The decision by Linklaters to spin off part of its Shanghai office in a bid to then merge with it at a later date, comes as part of a significant push by Magic Circle firms to practise local law in China.
Having already scoped out the local market for a suitable target to form a joint venture with under new Shanghai Free-Trade Zone (FTZ) rules, which permit domestic law firms to tie-up with international giants and practise local law, Linklaters has decided to go it alone.
Talks with the most serious contenders, Shanghai Capital Law & Partners and Shanghai Kai-Rong Law Firm, fell through at the end of last year, leading Linklaters to instead make plans for a group of Shanghai lawyers to spin-off into a new best-friend firm.
The new practice, which is expected to include around ten of Linklaters’ 30 Shanghai-based lawyers by the end of the year, will handle local law, including M&A, competition, derivatives and structured products, financial regulation and disputes. The move was voted through by Linklaters’ partnership during the firm’s global partners meeting in Berlin last month.
The spin-off plans conclude ‘Project Trident’, headed by Asia managing partner Marc Harvey, to secure Chinese law capability for the leading London law firm. Shanghai FTZ rules state a firm must be independent for at least three years before entering into a formal tie-up with an international partner, meaning Linklaters may have to wait. In the meantime, the new firm will become a Chinese best friend.
Linklaters said in a statement: ‘We expect to see stable and sustainable growth in China over the long term. Market shifts have indicated that outbound work and high-end domestic transactions will become ever more important for our business. We believe that being able to offer integrated Chinese and international law advice will help us to protect our competitive advantage both in China and globally.’
Clifford Chance (CC) is also circling China, eyeing up potential merger candidates. It has been more than a decade since the last major tie-up involving a Magic Circle firm, which was CC with New York firm Rogers & Wells in 2000.
Meanwhile, Herbert Smith Freehills (HSF), which has made no secret of its bold global expansion plans, is also looking for a China opening through an FTZ combination. The firm has just unveiled its new strategy, ‘Beyond 2020’, and unsurprisingly the conundrum of how to tackle the US and China is near the top.
HSF’s co-chief executive Mark Rigotti said: ‘A thousand lawyers [in China] would be overcooking it. I would like 100 lawyers, as then you get cultural and client alignment between high-quality local and cross-border. Would 100 lawyers in China by 2025 be feasible? Yes.’
For now, Baker & McKenzie remains the only global law firm providing Chinese law through a Shanghai FTZ tie-up after combining with local firm FenXun Partners at the start of 2015.
tom.moore@legalease.co.uk