Navigating Change: Insights into China's Evolving In-House Legal Market in 2024

When China reopened from lockdowns in late 2022, there was an expectation amongst some in the in-house legal community that there would be, at least, a partial return to “business as usual”— although the geopolitical climate, coupled with growing strife within the domestic economy, tempered those expectations to a large degree. It has now become apparent that we will unlikely see a return to those pre-COVID days of strong growth for most industries and companies operating in China, and for in-house counsel working for those corporations, these are uncertain and difficult times. According to the State Administration of Foreign Exchange last month, China's foreign direct investment (FDI) totaled $33 billion on a net basis in 2023, roughly representing a decline of 80% from 2022, with FDI decreasing for a consecutive year. From my discussions with general counsel since the start of the year, many multinational companies have chosen to implement internal cost controls and restrictions.

The above developments, amongst others, mean it is likely there will be fewer opportunities for in-house legal counsel at all levels looking for a meaningful career move. One of the first areas during any downturn that companies will deprioritize is headcount, and this year will be no different. At the same time, there will be pressure on legal departments in China to “do more with less” - a trend we are hearing from legal teams globally. Multinational companies across all industries are facing challenges: to overcome increased regulatory hurdles, handle more dispute resolution cases, meet growing compliance obligations, and provide day-to-day legal support with greater responsiveness.

What should in-house counsel (and general counsel or heads of legal, in particular) be considering when faced with such challenges?

Build trust and develop empathy:

• Owing to the impact of geopolitical tensions between China and the West, general counsel and heads of legal should be closer to not only their regional or country leadership teams but also to senior leadership at headquarters as well. This means building up and maintaining a high degree of trust from management teams overseas, some of whom may have a distorted view of the current legal and political environment in China and would therefore better served by advice given by legal counsel based in the country.
• It also means developing empathy with decision makers who have different pressures placed upon them, which may be open or hidden from view. Of course, it doesn’t mean that legal departments should be willing to allow the business far greater leeway when handling deals and projects, but by being in “the other person’s shoes”, legal counsel can have a greater appreciation of the challenges and perhaps develop a more balanced approach when managing risk.

Communicate even more with stakeholders:

• In China, some business leaders tend to be more skeptical about the true value of the legal department as a commercial partner. In which case, it is essential that legal counsel, irrespective of seniority, should be emphasizing recent business achievements and “wins” that can be attributed to the work of the corporate legal team. The general counsel is no longer ‘the lawyer in the room’ or ‘the department of no’ - they are strategic business partners to the C-suite and board of directors. Being willing to openly speak about the advantages of working more closely with lawyers should help to foster transparency and in turn, build up trust.
• Developing an efficient approach to handling client enquiries can sometimes go a long way to alleviating pressure on a day-to-day basis. Taking on a more methodical approach to managing queries and adopting a “helpdesk” attitude to one’s responsibilities will help clients feel their concerns have been received properly. Whilst the legal team may have to help clients to narrow down their enquiries by asking for greater detail and expected outcomes, this ought to further develop a legal function’s ability to address—and even exceed—expectations placed upon it by business teams to add value on the commercial side.

Taking the initiative to build trust and open channels of communication between a China legal function and senior leadership teams (both at regional and global levels) can help ease the pressure on legal counsel and prove that legal can be even more of a trusted partner when times get tougher.