In focus: US firms decouple China operations amid geopolitical tension

For US firms such as Mayer Brown, demerging their China operations becomes an effective alternative to navigate through geopolitical tensions.
In focus: US firms decouple China operations amid geopolitical tension

As geopolitical tensions between China and the United States continue, some US firms have taken the alternative approach of separating their China businesses to maintain a presence in the market.

The latest is law firm Mayer Brown, which announced on May 2 that it will separate its China operations from its global practices. The Hong Kong partnership will revert to its legacy name, Johnson Stokes and Master (JSM), a firm founded in Hong Kong that merged with Mayer Brown in 2008.

By the end of this year, Mayer Brown's Hong Kong practice and its representative offices in Beijing and Shanghai, comprising over 150 lawyers in total, will operate under the JSM name.

The firm also plans to establish a new Hong Kong arm under the Mayer Brown name and maintain connections with its other offices in Asia.

US firms have been under pressure to operate as well as invest in China, including Hong Kong, amid the geopolitical tensions, economic slowdown, regulatory crackdown on the internet and property sectors, and tightened regulations under the new anti-espionage and data laws.

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Venture capital firms GGV Capital and Sequoia also have separated their Asia businesses from the US.

GGV Capital split into separate Asia and US entities, while Sequoia established two independent firms: one for China, and another for India and Southeast Asia. The Chinese firm, formerly known as Sequoia Capital China, has been renamed HongShan.

“The fundraising and investment environment has been rather challenging for US dollar funds of private equity and venture capital firms,” said the managing director of a Beijing-based private equity firm.

“For investors and companies from the US, even if they are interested in the Chinese market, they are under great pressure to execute, or to do it publicly,” the person told AsianInvestor.

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In the case of Mayer Brown, it has been in a difficult situation in Hong Kong. In 2021, it dropped the University of Hong Kong as a client when the university sought to remove a statue commemorating victims of the 1989 Tiananmen Square protests from its campus.

With the approaching US presidential election, the situation becomes more sensitive and delicate. For firms still interested in the market, separation is an alternative, but its impact on future operations, from mobilising global resources to retaining talent, remains uncertain.

Asset owners and institutional investors in the region may need to adapt to this new norm, as longstanding partners or professional service providers undergo turbulent transitions.

However, some view these cases as isolated incidents.

“I’d say they are isolated cases but somehow coincide with similar outcomes,” said the senior executive from an asset management firm in Hong Kong.

“Firms would consider their own business strategy and risk management in making decisions about where they should have a presence and business exposures. There would be movements depending on market opportunities,” the senior executive told AsianInvestor.

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