Despite the end of stringent pandemic measures last year, economic clouds still loom. National GDP growth in 2023 was 5.2%, the lowest economic growth rate since 1990, excluding the pandemic period.

Wu Dong, a member of the management commission and senior partner at Hui Ye Law Firm in Shanghai, warns that caution should be applied even to firms showing positive growth in 2023.

“The increase in revenue is partly due to new teams on board and partly because fees from larger projects are delayed,” he says. “Some large projects may have been completed in previous years, but fees were received this year, which doesn’t accurately reflect current business activity.”

Uncertainty is the footnote of the current market environment, according to Mervyn Chen, director at Wintell & Co in Shanghai. With 25 years of experience, he perceives his peers as disoriented. Future development resembles a slow, L-shaped crawl in a market where supply outstrips demand.

“The market is becoming less [on the demand side, allowing] clients to drive down prices due to an oversupply of lawyers,” says Chen. “Once legal service prices are reduced, it’s challenging to restore them.”

Cheng Jun, an equity partner at Zhong Lun Law Firm in Beijing, shares an example from a construction project in 2016. When the project restarted after a hiatus, the client requested expanded services, but cut the fees by half.

The ongoing economic downturn has also impacted foreign firms, particularly large US law firms, leading to reassessments of their operations in China. Although the number of firms pulling out is surging this year, this trend actually began in 2023. While some have chosen to withdraw, others remain or continue to enter the market. A further analysis of the exodus is contained in Flight or Fight?

Vivian Rong, executive director and partner at Tian Yuan Law Firm in Guangzhou, shares similar concerns. She says very few Chinese lawyers are equipped to handle major foreign cases, emphasising a need for domestic law firms to enhance their skills to make a meaningful impact.

“Clients don’t want domestic lawyers to simply relay messages to overseas lawyers. They expect them to be facilitators, advising on risks and actionable steps,” says Rong.

Li Qi, Beijing-based managing partner at Tian Yuan, says this department generated the firm’s highest revenue last year, for the first time in a decade. “The biggest challenge this year is the decline in deals coupled with an increase in disputes,” says Li.

“With the capital market’s bleak outlook, the threshold for IPOs has risen, leading to fewer listings and more discussions about exits – often a source of contention in the inactive investment vibe.”

The uptick in dispute resolution is not limited to domestic issues. Chang Ya Chiao, a partner at Winston & Strawn in Shanghai, observes a surge in cross-border commercial, patent and intellectual property litigation.

“The backdrop to cross-border litigation is the ongoing Sino-US conflict and competition in technology and trade,” says Chang. “Decades-old cross-border investments in both directions have turned into disputes that need to be resolved in courts.”

Intellectual property has emerged as a hot topic, with firms like Chang Tsi & Partners experiencing significant growth – 146% in its Hong Kong business alone last year. King & Wood Mallesons launched China’s first semiconductor intellectual property operation centre in Jiangsu province, collaborating with the Wuxi government. Additionally, three intellectual property groups in Beijing and Hong Kong combined forces to create East IP, a powerhouse with more than 430 professionals. The merger includes a 36-strong team from Zhong Lun Law Firm.

Despite increased activity in specific areas, the current market environment makes it seem harder than ever for lawyers to open a new door.

In 2023, 74.1% of partner growth came from internal promotions, with only 25.9% from lateral hiring. This trend marks a notable shift from 2020, when internal promotions (53%) and lateral hires (47%) were nearly equal. In the following years, the gap between the two became increasingly larger.

For some firms, this presents an opportunity to attract talent. Hui Ye’s Wu says that layoffs and salary cuts at Red Circle firms have lowered salary expectations among top lawyers. The firm has identified promising candidates at the junior partner level.

However, only middle and senior-level lawyers are making moves. Zhang Guodong, a managing partner at Jincheng Tongda & Neal in Beijing, points out that many law firms have entered a stabilisation phase. This has resulted in decreased recruitment needs and young lawyers are likely to be the most impacted by these changes.

The introduction of AI tools like ChatGPT since late 2022 has significantly impacted the legal industry. Many firms are seeing AI tools as a replacement for junior lawyers as they enhance efficiency in managing routine tasks.

Yu Xin, a partner Jingtian & Gongcheng‘s Beijing headquarters, says: “AI impacts law firms in two ways: it aids lawyers in managing extensive basic and repetitive daily tasks, while also compelling them to evolve the business model, focus on more advanced services, and emphasise customisation to avoid being supplanted by AI.”

New marketing strategies

In the fiercely competitive legal world, firms compete not just on operational capabilities but also on marketing strategies.

Last year, Jingtian & Gongcheng made headlines by participating in An Exciting Offer Season 5, a Chinese job-hunting reality show reminiscent of Donald Trump’s The Apprentice. This programme pits contestants against each other for internships and job offers, showcasing the dynamic interplay of competition and publicity in the business.

Hu Zhengzheng, a partner at the firm’s Beijing/Nanjing office, believes that tapping into the extensive reach of entertainment shows can significantly boost public awareness of law firms. The approach not only draws in aspiring talent but also fosters a greater societal appreciation and understanding of the legal profession. “It’s an innovative attempt to expand our public relations and fortify our brand,” he says.

Our recent survey indicates that many law firms are becoming increasingly aware of the importance of publicity, but also remain cautious. Hu says that amid an economic downturn, firms are meticulously managing their promotional budgets while striving for maximum efficiency.

“By shifting our marketing mindset, we can tailor promotions for different client groups,” he says. “This strategy aims to build up a multi-dimensional brand image capable of adapting to the shifting demands and challenges of the market.”

In response to these pressures, law firms are developing customised promotional strategies. Some are moving away from traditional methods to embrace short-video platforms and live streaming to drive traffic and build their brand. These “online promotion law firms” prioritise marketing above conventional decision-making hierarchies, placing their marketing teams in leadership roles.

Unlike conventional firms, where partners make final decisions, these online-focused firms depend heavily on their marketing teams to attract clients, subsequently assigning cases to lawyers.

This model allows for rapid growth akin to tech startups. Wu, from Jin Mao, highlights that this approach is particularly appealing to some law firms seeking support in marketing and case sourcing.

“However, such rapid expansion must be fuelled by capital backing, which results in higher management costs. Our traditional partnership model cannot sustain this pace of growth,” says Wu.

To mitigate fierce competition, Jin Mao has chosen to further specialise by targeting bidding projects from state-owned enterprises, which place a premium on reputational strength.

In today’s slow market, both traditional law firms adapting their strategies for high-end markets and online firms focusing on lower-tier markets are adapting to current trends. There are no easy paths to success; the essence lies in making strategic adjustments to remain relevant.