BEIJING – China’s government is trying to curb the power of the Big Four, especially in the audit domain, according to reports from Bloomberg citing discussions with high-ranked partners within the Chinese organisations of Deloitte, PwC, EY and KPMG.

The report by Bloomberg suggests that China’s Ministry of Finance has asked state-owned enterprises to stop relying on the Big Four for their audit and financial advisory needs.

Formally, the Ministry warned against the use of the Big Four due to data security considerations. The Big Four are all Western-headquartered groups, and while they can store their data in China, the government is concerned that sensitive information could reach Western shores.

Sources close to the matter however told Bloomberg that there is more going on in the background: the trade was between China and the United States, which has escalated in recent years.

In March 2022, the US Securities and Exchange Commission (SEC) announced that five Chinese technology companies could be delisted if they could not meet US accounting standards – and did precisely that to 97 companies by May.

This move has placed huge pressure on Chinese technology stocks – shares of Tencent and Alibaba for instance dropped considerably. In response, China is now pushing its companies away from using Western professional services groups, using its span of control in the state-owned landscape.

State-owned enterprises in China are going forward urged to hire local Chinese or Hong Kong firms when their current contracts expire. Offshore subsidiaries will meanwhile still be allowed to use the Big Four as their auditors, but the government is reportedly also looking into how it could ‘influence’ foreign relationships.

The move to curb the power of the Big Four is not entirely new, but marks a significant step up in its efforts. In 2012, China’s Ministry of Finance launched a five-year plan requiring the audit and advisory giants to form partnerships with local firms, meaning that Big Four firms only have a ‘license to operate’ in close conjunction with a Chinese partner. This move concepted the establishment of Deloitte Hua Yong, Ernst & Young Hua Ming, KPMG Huazhen and PwC Zhong Tian.

In 2019, the Chinese government formed an expert group with the task of creating a Chinese accounting standard. As of 2023, the Finance Ministry has appointed 54 experts to the group – only two of whom come from the Big Four.

Meanwhile, in China’s Big Four scene, EY is set to sever its ties with the global EY organization after the local Chinese member firm announced its decision not to participate in the split plan currently being worked on globally. (Source: Consultancy.eu)