Retreat of the Titans: Why K&L Gates’ Beijing Exit Is a Symptom of a Larger Market Shift

Abstract

Using the recent closure of K&L Gates’ Beijing office as a case study, this article will analyze the continued exodus of major US and international law firms from China. It will critically examine the underlying economic, political, and regulatory factors driving this trend. The piece will offer a provocative argument about the future viability of the traditional BigLaw model in the face of a maturing and increasingly insular Chinese legal market.

I. Introduction

K&L Gates’ recent decision to close its Beijing office in September 2025 highlights a significant shift in China’s legal landscape. This move by a prominent global law firm exemplifies the broader retreat of major US and international legal powerhouses from the Chinese market. This article will analyze the economic, political, and regulatory pressures driving this exodus, arguing that these factors fundamentally challenge the traditional BigLaw model’s viability in an increasingly insular and maturing Chinese legal environment.

II. The K&L Gates Case Study

K&L Gates, a Pittsburgh-founded firm ranked 44th on the Am Law 100 with over $1.3 billion in gross revenue in 2024, established its Beijing presence in 2004 [2]. For two decades, its Beijing office handled domestic and cross-border matters. However, a strategic review by the firm’s new leadership led to the consolidation of its Beijing operations into its Shanghai office [1, 2, 3].

This closure impacts Beijing-based personnel, with some offered relocation to other offices and others receiving severance packages [2]. K&L Gates asserts it will maintain full-service capabilities in China through its Shanghai and Hong Kong offices [1, 3]. This consolidation, framed as an efficiency measure, signals the growing challenges international firms face in China, indicating a broader systemic shift rather than an isolated business decision.

III. The Broader Exodus: A Growing Trend

K&L Gates’ departure is part of a larger trend. Its Beijing office closure is the ninth such move by a large law firm in China in 2025, with at least ten prominent US law firms exiting Greater China since June 2023 [2, 4]. This trend includes UK-headquartered Evershed Sutherland, which plans to close its Beijing office in July [4]. Other firms that have scaled back or closed offices include Proskauer (Beijing, 2023), Latham & Watkins, Winston & Strawn, Cleary Gottlieb, Wilson Sonsini, Linklaters, Ropes & Gray, and Baker McKenzie [1, 3, 4]. Earlier exits include Troutman Sanders (2018) and Davis Wright Tremaine (2018) [4].

This withdrawal accelerates a trend observed since 2017, when foreign law firm offices in mainland China peaked at 244. This number dropped by 8% between 2019 and 2021 (from 225 to 208), reaching a five-year low in 2022 [4]. The decade-long influx of foreign law firms into China has now reversed, with exits increasing significantly [1].

IV. Underlying Factors Driving the Retreat

This widespread retreat is driven by complex and interconnected economic, political, and regulatory factors.

A. Economic Factors

A primary driver is the sluggish Chinese market and muted deal activity. The decline in US IPOs by Chinese companies and general economic slowdown have reduced lucrative cross-border transactional work [4]. Foreign direct investment in China also hit a 30-year low of USD33 billion in 2023 [4], signaling a less attractive economic environment for international businesses and their legal advisors.

This downturn has led to diminishing returns and profitability. Chinese clients are often less willing to pay premium fees for capital markets and non-dispute services compared to Western clients [4]. As one anonymous partner noted, “If law firms offer the same services in the US and China, the fees in China are lower and the profit margin isn’t able to sustain operations. Therefore, managing partners will consider leaving this market and focusing on another” [4].

Consequently, many firms view their China offices as cost centers rather than profit generators, leading to headcount reductions and withdrawal from less profitable practice areas [4]. The traditional BigLaw focus on maximizing profits per partner and pursuing only high-profit cases becomes unsustainable when the market cannot support such billing structures.

B. Political Factors

Geopolitical tensions between the US and China, exacerbated since 2017, have significantly impacted the legal sector. Increased scrutiny from Washington D.C. on US investors and Chinese companies has discouraged cross-border transactions, a core business for many international firms [4].

Rising nationalism and an increasingly insular Chinese legal market further challenge foreign firms, as domestic interests gain priority. Some US firms’ US-centric decision-making and strong reliance on their domestic market make them less adaptable to China’s unique strategic shifts compared to UK counterparts with more diversified international presences [4].

C. Regulatory Factors

Beijing’s tightened regulations create an unpredictable operating environment, increasing compliance risks and operational costs [4].

Data security and compliance are critical concerns. China’s stringent data security laws, including requirements for government-approved VPNs, raise questions about client data integrity and security [5].

The lack of attorney-client privilege under Chinese law is a fundamental challenge. Unlike Western systems, Chinese law obligates attorneys to reveal client information if demanded by the state, creating ethical dilemmas for foreign lawyers [5].

Finally, broader risks for foreign residents, such as arbitrary detention and exit bans, contribute to an environment of uncertainty for international legal professionals [5].

V. The Maturing Chinese Legal Market and the BigLaw Model

The retreat also reflects a fundamental shift within the Chinese legal market. It is maturing, characterized by growing competition from Chinese peers who offer sophisticated services at lower price points, eroding international firms’ market share [4].

Shifting client demands mean Chinese clients are often less willing to pay higher fees for services, contrasting with the BigLaw model’s reliance on high-value engagements [4].

However, the market is evolving, not shrinking. There is strong demand for diversified services in areas like dispute resolution, bankruptcy, IP, cybersecurity, data privacy, and emerging industries such as new energy, AI, and life sciences [4]. Firms adapting to these demands and cultivating deep relationships are better positioned to thrive.

This evolving landscape highlights challenges to the traditional BigLaw model. A single-minded focus on maximizing profits per partner and high-profit cases is less sustainable in China. This approach often overlooks crucial, albeit lower-billing, practice areas essential for a comprehensive market presence [4].

Ray Liu, Dorsey’s Beijing managing partner, describes this shift through the “2-8 principle”: “The 20% of law firms that have proactively and strategically planned in advance, offered diversified services, and adapted to new legal service demands along with the market recalibration can capture 80% of the market opportunities” [4]. Success requires adaptation, diversification, and long-term engagement.

VI. Conclusion

K&L Gates’ withdrawal from Beijing symbolizes the profound transformation in China’s legal sector. A sluggish economic environment, escalating geopolitical tensions, and a restrictive regulatory landscape have created an untenable operating environment for many traditional BigLaw firms. These pressures, combined with a maturing Chinese legal market and rising local competitors, expose the vulnerabilities of a business model reliant on high-value transactional work and premium billing rates.

The traditional BigLaw model’s future viability in China is challenged. Firms clinging to outdated strategies, failing to diversify, or overly sensitive to short-term profitability risk following others. Success demands strategic re-evaluation, localized adaptation, and embracing new practice areas aligned with China’s economic priorities. The era of unchecked expansion for international law firms in China has ended, giving way to a discerning market where only the most agile and strategically committed will endure.

References

[1] Merken, S. (2025, September 19). K&L Gates closes Beijing office as US law firms continue China market retreat. Reuters. https://www.reuters.com/legal/legalindustry/kl-gates-closes-beijing-office-us-law-firms-continue-china-market-retreat-2025-09-19/

[2] Zaretsky, S. (2025, September 22). Top 50 Biglaw Firm Shuts Down An Office In China. Above the Law. https://abovethelaw.com/2025/09/top-50-biglaw-firm-shuts-down-an-office-in-china/

[3] (2025, September 22). K&L Gates consolidates Beijing branch to Shanghai. Law.asia. https://law.asia/kl-gates-closes-beijing-office/

[4] Mok, M. (2024, October 7). Exodus of US Law Firms from China: Causes and Future Trends. Law.asia. https://law.asia/us-law-firms-exit-china-causes-trends/

[5] (2025, January 23). Behind the Exodus of U.S. Law Firms from China. ChinaFile. https://www.chinafile.com/conversation/behind-exodus-of-us-law-firms-china