Foreign law firms are facing tough pressure in China as trends shaping the legal industry become a challenge.

Just last week, both good and bad news rocked law firms doing business in Asia. 

The bad:  New York law firm Fried, Frank, Harris, Shriver & Jacobson LLP said it plans to close its offices in Shanghai and Hong Kong. 

Like Us on Facebook

The good:  Global law firm Dentons announced a merger with mainland China's Dacheng to create the world's largest law firm by lawyer count.

These developments put mounting pressure on foreign law firms to survive in China.  Observers say foreign lawyers seeking a job there must be tough enough to compete not only with hundreds of international firms, but with thousands of Chinese companies. 

"In China the competition is fierce for everything," said Eric Piesner, a Morrison & Foerster LLP partner, in charge of its Asia offices. "And it's growing more competitive by the month," he added.

Foreign firms have been doing business in China since the early 1990s, when the Chinese government also allowed local lawyers to run their own private firms.

But the government prohibits foreign lawyers from practicing Chinese law including appearing in Chinese courts and hearings.  Such restriction forced them to forge partnerships with local firms.

But mergers can be harder than one can think.  For one, tough scrutiny by Chinese regulators can be a potential hurdle to such partnerships. 

"It is difficult for people to share business," MWE China Law Offices managing partner John Huang said. "It's hard to team up. Those types of things you cannot change in one day."

Chinese regulators have yet to approve the Dentons-Dacheng merger. Dentons was a product of a merger, which makes it a bit of a veteran in forging partnerships. 

The merger would be structured through a Swiss Verein arrangement.  This means it would have several partnerships operating under a common brand, and profits generated by each partnership are kept separate.

Fried Frank's decision to close operations in Hong Kong and Shanghai cited difficulty in making profit in China.

Of all the firms in China, "there might be 10 that have any kind of meaningful practice over there," said legal consultant Peter Zeughauser.

Tagsforeign law firms, Pressure, dentons, dacheng