A Chilling Effect? How Revenue Declines at Top Chinese Firms Will Reshape the Legal Market

In 2024, a significant shift reverberated through China’s legal landscape: over 65% of its top law firms reported a decline in revenue. This stark statistic signals more than just a temporary setback; it heralds a profound transformation within the Chinese legal market. This financial pressure, driven by a complex interplay of a decelerating national economy and intensified competition, is poised to trigger substantial market consolidation, aggressive talent poaching, and a fundamental reorientation of billing practices. The ripple effects of these changes will undoubtedly impact the entire legal ecosystem, including the operations and strategies of foreign firms in the region.

The Economic Headwinds: Causes of Revenue Decline

The primary catalyst for the legal sector’s financial strain is the broader economic slowdown gripping China. The nation’s once-booming growth, which peaked at over 14% in 2007, has steadily decelerated to less than 6% by 2023 [1]. This slowdown is not merely cyclical but is rooted in deep structural imbalances. A critical factor is the alarming level of national indebtedness, which surpassed 365% of GDP in the first quarter of 2024, significantly higher than comparable middle-income economies [1].

The property sector, historically a major driver of economic activity and legal work, has been particularly hard hit. The collapse or near-collapse of real estate giants like Evergrande serves as a stark reminder of the underlying vulnerabilities [1]. This crisis has had a cascading effect, reducing demand for legal services related to real estate transactions, financing, and development. Furthermore, China’s growth model has long been characterized by an over-reliance on production and exports, often at the expense of domestic consumption. Despite calls for rebalancing, government stimulus measures have largely focused on boosting bank lending and encouraging home buying, rather than implementing large-scale consumption stimulus, thus failing to address the structural issue of underconsumption [1].

Demographic shifts also contribute to the economic headwinds. China’s long-standing low-wage advantage, fueled by a vast rural labor surplus, is gradually fading as the pool of young rural workers diminishes [1]. This impacts manufacturing competitiveness and, consequently, the volume of legal work associated with international trade and supply chains.

Beyond internal economic dynamics, geopolitical tensions and trade wars, particularly with the United States, have exacerbated the challenging business environment. These conflicts have led to a significant reduction in foreign investment, which hit a 30-year low in China in 2023 [2]. Such a decline directly translates to fewer cross-border mergers and acquisitions, international arbitration cases, and foreign direct investment advisory roles, all of which are lucrative areas for law firms.

Impact on the Chinese Legal Market

The confluence of these economic pressures has already initiated a dramatic reshaping of the Chinese legal market.

Exodus of Foreign Law Firms

One of the most visible consequences has been the exodus of foreign law firms from China. Since June 2023, at least ten prominent US law firms have either closed or significantly scaled back their operations in Greater China, with some UK firms following suit [2]. This trend, which subtly began around 2017, has accelerated due to a combination of factors:

• Sluggish Market and Dwindling Profit Margins: The reduced deal activity and overall economic downturn have made it increasingly difficult for foreign firms, many of whom operate on a model that prioritizes maximizing profits per partner, to justify their presence. Diminishing returns in China no longer align with their risk appetite [2].
• Increased Competition from Domestic Firms: As foreign firms retreat, Chinese law firms have become increasingly competitive, capturing a larger share of the domestic market [2].
• Data Regulation Concerns: New and evolving data regulations in China have added layers of complexity and risk for foreign firms, further contributing to their decisions to scale back [2].
• US-centric Focus: Some US firms have opted to re-emphasize their vast domestic market, reducing their international footprint in China [2].

Increased Competition and Market Consolidation

The vacuum left by departing foreign firms, coupled with the challenging economic environment, has intensified competition among the remaining players, particularly domestic Chinese firms. This dynamic is leading to a period of significant market consolidation. The “2-8 principle” is becoming increasingly pronounced, where approximately 20% of law firms that have proactively adapted to new demands and diversified their services are capturing 80% of the market opportunities [2]. Even among US law firms that remain, there is an ongoing consolidation of operations in key hubs like Beijing and Shanghai, indicating a strategic streamlining to weather the storm [3].

Aggressive Talent Poaching

Amidst this upheaval, the battle for talent has become fiercely competitive. There is aggressive talent poaching, particularly from international firms by top Chinese firms. Recent partner moves illustrate this trend, with several high-profile lawyers specializing in Capital Markets and Mergers and Acquisitions transitioning from global powerhouses like Kirkland & Ellis and Wilson Sonsini Goodrich & Rosati to leading Chinese firms such as Zhong Lun Law Firm and Han Kun Law Offices [3]. This movement is driven by the high demand for PRC nationals with overseas experience, whose international exposure and expertise are highly valued in the evolving market [3]. The “tug-of-war for talent” is not new, but it has intensified, as firms seek to acquire the best legal minds to navigate the complex economic and regulatory landscape [2].

Shift in Billing Practices and Service Offerings

The financial pressures are also forcing a re-evaluation of traditional billing practices and service offerings. Chinese clients, particularly those seeking services in capital markets and non-dispute areas, are reportedly less willing to “splurge” on legal services compared to their European and US counterparts [2]. This necessitates a more cost-effective and value-driven approach from law firms. Consequently, firms are increasingly focused on cutting expenses and streamlining practices that are no longer highly profitable [2].

This shift is also redefining the types of legal services in demand. While traditional areas like M&A and capital markets have seen a downturn, there is a burgeoning demand for specialized services. Dispute resolution, bankruptcy and restructuring, intellectual property, cybersecurity, and data privacy are experiencing high demand [2]. Furthermore, legal work related to emerging industries such as new energy, new materials, smart manufacturing, artificial intelligence, life sciences, and pharmaceuticals is thriving, reflecting China’s strategic economic priorities [2]. Law firms that can pivot to these growth areas and offer tailored, efficient services are better positioned for success.

Implications for the Entire Legal Ecosystem

The changes sweeping through the Chinese legal market have broad implications for all participants.

Foreign Firms

For foreign firms that choose to remain, a strategic re-evaluation is imperative. A deep, long-term commitment to the Chinese market, coupled with diversified service offerings that cater to local client needs and emerging industries, will be crucial for survival and success [2]. UK firms, with their often broader international presence and less singular focus on profit-per-partner metrics, have shown some resilience compared to their US counterparts [2]. The key will be adaptability and a willingness to integrate more deeply into the local legal and business culture.

Domestic Chinese Firms

Domestic Chinese firms are presented with an unprecedented opportunity for growth and market dominance. By attracting top talent from international firms and adapting swiftly to the evolving demands for specialized legal services, they can solidify their position and expand their influence both domestically and potentially internationally. The current environment favors agile firms that can strategically plan and offer diversified services aligned with China’s economic recalibration [2].

Conclusion

The reported revenue declines at top Chinese law firms in 2024 are more than just a financial blip; they represent a chilling effect that is fundamentally reshaping the legal market. Driven by a complex interplay of China’s economic slowdown, geopolitical tensions, and increased domestic competition, this pressure is leading to significant market consolidation, aggressive talent poaching, and a necessary evolution in billing practices and service offerings. The Chinese legal market is undergoing a profound transformation, moving towards a more localized, specialized, and intensely competitive landscape. Firms that embrace agility, strategic diversification, and a deep understanding of the shifting economic and regulatory currents will be best equipped to navigate this new era and emerge stronger.

References

[1] Dissent Magazine. (2025, February 6). China’s Long Economic Slowdown. https://www.dissentmagazine.org/online_articles/chinas-long-economic-slowdown/

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

[3] MLA Global. (2025, June 30). Asia Pacific Legal Market Summary June 2025. https://www.mlaglobal.com/en/insights/articles/asia-pacific-legal-market-summary-june-2025