Accountancy sector

Accountancy sector revenue in China hits £16bn in 2020

Accountancy sector revenue in China hits £16bn in 2020

China’s auditing, accountancy sector, and tax services industry achieved revenues of RMB 113.8 billion ($16.4 billion) in 2020.

And the number of firms operating in this sector rose from 107,764 in 2015 to 136,200 in 2019, representing a growth rate (CAGR) of 26.3%, according to the China Briefing website.

It said: “The auditing and accounting industry in China is highly competitive, with several domestic and international firms vying for market share. The ‘Big Four’ international accounting firms – Deloitte, PwC, EY, and KPMG – have a significant presence in the Chinese market, but they face strong competition from domestic firms, such as Ruihua Certified Public Accountants and ShineWing Certified Public Accountants.”

The Big Four firms’ market share in China’s auditing industry was around 24% in 2020, with domestic firms accounting for the remaining 76%, according to a report by the China National Institute of Standardization.

In addition to the Big Four, other large foreign accounting firms operate in China, including Grant Thornton, BDO International and Crowe Global. These firms have a smaller market share but still, play a significant role in the industry.

According the China Briefing, foreign accounting firms in China face many hurdles including regulatory restrictions on their operations and competition from domestic firms. It said: “In recent years, the Chinese government has implemented measures to strengthen the regulatory environment for auditing and accounting services, which may lead to increased scrutiny of both domestic accounting firms and foreign firms operating in China.

“Despite these challenges, foreign accounting firms are likely to continue to play a significant role in China’s auditing, accounting, and tax industry, particularly in serving multinational clients and in providing expertise in specialized areas, such as cross-border transactions and financial reporting.”

It added that domestic accounting firms in China are attractive to some clients because they better understand local business practices and regulations, and they can offer services at a lower cost than international firms.

The report also highlighted some trends that are shaping the industry. These include growing demand for digital transformation services, the growth of sustainable investing, and the adoption of new technologies including blockchain and artificial intelligence (AI).

China is seeing a growth in demand for sustainable investing, as investors become more aware of the impact of their investments on the environment and society. This includes services such as ESG (environment, social, and governance) reporting, impact investing and sustainability consulting.

New technologies such as blockchain and AI are also reshaping the accounting, audit and professional service sectors in China.

 

Evolving regulatory environment

China Briefing said it was “challenging for foreign investors in this area to navigate the country’s regulatory environment, which can be subject to frequent changes”. For example, in 2012, multiple ministries jointly issued a new regulation that required Chinese-foreign cooperative accounting firms to transform and localize their operations. Under the regulation, after the five-year transitional period (around 2017), these foreign accounting firms need to have at least 80% locally licensed partners (those holding Chinese CPA certificates) in order to continue offering audit services to Chinese companies.

“This move was seen as a way to increase oversight and transparency in the industry, but it also posed challenges for foreign firms that had to reduce the ratio of overseas partners who do not have CPA qualifications in China from around 50% to below 20%.

Another issue facing foreign investors is the challenge of complying with local regulations and standards. China Briefing said: “China has its own set of accounting and auditing standards that differ from those used in other countries. Additionally, the country has a complex tax system that requires careful management and compliance. Foreign investors need to be prepared to invest in building local expertise and understanding local regulations and standards in order to succeed in the market.”

“To tackle these challenges, the Chinese government has been taking steps to liberalize the sector and attract foreign investment. In April 2021, the Chinese Institute of Certified Public Accountants, or CICPA, issued the Development Plan of Accounting Sector in China (2021-2025) to encourage the development of the accounting and auditing industry, while also calling for further opening up of the market to foreign investment,” the report said.