China asks large state financial institutions to drop auditor PwC, say sources

Hong Kong: Chinese regulators have in recent months asked several large state-owned clients of PricewaterhouseCoopers (PwC) to drop the auditor as it braces for penalties over its work for troubled property developer Evergrande, said two sources.

The regulators, mainly the Ministry of Finance (MOF), have given so-called "window guidance", or unofficial, verbal instructions to big state-owned financial institutions since at least April, said the sources who declined to be identified as the information was confidential.

Bank of China (BOC), China Life Insurance, PICC, China Taiping Insurance and China Cinda Asset Management, are now among the more than 30 listed Chinese companies that have axed PwC as auditor this year, according to a Reuters calculation based on corporate filings.

PwC declined to comment. The MOF did not respond to a faxed request for comment. BOC, China Life, PICC, China Taiping and China Cinda did not immediately respond to a request for comment.

The MOF is the biggest shareholder in more than 20 large state financial institutions including the Big Five banks, four insurers and four bad debt managers, with stakes held directly or via other state entities such as Central Huijin. The ministry is also the primary regulator of auditors in China.

It is not immediately clear if all state firms had received the "window guidance" from the ministry or other government bodies.

The sources said the guidance was one of the main reasons for the client exodus from PwC, putting further pressure on the company that has responded by cutting staff numbers and halving the pay of some senior partners.

BOC, China Life and PICC were among PwC's biggest clients in terms of accounting fees, which last year paid nearly 200 million yuan ($28 million), 64 million yuan and 41 million yuan, respectively, the filings showed.

Client exits

Other state-owned companies including top energy producer PetroChina and leading railway and highway builder China Railway Group have also recently ditched PwC.

China Telecom, another large client, last week said it was looking to appoint KPMG as its external auditor for 2024, replacing PwC in the middle of the financial year.

Non-state clients have also been affected. Shenzhen-listed Mindray Bio-Medical Electronics and Shanghai-listed Eastroc Beverage in May both canceled plans to reappoint the firm as their auditor, according to their filings.

Last year, the MOF and other regulators said state-owned firms and listed companies should be "extremely cautious" about hiring auditors that have received regulatory fines or other penalties in the past three years.

PwC has been under a lot of pressure lately as a result of its work for China Evergrande Group, which was ordered to be liquidated in January after it defaulted on debt repayment obligations.

Chinese authorities have been probing PwC's role in auditing Evergrande after the securities regulator accused the troubled property developer in March of a $78-billion fraud.

PwC had been Evergrande's auditor for almost 14 years until it resigned in early 2023.

As auditor for about 110 domestically-listed companies as of March this year, per its website, PwC has built a substantial presence in China over the last couple of decades, with business interests ranging from auditing, consulting to tax services.

It was also the market leader among all accounting firms in the country, with main onshore arm PwC Zhong Tian LLP recording revenues of 7.92 billion yuan in 2022, making it China's top-earning auditor that year, according to official figures.

($1 = 7.1600 Chinese yuan renminbi)