US law firms are closing their China offices
Thanks for business and geopolitical realities, U.S. law firms are closing their China offices. (Illustration by Sara Wadford/Shutterstock)
The Great Wall of China was intended to exclude nomadic foes—not keep people inside.
Lately, that has been the case for U.S. law firms with offices in China.
There has been a veritable exodus in recent years as numerous U.S. firms shutter or downsize their China outposts and partners head for the exits. According to Law.com, this year, Kirkland & Ellis reportedly laid off at least nine capital markets attorneys in China. Other firms are also cutting back this year: Weil, Gotshal & Manges; Orrick, Herrington & Sutcliffe; Perkins Coie; Sidley Austin; Dechert; and Winston & Strawn all have announced closures of at least one China office.
Orrick said it would let the lease lapse on its Shanghai office and focus its operations in Beijing, letting go one lawyer and one consultant.
“These moves reflect a rebalancing of our Asia Pacific platform, including the launch of our Singapore office in 2021, to align with client demand,” the firm said in a statement.
In late June, Morrison Foerster announced it was leaving. The firm said it is shuttering its Beijing office after 26 years, citing the expiration of its office lease.
“We believe the firm is best positioned to service our clients in China from our Hong Kong and Shanghai offices, from both a business operations and a client service perspective,” a firm spokesperson said.
Business and geopolitical realities are contributing to the firms’ long goodbyes. Chinese leaders have tightened companies’ access to public stock markets, jailed entrepreneurs and constricted profitability. U.S. venture capital has pulled away from investments in China, and Chinese initial public offerings are dwindling.
“Law firms live in the same world that the rest of us do,” says Rachel Stern, a professor of law and political science at the University of California at Berkeley who studies law firms in China.
“The expansion strategy of law firms typically reflects broader economic trends. Even though the American and Chinese economies remain intertwined, it is not a surprise to see U.S. firms reducing headcount in China following a number of years of U.S.-China economic decoupling.”
She adds: “But economics is not everything. There has also always been a strong symbolic component to international offices. And until recently, having an office in Beijing or Shanghai was an important signal of commitment to being a truly global law firm. My sense is that may be changing with some American firms rethinking their global strategy and whether they need to be present in China.”
Unpredictable
By the end of last year, 32 of the 73 largest U.S. law firms had drawn down their attorney presence in China over the prior decade, and 26 of the 48 largest U.S. law firms had shrunk their attorney rosters there since 2018, according to data from Leopard Solutions’ law firm hiring tracker.
Uncertainty and a depressed business climate are to blame, says Yun Sun, the director of the China program at the Stimson Center, a Washington, D.C., think tank.
“The overall investment environment in China has deteriorated significantly due to the national security policies of the Chinese government. Foreign investors feel less protected, both commercially and many on a personal level,” she says.
Sun points out that official clampdowns have spooked many. “The Chinese security apparatus has gone after a number of dual diligence firms, for example,” she says, referring to consultants that advise U.S. businesses seeking to comply with local laws.
The crackdowns “send a chilling effect across the board,” Sun adds. “And given the growing national security concern on the U.S. side and the scrutiny over American companies’ involvement in China, the trouble companies have to deal with is just not worth the risk and return.”
There are even unsettling concerns about police action. Beijing officials have arrested Chinese civil rights attorneys for representing unpopular clients and causes.
Law enforcement conducted a major raid on defense lawyers on July 9, 2015, known as the “709 Crackdown.” Eight years later, they did it again.
“There’s been no direct harassment of commercial lawyers so far,” says litigator Christopher Pioch, who chairs the New York City Bar Association’s task force on the independence of lawyers and judges. “But there has been a chilling effect.”
U.S.-China relations have been unsettled for more than a century. For instance, Morrison Foerster was founded in 1883, one year after the Chinese Exclusion Act first expressed America’s caution regarding the Far East.
An upturn came in 1997, as China moved to privatize state-owned enterprises and welcome foreign investment. In 1998, MoFo became one of the first U.S. law firms to open a Beijing office. Business peaked in 2014 when the firm, operating from its Tokyo and Beijing shops, maneuvered on behalf of Japan’s Softbank Group, then the largest shareholder in Chinese e-commerce giant Alibaba Group, as Alibaba raised $25 billion on the New York Stock Exchange in the then-largest IPO in history.
But a trade war that began in 2018—when the U.S. placed 25% duties on Chinese imports, and Beijing reciprocated against U.S. companies—has intensified, even as the Chinese economy continues to suffer from a bad case of long COVID-19. And China’s new laws dealing with data security and privacy, enacted in 2021, increased government scrutiny of firms with foreign ties.
Ji Li, a law professor at the University of California at Irvine School of Law who studies U.S.-China business relations, says the bottom line is that the Chinese offices did not produce.
“The China offices of most U.S. law firms did not generate much profit in the past two decades, so the exit decision should not be that hard,” he says. Li adds that what attracted U.S. firms to China was “the rosy expectation of a growing Chinese economy and continuous U.S.-China economic integration.”
Thanks to the aforementioned trade war and COVID-19, those days are over, he says.
“On top of that, you have the data privacy law and more generally, an unpredictable regulatory environment in both the U.S. and China,” Li says. “Law firms are generally risk-averse, so pulling out of China seems like a safe option.”
This story was originally published in the October/November 2024 issue of the ABA Journal under the headline: “Great Migration: Thanks to business and geopolitical realities, U.S. law firms are closing their China offices.”
