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Hong Kong: The sleeping dragon stirs

Hong Kong: The sleeping dragon stirs

The economic downturn's impact has filtered into the Hong Kong legal market, but with government stimulus packages, regulatory reforms and an entrepreneurial spirit that permeates business,…

The economic downturn's impact has filtered into the Hong Kong legal market, but with government stimulus packages, regulatory reforms and an entrepreneurial spirit that permeates business, keeping a watch over the region is well advised, reports Sarah Sharples.

Hong Kong has a crowded and competitive legal market. Australian firms with offices in the region include Mallesons Stephen Jaques, Allens Arthur Robinson and Minter Ellison. Also set up in the region are magic circle firms from the UK, Wall Street firms from the US, big multinationals and local Hong Kong practices. Recently firms from the People's Republic of China (PRC) have joined the fray.

Many believed that Asia could withstand the global financial crisis - but even China has not been immune, with events there impacting on the market in Hong Kong, says Nicola Wakefield Evans, managing partner of international at Mallesons

"Around the period of the Beijing Olympics we saw - and I think investment banks and law firms saw it too - a contraction in the Chinese market. Basically, that was a combination of China shutting down a lot of industry in the lead-up to the Olympics and then immediately after the Olympics you had a couple of those really sharp international crises, such as with Lehman Brothers," she says.

"I think most commentators thought that China would be able to ride out the GFC, but I think [its] reliance on the US as an export market has hit a lot of Chinese products and that has just had a trickle-on effect throughout."

So what does this mean for legal business in Hong Kong?

Dealing with the downturn

The GFC and China's slowed economy has hit Hong Kong's legal practice in areas such as M&A, projects and capital markets including IPOs and leveraged and asset finance.

Christopher Clarke, managing partner in DLA Piper's Hong Kong office, says the firm had to cancel a dozen IPOs, although it was involved in the first two of the year. In the last couple of weeks the feeling has been that the market is returning to normal due to an "amazing boom" in the stock market, yet Clarke is not overly convinced.

"I don't believe that [it's returning to normal yet]. It may be better, but it's not like it was and I think the other factor is that every client is now looking at their costs and, sadly, that includes professional advisers.

"Clients obviously don't want to waste money - but they also value the best of advice. But for your average day-to-day type of work, there is increasing pressure on pricing," he says.

Jim Dunstan, Allen's executive partner in charge of Asian operations, says that while the Hong Kong office is experiencing a litigation boom, the challenging market has also meant that the firm has taken the opportunity to redistribute underutilised areas of the workforce.

"We have moved a number [of employees] across to helping in litigation and on the reconstruction and restructuring side of the practice. It's not as exciting as doing huge leverage buyouts, but the reality is it keeps people pretty busy," he says.

The government action plan

The Hong Kong Government has been making moves to stimulate the economy, says Wakefield Evans, which has generated optimism that it will recover earlier than other markets around the world.

"The growth of the Chinese domestic market coupled with the infrastructure projects that both Hong Kong and China have announced means that I think what they'll try and do is to redirect investment domestically for the next 12 to 18 months," she says.

"So there are a lot of announcements now coming out of the Central Government and PRC. For example, they announced they would relax some of the rules on listing on the Shanghai stock exchange."

A raft of regulatory reforms, both in Hong Kong and other jurisdictions, are also a positive sign for workflow, says Clarke. Locally, the firm is being approached to conduct substantial corporate governance reviews and is also participating in mediation, after civil justice reforms were introduced to speed up management of cases and encourage alternative dispute resolution, he says.

"I think there is real growth potential on the regulatory side across Asia and I think it's got huge potential and it won't be affected by this [current depressed] market. All the changes that are coming in Europe and the US in relation to financial services - how funds and banks behave and structure themselves and pay themselves - will have a knock-on effect out here."

In particular, the potential effects of legislation from the US on the region will also create opportunities, Clarke adds.

"If there are rules in the US about how people get paid, [then] I imagine there will be some quite cunning structuring of executive compensation to get around the rules. So you will see a need for people to advise on that out here," he says.

"Similarly, investment banks [and] hedge funds, for example, look in particular to be an area the financial markets are going to seriously regulate for the first time.

Hong Kong highlights

Meanwhile, the GFC and Hong Kong's "flexible economy" could be a positive for an Australian lawyer looking to make the move, says Dunstan, who is spending his second stint in the region.

"For example, rentals fluctuate to meet the economy much more quickly than they tend to do elsewhere.

"Everything [including] the cost of housing expatriates in apartments has dropped dramatically, so the underlying costs have slipped sharply sideways.

"I suspect that will help to reduce the underlying cost base and will tend to make Hong Kong relatively attractive going forward," he says.

For Wakefield Evans, who arrived two years ago with her husband and three children aged seven, 12 and 14 (with one in boarding school back in Australia) the experience of living in Hong Kong has been fantastic.

"Hong Kong is an exciting, buzz city. It's always on the go - you can't really stand still here. We discovered there was lots of fantastic hiking in Hong Kong which you don't really get to see if you're a tourist, so Hong Kong is basically one big national park," she says.

"We've also tried to immerse ourselves in the culture, both in Hong Kong and China. All my children are learning Mandarin, for example. I'm trying to but it's a struggle.

"But the children, interestingly, have picked up Mandarin quite quickly, particularly my younger two and they are in classes where they have a real mixture of nationalities. So for the children it has been a great experience because I think they have been exposed to a lot more than they [would be] in Australia."

Back to business

It's not all leisure in Hong Kong, though, and Wakefield Evans says that for any lawyer considering a move, flexibility, adaptability and a broad skill-set is essential.

"You need to be - at the end of the day - a good commercial lawyer. So the ability to draft, negotiate [and] spot issues - not necessarily ones you can resolve, but know that they are there so you can get them looked at by a specialist," she says.

"You need to be prepared to roll your sleeves up and do work outside your comfort zone and I think that's the most important thing - so in that you need resilience."

Clarke says he first came to Hong Kong in 1975 and returned in 1992 and believes it is one of the most stimulating workplaces.

"You're either going upwards or downwards at 100 miles an hour. I think it takes quite an entrepreneurial person to come to Hong Kong in the first place. There is an interesting mix of people with entrepreneurial spirit across all sectors - not just the law," he says.

"It's a real business centre - there are no apologies for making money - and people are here to create successful businesses, and I think to have those sort of people as clients is very stimulating, they make decisions very quickly, by and large, and you get to meet very interesting people."

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