PwC has seen a significant loss of major clients in China following pressure from Beijing, urging state-owned companies to sever ties due to the auditor’s involvement with the troubled property developer Evergrande.
Over the past few months, the Chinese Ministry of Finance has issued “window guidance” – informal, verbal instructions – to some of the largest state-owned financial institutions, advising them to end their relationships with PwC, Reuters reports.
Recent corporate filings reveal that prominent clients such as Bank of China, China Life Insurance, PICC, China Taiping Insurance, and China Cinda Asset Management have all parted ways with PwC. This trend has led to PwC losing over 30 companies listed on China’s 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 instance, Bank of China paid PwC $28 million last year for auditing services. In response, PwC China has initiated cost-cutting measures, including reducing headcount and partner pay.
The Ministry of Finance, which holds significant shares in many of China’s largest financial institutions and regulates auditors, is believed to be driving these changes. However, PwC partners in China remain uncertain whether these client losses are regulator-driven or independent decisions by the companies. PwC China has refrained from commenting on the situation.
PwC China, the third-largest network firm within the group with around 20,000 employees, has been under scrutiny for its 14-year tenure as Evergrande’s auditor. Evergrande, once China’s largest property developer, defaulted on over $300 billion in debt in 2021, causing widespread market panic and a series of defaults across the property sector.
Chinese regulators declared this year that 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 firms to be “extremely cautious” about hiring auditors with recent fines or penalties. This directive is part of a broader strategy by Beijing to reduce reliance on the Big Four global accounting firms and promote local auditors from China or Hong Kong, aiming to enhance data security and diminish western influence.