Is China investing enough in accounting? | China Accounting Blog | Paul Gillis

Is China investing enough in accounting?

Accounting is important to China’s development. Zhu Rongji saw that early on and directed considerable resources to develop a CPA profession in China. An investment in accounting is an investment in governance. So is China investing enough in governance?

The chart below measures the growth rates in revenue of the Top 100 CPA firms in China and separately the Big Four and local firms that make up the Top 100 CPA firms. I have measured them against the growth in GDP. The spend on ac-counting fees is an investment in corporate governance.

What the table shows is that over the last ten years, revenue of accounting firms in China has grown at an average annual rate of 22%. Big Four and local firms have grown at the same average rate of 22%, but their annual performance varies quite widely. GDP growth during this period averaged 10%, meaning that the investment in accounting services was more than double the GDP growth. That is great news. Not only has investment in accounting kept up with the growth in the economy, there has been additional “catch-up” investment. Clearly, the catch-up investment is needed and it probably needs to continue for another decade at least.   

The difference between Big Four and local firm growth rates is telling. Big Four firms had a higher growth rate than local firms until 2008, when the financial crisis hit. The Big Four actually shrunk by 12% in 2009. Local firms also slowed down in 2009 but still grew at 24%. The Big Four returned to growth in 2010, but have not been able to match GDP growth since. I think that is the future for these firms in China. The Big Four will struggle to find growth equal to GDP growth, while local firms will grow faster. 

But I see a continued investment in accounting, and that is good. 

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