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More US law firms are closing their offices in Shanghai as a dearth of financial activity and depressed business sentiment force them to reassess their mainland China presence.
In recent months, US firms Sidley Austin, Perkins Coie, Latham & Watkins and Orrick have all closed or said they will close their Shanghai offices, adding to the departure of Weil and Akin Gump from Beijing.
International companies and professional services firms have struggled to navigate China’s shifting business environment following the Covid-19 pandemic and have been affected by deteriorating relations between Washington and Beijing.
In Shanghai, home to China’s biggest stock market and the country’s financial centre during an era of growing cross-border activity in the 2010s, the impact has been particularly acute for the legal sector.
“The biggest factor is the drying up of M&A and capital markets work, followed by the decrease in other corporate transactions,” said one lawyer on the mainland who asked to remain anonymous. “Many firms cut staff in Shanghai first because that’s where the corporate work dried up first.”
Dealogic data shows that overall M&A activity in China, including inbound and outbound deals, is running at its lowest pace since 2012, at $72bn so far this year, while domestic equity markets activity is lower than in any year since 2009.
Sidley Austin, which will retain offices in Beijing and Hong Kong, said it would not be renewing its Shanghai lease in September “as part of our review of office space and attorney requests to relocate or retire”.
Orrick said its decision “reflects a rebalancing of our Asia-Pacific platform, including the launch of our Singapore presence in 2021, to align with client demand”. Perkins Coie said it remained “committed as a firm to our China practice and clients”.
Latham & Watkins, which still has an office in Beijing, declined to comment.
Han Shen Lin, a finance professor at New York University’s campus in Shanghai, said US law firms “increasingly struggle to cover China costs” in the current operating environment.
He added that state-owned enterprise clients “present due diligence or security concerns, and possibly payment delays”, while foreign multinationals “aren’t doing that many onshore deals”.
“If a US legal firm in Shanghai targets local Chinese enterprises going outbound, they may only get a small referral percentage fee compared to their US colleagues who ultimately manage the engagement,” he said.
A position paper published last week by the British Chambers of Commerce in China noted a 16 per cent decline in foreign law firms with representative offices between 2017 and 2022, citing figures from China’s Ministry of Justice. Seventy per cent of professional services firms said last year was even more difficult than 2022.
“Last year and continuing into this year, there’s just a lot less business activity,” said Julian Fisher, chair of the British Chambers of Commerce in China. He added that there was now an uptick in Chinese companies going abroad.
Other financial groups have closed their offices in Shanghai in recent years, including the Norwegian sovereign wealth fund Norges Bank Investment Management last year and UK wealth manager St James’s Place in 2023.
Many other large businesses have retained a presence despite the slowdown. Jamie Dimon, JPMorgan chief executive, last week said parts of the investment banking business had “fallen off a cliff” in recent years, but he remained optimistic on other areas of potential growth, including asset management.