China Update: The In-House Legal Market & Covid, One Year On

A year ago, China and much of the Asia-Pacific region shutdown businesses, schools, the government and effectively any in-person operation as the coronavirus rapidly spread across the region and, subsequently, the world. The COVID-19 pandemic changed the face of 2020 and how business has been done ever since.

Work from Home

Whilst some private and state-owned domestic companies expected employees to return to their desks from early March 2020 and onwards, most multinational corporations have afforded their legal teams the option to work from home (WFH) and to continue to do so ever since. This, in turn, has led more companies to introduce remote working IT solutions, which would have unlikely been introduced prior to the pandemic.

 Although the pandemic has largely been well-controlled by the authorities in China, it’s possible that multinational companies, in line with what is a seemingly global trend, may permanently retain a WFH policy in China. Generally, most clients and candidates I have spoken with have seemed happy with the arrangement, especially since many have young families to care for. This more permanent arrangement may help more in-house counsel to better balance their work and personal lives.

Technology

The pandemic has, in fact, resulted in the rapid digitalisation of business operations in China. With the shift to working from home, GCs had to figure out how to ensure the right technology was in place to successfully conduct business outside the office. Now, they are charged with continued review of technology, ensuring that the implementation process is smooth and that new data privacy laws will be and are being met.

China released a draft version of its Personal Information Protection Law (PIPL) for public consultation, but there are no further updates as to when PIPL will be passed. Initial assessments suggest many provisions within PIPL are inspired by the EU General Data Protection Regulation. In summary, PIPL will apply to any organization and individual who processes personal information in China. For companies based outside of China, the PIPL is also applicable if they provide services or products to people in China or analyze and evaluate the activities of people in China. Multinational companies operating in China will therefore likely have to consider introducing or tightening existing measures such as enhancing general security control; encryption of databases; and data classification/retention/loss prevention relating to their Chinese operations. Some companies have begun to train members of their existing teams on data privacy as well as hiring counsel with expertise in this area.

Relating to emerging technology, more organizations are using AI; late last year, Thomson Reuters reported that most legal tech patents in 2019 were filed by China-based applicants given the relative shortage of lawyers in China. Cloud computing has continued to grow as well. According to Canalys, cloud infrastructure services spend in China grew 65% in Q3 2020 to exceed US$5 billion for the first time. China remained the world’s second largest market, accounting for 14% of global investment.

Hiring

With a few exceptions, multinational companies across most industries have maintained hiring freezes for their China legal and compliance functions since the beginning of the pandemic. Most multinational corporations in China have been hesitant to loosen budgetary restrictions for their legal functions ever since. Interestingly, though, it has been reported that China’s GDP grew by 2.3% in 2020 at a time when most of the world’s economies shrunk. However, according to an index created by the China Institute for Employment Research at the Renmin University of China, the number of job offers fell by 17 percent and the number of jobseekers dropped by 7 percent in the fourth quarter of 2020, suggesting that China’s job market remains quite weak despite recent growth in GDP. Under the same index, it was noted that foreign-invested companies in China, including joint ventures, became the most cautious employers, with new positions falling by double digits in every quarter in 2020.

It is a little confusing as to why, though. Apart from some multinational companies in the healthcare sector whose businesses have rapidly developed since COVID-19 outbreak last year and consequently hired several lawyers, the reluctance to resume hiring in the country remains. One possible reason is that multinational companies are still affected by the pandemic outside China and therefore are unwilling to allow additional headcount across their businesses globally.

In my own view, more MNCs will need to review their current hiring policy for the legal and compliance functions as the economic environment changes. China is generally a difficult legal and compliance jurisdiction for most MNCs to operate within, so experienced, independent and assertive lead counsel are needed. Companies should consider whether they are getting the most out of their current legal and compliance teams, and if not, decide whether it would make sense to review their structure and operations with experts who can offer advice and solutions to improve the efficiency of the legal function or to elevate the impact and performs of their lawyers.

As COVID continues to impact China and the rest of the world, general counsel and their legal teams are still in the trenches; however, there is a light at the end of the tunnel. With national vaccination programs now underway in China and other developed countries, there will be a greater degree of certainty in the Chinese job market and hopefully, more multinational companies revisiting their hiring strategies in China by autumn.