Hong Kong’s corporate lawyers test boundaries as Beijing’s influence grows

When Hong Kong justice minister Paul Lam last month hailed the Chinese territory’s robust legal system and pool of “diversified” legal talent, he touched on what is both the biggest draw for business and the biggest potential blot on their future there — the rule of law.

With more than 12,000 lawyers and hundreds of law firms including dozens of foreign practices, Hong Kong has long enjoyed a reputation as a global legal hub.

The territory’s common law system, large capital markets and active financial activities offer ample opportunities for top global firms. London’s “magic circle” law firms and many of the US’s prestigious “white shoe” firms have an office presence in the city.

Hong Kong was promised a limited degree of local autonomy for 50 years, an arrangement known as “one country, two systems”, under its handover from British to Chinese rule in 1997. Its internationally recognised common law system was a cornerstone of that model and the city’s success.

But legal practitioners, including corporate lawyers, are concerned the broadening scope of a sweeping national security law could jeopardise the independence of the city’s legal system, a legacy of British administration, as Beijing tightens its grip.

“There is general concern . . . that people are not fully understanding where the boundaries lie,” said a senior corporate lawyer with a global firm who has worked in Hong Kong for more than two decades. The seven corporate lawyers who spoke to the Financial Times for this article have requested anonymity because of the sensitivity of the subject.

Human rights and criminal lawyers have been the ones mostly caught in the crosshairs of the national security law since Chinese authorities imposed the law in 2020 in the wake of citywide pro-democracy protests. Hong Kong’s leader John Lee last month issued bounties totalling $1mn for the arrest of eight self-exiled activists, including two lawyers.

Hong Kong has also barred foreign lawyers from representing defendants in national security cases after media mogul Jimmy Lai hired a UK barrister to defend him against national security charges.

The crackdown on human rights has had a knock-on effect on corporate law firms. Chinese state-owned enterprises have over the past months dropped Mayer Brown, according to three people with knowledge of the situation. This came after the Chicago-founded law firm declined to represent the University of Hong Kong in a dispute over the removal of the “Pillar of Shame” memorial to victims of the 1989 Tiananmen Square massacre.

“In 2019 we were advised to reduce our reliance on US law firms as much as possible,” said a source familiar with state-owned enterprises. “This advice became mandatory this year, so we need to respond to directives from our higher authorities.”

Dentons, one of the biggest western law firms in China, is hiving off its operation in the country in response to Beijing’s intensifying regulation but has retained its Hong Kong operation.

Overall, there has been more “self-censorship”, said two senior corporate lawyers in Hong Kong, particularly as it relates to case selection and pro bono work. “Everyone has skewed towards more non-controversial subjects,” one of the lawyers said.

In recent years, “Hong Kong has transitioned very quickly from being an international to a China-focused financial centre”, said a senior corporate lawyer at an international firm who has been based in Hong Kong for more than a decade.

In this context, more multinational corporate clients might wonder whether or not long-term contracts should be written under Hong Kong law, two lawyers said. One of them, a senior corporate lawyer from a UK firm, added: “For arbitration . . . why don’t we think of Singapore? Why don’t we choose Singapore law as some sort of middle ground?”

Some overseas clients have been considering switching arbitration clauses in contracts out of Hong Kong. Hong Kong handled 344 new arbitration filings last year, compared with 357 in Singapore.

“We are prepared for the fact that now Hong Kong is a more China-facing city. Our clients are bound to be [Chinese] firms one way or another,” said the lawyer from the UK firm.

“But then whether Hong Kong as a city is more promising than Shanghai or Singapore, that’s a tricky question,” he said. “Maybe the answer is no.”

The territory’s slowing economy — with gross domestic product expanding just 1.5 per cent year on year in the second quarter compared with China’s 6.3 per cent — and weaker initial public offering activity are also putting pressure on the corporate legal sector.

The number of registered foreign lawyers in Hong Kong dropped from 1,533 in September 2018 to 1,428 in August, according to data from the Law Society of Hong Kong. The number of Hong Kong partners at Mayer Brown fell from 70 early last year to 62 in July, while Davis Polk & Wardwell saw its ranks in the city dip from 75 lawyers in late 2022 to 67 last month.

Foreign corporate lawyers from global firms, including US-based lawyers, are also less willing to relocate to Hong Kong than in the past, two corporate lawyers said.

Boston-founded Ropes & Gray this year decided to wind down their business restructuring practice in Hong Kong, citing changing client needs.

Mayer Brown, Davis Polk and Ropes & Gray did not respond to a request for comment.

For now, Hong Kong officials appear largely unconcerned about the city’s status as a legal hub.

A Hong Kong government spokesperson said: “The maintenance of the common law system, including its judicial system, in Hong Kong is one of the most important features of the principle of ‘one country, two systems’.”

Chan Chak-ming, president of the Law Society of Hong Kong said the territory still boasted an “independent judiciary with [a] fair and open common law system”. On the national security law, he added: “It is incorrect, as a principle, to imply that someone, for example a lawyer, can be above the law to the extent that equal application of the law to the lawyer will have a ‘chilling effect’.”

For some lawyers, the situation is more nuanced. “When you are talking about law, people don’t want risk,” said the lawyer who had been in Hong Kong for more than two decades. “They want certainty.”