14 May 2012

China orders Big Four to localise practices

The Chinese government has issued new rules that will see the Big Four’s practices in China transformed into local firms when their 20-year joint venture agreements expire

The four – which have until the end of 2017 to comply – will have to form special group partnerships with limited liability.

Each localised office will need to have at least 25 qualified partners, 100 Chinese certified public accountants and registration capital of RMB10m ($1.6m).

Deloitte, Ernst & Young and KPMG will see their joint venture agreements run out in August this year. PwC has a while longer: its agreement expires in 2017.

The firms currently have a presence in more than 10 of China’s largest cities as well as offices in Hong Kong and Macau. Together they generate revenue of RMB9.5bn ($1.5bn) – or 26% of the industry total.

The Ministry of Finance said that it was following the example set by other jurisdictions. “In most countries,” it added, “the Big Four are owned by local partners operating more like a franchise than a typical multinational corporation.”

The firms have indicated that they welcome the new requirements and say that their businesses are on course to make the transition.

E&Y, whose China practice is the fourth largest member firm by headcount in the global network after the US, UK and Canada, said: “The new measures are in line with E&Y’s existing strategy to accelerate localisation of our business in China – reflecting our deep commitment to the development of our China practice and its people, as well as the quality service we provide our clients.”

Deloitte is  also currently facing a legal challenge over conflicting laws between the Chinese and US governments


Julia Irvine