PricewaterhouseCoopers has seen a major loss of major clients in China after pressure from Beijing, which has urged state-owned companies to cut ties over the firm’s involvement with troubled property developer Evergrande.
Over the past few months, China’s Ministry of Finance has issued “enforceable guidance” – informal verbal instructions – to some of the country’s largest state-owned financial institutions, advising them to end their relationships with PwC, Reuters reported.
Recent corporate filings reveal that prominent clients such as Bank of China, China Life Insurance, BICC, China Taiping Insurance and China Senda Asset Management have all spun off from PwC. The trend has seen PwC lose more than 30 listed companies on the Chinese stock market in 2023 alone.
These departures have resulted in significant financial losses for PwC, amounting to hundreds of millions of dollars in lost fees. For example, the Bank of China paid PwC $28 million last year for audit services. In response, PwC China has begun taking cost-cutting measures, including cutting staff and partner salaries.
The Ministry of Finance, which owns large stakes in many of China’s largest financial institutions and regulates auditors, is believed to be driving the changes. However, PwC partners in China are still unsure whether these client losses are driven by regulators or independent decisions by the firms. PwC China declined to comment on the situation.
PwC China, the group’s third-largest firm with about 20,000 employees, has been under scrutiny for its 14-year tenure as auditor for Evergrande. Evergrande, once China’s largest property developer, defaulted on more than $300 billion in debt in 2021, sparking widespread market panic and a series of defaults across the property sector.
Chinese regulators this year said Evergrande had committed fraud, overstating its sales by tens of billions of dollars between 2019 and 2020, and ordered the company to be liquidated.
In 2022, the Ministry of Finance advised Chinese companies to be “extremely cautious” about hiring auditors who have recently been fined or sanctioned. The directive is part of a broader strategy by Beijing to reduce reliance on the Big Four global accounting firms and promote domestic auditors from China or Hong Kong, with the aim of enhancing data security and limiting Western influence.
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