China Said to Ask Domestic Firms to Shun Big Four Accountants

Last year, citing concerns about potential privacy violations, the Chinese Communist Party forced several firms to give up their listings on U.S.-based stock exchanges, and blocked the efforts of others to list in the U.S.

At the same time, the Communist Party has, at times, seemed willing to cooperate with Western regulators. Last year, Beijing struck a deal that provided U.S. regulators with data on Chinese firms, eliminating the possibility that several would have been forced off of U.S. stock exchanges.

Report Comes Amid Tension
The Bloomberg report was published at a low point in relations between the U.S. and China. Early this month, the U.S. shot down a suspected Chinese spy balloon after it traversed most of the continental U.S. The presence of the balloon led Secretary of State Antony Blinken to cancel a trip to China that was seen as the beginning of an effort to restore dialogue.

Since then, U.S. and Chinese officials have had conversations at international gatherings, but those interactions were marked by U.S. warnings that China should avoid providing arms to Russia to support its invasion of Ukraine or risk serious consequences.

The House of Representatives Select Committee on the Chinese Communist Party was scheduled on Tuesday evening to hold a prime-time hearing entitled “The Chinese Communist Party’s Threat to America.” The hearing is expected to be the first in a long series of high-profile public forums in which members of Congress dig into perceived threats from China.

Data Security Concerns
Also on Tuesday, media reports revealed that the White House Office of Management and Budget had given all federal agencies 30 days to ensure that the Chinese social media app TikTok is removed from all electronic devices owned by the federal government.

As minor as it might seem on its face, the TikTok ban is actually a mirror image of some of the concerns driving China’s suspicion of Western auditing firms. The concern on the part of the White House is that ByteDance, the firm that owns TikTok, is collecting personal information about the app’s users, and making it available to the Chinese government.

U.S. officials frequently point to a Chinese law that obligates companies to assist state intelligence services in their investigations.

Experts Dubious

Some experts told VOA they were not convinced of the validity of the Chinese government’s fears about data security, especially because Western accounting firms are legally bound to protect the privacy of client data that is not part of publicly released reports.

“It’s an excuse. No other government or country has this problem,” said James Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies in Washington. “Beijing is paranoid about controlling the economic narrative and worries that the audits might give access to information about the problems of the SOEs that they regard as sensitive.”

Lewis added in an interview, “This is another part of China’s decision to separate itself from the global market and force other countries to accept China’s rules.”

Impact on Business May Be Small
Derek Scissors, a senior fellow at the American Enterprise Institute, told VOA that if the Bloomberg report is correct, and the Chinese government’s request went to state-owned enterprises only, the impact on foreign investment in Chinese firms might not be significant.

“Most foreign investment does not involve state-owned enterprises,” Scissors said. “If this is the only step taken, it will not have a big effect. If other firms are urged to drop foreign auditors, that could frighten investors.”

Scissors also said that the request would not necessarily cut off Chinese state firms from overseas listings.

“They can use foreign auditors just for [initial public offerings] if they ever want to list units overseas,” he said.

Rob Garver is a freelance writer. This article is published courtesy of the Voice of America (VOA). Rong Shi of VOA’s Mandarin Service contributed to this report. This article  is published courtesy of the Voice of America (VOA).