364 million) in Australia in the most recent financial year to June 2019. It does not release revenue figures for other regions.

The firm has 1,880 lawyers and 330 partners in Mainland China, 40 partners and 267 lawyers in Hong Kong and 168 partners and 1,035 lawyers in Australia. Its other offices—in Japan, Singapore, Europe and the U.S.—are much smaller.

In December, it opened its 13th office in China—in Haikou, the capital of Hainan Province—in one of China's special economic zones, designed to foster economic growth.

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