Raymond Doherty 8 Nov 2018 03:05pm

China in his hand

Philip Tsai, chairman of Deloitte China, has witnessed the country’s explosive growth first hand and, he tells Raymond Doherty, the economic powerhouse is set to dominate the world

Caption: Photography by Virgile Bertrand
Everyone understands that the future is in China,” says Philip Tsai, and it’s hard to argue. He should know: the current Deloitte China chairman has had a front row seat watching the Chinese economic explosion over the past 40 years.

He entered the job market straight out of university in 1981, two years after China opened up to foreign trade and investment by implementing free-market reforms. When he made partner in 1994 he was the firm’s 25th in Hong Kong. “Nowadays it’s on a completely different scale, we have around 670 partners,” says Tsai.

He continues: “My dad was a businessman, so I was encouraged by my parents to study accounting at university because they believed it was important for any company or organisation big or small, regardless of industry. I’ve witnessed a couple of economic cycles over the last four decades. What my parents told me all those years ago turned out to be so valid.” Since his formative years as auditor in the early 1980s, China has emerged as one of the world’s most dominant economies, with annual GDP growth averaging 9.5%, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history”.

According to the US Congressional Research Service, this growth has enabled China to raise an estimated 800 million people out of poverty. Wealth has more than doubled. The average Chinese person is more than twice as well off now as they were in 2006. China now has more ecommerce activity than any other country in the world.

A third of the world’s most successful tech start-ups are Chinese and it transacts 11 times more mobile payments than the US, according to the World Economic Forum. Which is all to say, things have changed. “It’s not just growth,” he says.

“I first started working in Shanghai almost 25 years ago. During that time we were primarily providing services to multinationals that had operations in China. Some helped the most forward-looking Chinese companies going for IPOs in Hong Kong.” Now Shanghai is an international business hub and Chinese companies flock to global stock exchanges.

As the economy has expanded so has Deloitte’s presence, with Tsai moving steadily up the ranks. In 2000 he became national HR partner “not because I’m an HR expert, but because I knew about the profession, the firm and the people”, and was promoted to the firm’s management team. He was then appointed as one of the group audit leaders in Hong Kong before serving as vice chairman and now chairman of Deloitte China. During that time he was also elected as president of the Hong Kong Institute of Certified Public Accountants.

Tsai describes himself as a “people person”. He has an easy manner and is obviously suited to a public-facing role. He’s of the view that no matter how complex and varied the market and the firm become, it’s all still founded on building relationships with clients, and communicating how you can solve their problems. “I think I’m an integrator and a guardian rather than a driver. I can be innovative but I like getting people together.”

“Whatever we call ourselves, I see us as providers of professional services. We need to deal with our clients; to understand what they would like to have, how we can help. This attracted me to the profession in the first place. I still enjoy talking to clients and understanding the issues; working together with colleagues to come up with solutions. Although I don’t have as much time to do that any more.”

But as chairman of the firm he is quite clear about what he wants to achieve. “We have our objective of being undisputed leader in professional services, in China as well as globally.” He wants the regional firm “to be heard at the global level” and to know “how the rest of the global network is going to assist us in achieving our objective to become the undisputed leader. To make sure we have our fair share of the resources invested in the region.”

While the three biggest firms in the country are PwC, Deloitte and BDO, the Big Four do not enjoy the market domination they have in the UK and US. There are 3,536 A-share listed companies in China and only 222 are audited by the Big Four (6.3%), as of 2017. Compare this to 99 of the FTSE 100 audited by the Big Four in the UK at the moment. Many regional firms provide audit services to locally listed companies in Asia. But for the larger Chinese companies that have their shares listed in Hong Kong or on overseas markets, more and more are engaging the Big Four because of their superior global networks. “A lot of them are undergoing merger and acquisition activities in other places and need support on the ground. Chinese companies are investing in Africa – they need us.”

To enhance its global connectivity Deloitte is consolidating its regional firms. It announced in July that it was merging its operations in Australia, China, Japan, New Zealand and south-east Asia to create Deloitte Asia Pacific. To help smooth the transition, Deloitte pumped in an extra $321m of investment, spread across all five areas. It hopes to “create a $10bn business by 2022”. Deloitte Asia Pacific launched in September this year, with a total of 44,500 professionals across the new business. In 2016 the firm combined its UK and Swiss operations with its Belgian, Danish, Dutch, Finnish, Icelandic, Norwegian and Swedish member firms, to create Deloitte North West Europe.

Unsurprisingly, regional consolidation is currently taking up quite a bit of the executive team’s time. But you get the feeling Tsai enjoys the opportunity it allows him to get in a room and talk. Which is something he does a lot. “I travel around the country talking to partners from all offices and all service lines, listen to what they want and convey that to management. In places like China you have to be aware that, fortunately or unfortunately, a name card with ‘chairman’ sometimes carries a bit of weight.

I pay a visit to clients, potential clients, government officials, regulators, you name it. While the skills required to succeed in his role are established, he is acutely aware that the role of the accountant has evolved in recent years, from so-called bean counter to all round business adviser. “When I first started almost 40 years ago, our job was to finish off the engagements, whether it was audit, tax, IPOs, or any advice on things clients didn’t know about because we are the experts and professionals. We would send them the reports, bill them and that would be the end of the working relationship. But the business environment has become more complicated. Clients are coming to us not just for the traditional services but also advisory, risk management, HR and business consultancy. Not to mention fintech and hi-tech strategies and operations and financial transformations. These adviser engagements have sprouted over the last decade or so.

“We used to go to the business schools and the accounting department to look for potential graduates. These days we go to the engineering departments. We look for the STEM students.” One reason why Tsai, and many others, predict that the future is in China is its determination to beat the competition on technology and innovation. That includes telecommunication, big data, AI, robotics, space technology and ecommerce. As Mike Moritz, a venture capitalist at Sequoia Capital who backed Google and PayPal, argued in a recent Financial Times column: “China is winning the global tech race. For Westerners, it should be disconcerting.” How large financial services firms such as Deloitte change and adapt to the challenges and opportunities presented by tech and automation will determine their long-term survival.

In a recent speech at the Shanghai National Accounting Institute, Tsai flagged some concerns. He called on the Chinese government to accelerate its digital transformation in “order to cope with challenges in the digital era”. Although China’s digital economy is now a force to be reckoned with, he argued, its companies will continue to face many challenges, including “heavy reliance on foreign know-how, weak innovation capabilities, talent shortage, lack of tolerance on failure, and a low degree of corporate digitalisation.” For the profession, he predicts that nearly 40% of accounting work could be replaced by automation – mainly repetitive and manual financial processes. AI, blockchain, cloud computing, data analytics and robotics (ABCDR) are “definitely the future”.

“There will be a redefinition of jobs for professionals,” believes Tsai. He argues that professionals have to use judgement and create relationships. With ABCDR picking up the more “mundane” processes, they will have more time to spend on “important and significant areas”. He also predicts the emergence of a ‘Humbot’ (Human + Robot) model, leveraging the “experience, intelligence and creativity of human beings while relying on the efficiency and accuracy” of robotics.

While some of the challenges Tsai and his clients face are somewhat predictable – increased competition, regulation – others pop up unexpectedly to change the status quo. Earlier this year, US president Donald Trump started a trade war with China by taxing Chinese exports including solar panels, steel and aluminium. China has responded in kind. The confrontation between the two largest economies in the world has since escalated. Over the past few months Trump has accused Beijing of inflicting “abuse” on US workers who lost their jobs in the years after China joined the World Trade Organisation and claimed China was trying to influence the US midterm elections.

“A glass is easily broken, but difficult to repair,” was the response from China’s foreign minister Wang Yi. Based in Hong Kong, an economy powered mainly by financial transactions, Tsai is aware of the possible ramifications. “We are definitely keeping a close eye on this and I’m sure that certain businesses will be affected. There will be casualties on both sides. We will see whether we could leverage on those opportunities in providing the appropriate services.” Outside his work with Deloitte, Tsai keeps busy. The government recently recognised him with an award for his contribution to Hong Kong and for his dedicated public and community service.

A distance runner in his younger days, he likes to get out for a jog when he can to help him relax. He says that he comes up with some of his best ideas while running. “I enjoy reading but unfortunately because of time I only get to read a couple of pages a day,” he says. Does he ever completely switch off? “Clients, colleagues, people are always looking for you. With different time zones, it’s around the clock.”

His solution is to “squeeze something you enjoy” around all of the emails, video calls and meetings. “Instead of work/life balance, which I think is a misnomer, it is about a work/life equilibrium.” He’s ambiguous about his future – but is sure it will be happening in China.