• Chinese law firms saw further revenue drops in 2023 as well, primarily as a result of prolonged frictions with the U.S. and an increasingly competitive market with fewer cross-border deals.

• Some firms defied the trend by focusing on the domestic market and filling gaps left by foreign firms' exits.

• A fast developing and changing market like China will however stabilize and display its sustainability again, recruiters believe.

Top Chinese law firms experienced a revenue dip in 2023, extending the downward spiral observed in 2022, a Law.com analysis shows.

According to this year’s China 45 report, which tracks the financial earnings of Chinese law firms in 2023, more than half of the firms in the ranking were affected:

• almost half of the China 45 suffered net losses of more than 10

• 17 others also experienced losses

• firms that have managed to avoid a revenue dip saw only a modest growth

Last year’s China 45 ranking found that more than 85% of the country’s top-earning firms recorded significant drops in proceeds and that some saw their gross revenue fall as much as 35% by the end of 2022. 

Cross-Border Frictions

The friction between China and the U.S. has had a pronounced effect on the legal landscape in the Asian nation. As international relations deteriorate, Chinese firms have found it difficult to maintain the levels of outbound investment they previously enjoyed. 

Many deals stalled, and foreign investments into China are becoming more cautious, further driving down revenue. This is particularly true for firms with a strong focus on cross-border transactions:

• Beijing-based Han Kun Law Offices, known for its stable of top cross-border deal-focused lawyers, saw its estimated net profits shrink by about 7%, although its reported gross revenue grew by approximately 3% in 2023.

• King & Wood Mallesons told Law.com International that its gross revenue fell by $100 million last year to $1.2 billion. Its estimated net income fell by about 7.5% to $204.8 million and. 

• Zhong Lun Law Firm’s reported gross revenue also dropped by 5% to $25 million.

Exceptions

Not all firms are struggling. Several Chinese law firms have bucked the downward trend, even showing revenue growth in 2023. This success is attributed to an increased focus on domestic work and the vacuum created by the exit of many foreign firms, especially American ones, from China. 

“Large and medium-sized Chinese law firms, and the boutique Chinese firms allying closely with foreign firms, are still hiring in areas such as domestic and international disputes, IP, restructuring and exit transactions, compliance, and private wealth,” said Shawn Chen, Beijing-based partner at legal recruitment firm SSQ. 

Domestic Focus

Firms with a broader coverage and a stronger focus on full-service domestic advice, particularly those widely spread across multiple Chinese provinces, have fared better in the ranking. A total of 15 out of the 45 Chinese law firms reported increases in gross revenue in 2023:

• Beijing DHH Law Firm reported the highest growth - a 32% increase in gross revenue and 56% growth in net income. 

• Law firms that have expanded geographically, such as YingKe and Jingsh Law Firm, have also reported gross revenue increases of 7% and 30%, respectively. 

• The firms that reported the highest increases in gross revenue are Tahota Law Firm and Tian Yuan Law Firm, both of which saw growth of almost 40%. Their estimated profits also grew by about 22% and 37%, respectively.

However, some of these “domestic-first” firms marked the steepest drops in 2023: 

• Zhong Lun W&D saw a 57% decrease in gross revenue compared to 2022. 

• Llinks Law Offices and Grandway Law Offices suffered a 20% fall.

With Chinese law firms continue to face challenges as geopolitical tensions persist, it is unclear if the downward trend will continue this year as well. Chen remains optimistic, maintaining that 2025 is likely to be a turning point for the local market, and emphasizing that there are still so many valuable opportunities in China. 

“A fast developing and changing market like China will finally stabilize and display its sustainability again, but in a different way. Therefore, to keep your core team and service capability is probably equally as important as how you maintain a balanced P&L,” Chen added.