Peter Corne, the managing director of UK-based international firm Eversheds, says Hong Kong has become a little “jaded” and “over-lawyered” and its economy more subject to boom and bust cycles as it has focused more on the financial sector since re-unification with China.

“Those boom and bust cycles that have been going on since 1997 … have made it very difficult to plan,” he said.

Hong Kong is a good regional base, Corne said, and its great advantage over the mainland is the Western legal and commercial environment.

But for a law firm just setting up in China, the main growth potential is in the mainland markets, and to be involved in that it is much easier to be on the ground.

“To the extent [China] doesn’t have a consistent — in terms of interpretation and implementation — legal system, you really have to be very hands-on to make sure that things are progressing in a manner approaching any semblance of predictability, he said.”

A host of US and UK firms have also been setting up offices on the mainland, even those that have operated with just a Hong Kong office for decades.

Australian law firms vary in their presences in China, but a couple are now achieving their biggest growth on the mainland, including Allens Arthur Robinson and Mallesons Stephen Jaques, and many expect this will be the case in future.

“The magic circle, for example, they are putting more people in China rather than Hong Kong … and clearly, that’s where the growth is,” said a senior partner at Mallesons, Dieter Yih.

Mallesons has one of the largest offices of Australian law firms in Hong Kong, and Yih says their other Chinese offices are growing fast on the back of inbound Australian clients and outbound Chinese clients.

He said Hong Kong has also benefited from this, with many Chinese companies now listing in Hong Kong.

“[Mallesons’ Hong Kong office] is obviously several times bigger than Beijing. As a result, a lot of the support and the management work is done out of Hong Kong. But it doesn’t mean that Beijing or Hong Kong, is necessarily more important,” he said, stressing the firm’s China offices call on each other’s expertise.

Sam Farrands, managing partner at Minter Ellison’s Hong Kong office, which heads their operations in the country, says it is important to be growing offices on the mainland, but how quickly is obviously dependant on clients.

“It will take a very long time before Shanghai or Beijing has the dominance that Hong Kong does,” he said, due to legal and commercial advantages the city provides to serve the region.

But he said there is a growing trend for clients to bypass Hong Kong and go straight into Shanghai, Beijing or provincial cities, as well as for large Chinese corporations to go straight to offshore markets such as Australia.

“That’s the reason why we focus more and more on the Shanghai and other markets,” he said.

“The challenge at the moment is to what level is that and does that justify having the expertise that we have in Hong Kong that serves China and the rest of Asia, in Shanghai?”

See Hong Kong report on p25