By the late 1970s and early 80s, offshoring to China had become an established financial imperative. Besides its cheap, military-grade workforce, white-collar jobs were being shuttled across too. It was on this tide of movement that global law firms saw their opportunity.
By the mid-80s Paul Weiss Rifkind Wharton & Garrison had an office in Beijing; Clifford Chance, Linklaters and Freshfields joined Slaughter and May in Hong Kong, serving both inbound and outbound investments.
But the economics and geopolitics of today have rattled them.
This week, Paul Weiss and Milbank became the 13th and 14th U.S.-headquartered firms to shut their Beijing offices.
As our Asia editor Jessica Seah writes, China “never quite bounced back from its draconian pandemic measures; its property market crashed and shook the nation’s confidence to its core.” It’s all playing out against tougher national security measures.
“America’s hostility towards the world’s second-largest economy means reconciliation is unlikely, especially as Donald Trump becomes President for the second time.”
In short, it's becoming harder to form a business case for remaining in China. The risk is too high, potential benefits too low.
“We’re having a hard look at Asia,” the leader of one of the world’s biggest law firms told me this week. “As a team we decide, is the business case still strong. If it’s not, then we need to assess our position.”
What forms a law firm business case for being in a particular region nowadays is much more unsparing than it once was. Does a particular office make an immediate impact on the firm’s top line? Is it accretive in the short term? If dilutive, what’s the tolerance level, when do we bail?
On recent evidence—e.g. the mass withdrawal from China; the focus on U.S. growth; the rising scrutiny of bases in lower rates markets—the business case appears to be this: is being in this particular region in any way essential to our key markets? If the answer is ‘maybe’, is the business case strong enough? If ‘no’, we might need to ‘assess our position’.
We can almost see a list of regional priorities emerging, for better or worse, a Big Law list of ‘hot’ and ‘not’ nations, if you will...
