The demand for capital in the Republic of China, whose 9.5 percent growth has spurred its government to rein in that rapid rate for fear that its economy could overheat, is also spinning off steps to spruce up the country's accounting procedures.The country's rising capital market needs mean that accounting methodologies should be tailored to suit the needs of that market, asserted Liu Zhongli, president of the Chinese Institute of Certified Public Accountants, during a recent speech in Brussels.
Zhongli, who was addressing members of the Institute of Chartered Accountants in England & Wales, emphasized his country's theme of protecting the interests of investors and creditors.
At the conference, Zhongli, whose past posts include finance minister and president of the National Social Security Fund Council, told attendees that China restored its CPA system in 1980. Since then, he continued, the Chinese government and the CICPA had implemented a series of reform measures aimed at promoting the development of professional integrity.
Now CPAs, he said, had become one of the most popular professions in China.
At present, the CICPA has over 5,000 organizational members and over 130,000 individual members, of whom over 60,000 were practicing.
China, whose population is now over 1.2 billion (comprising about one-fifth of the world population), has seven Sino-foreign co-operative joint accounting firms, said Zhongli. There are also 27 member firms of international accounting firms, seven liaison firms of international accounting firms and 20 representative offices of international accounting firms.
Several hundred overseas candidates have passed CICPA exams, and more than 30 of them succeeded in applying for the Chinese CPA qualification.
Also active in the accounting profession in China and neighboring regions is the Association of Chartered Certified Accountants, a British body, which has offices in Hong Kong, as well as in three other cities in mainland China.
China looks abroad
Zhongli may have had in mind the fact that, despite the heady expansion of his country's economy, foreign direct investment in China has actually been falling.
In March, China's inward investment, at $5.4 billion dollars, was down 7 percent when compared with the year-ago period. This was the second consecutive drop following February's reported amount of $3.9 billion dollars - a 7 percent dip from the same period a year earlier.
On the economic front, Zhongli said that by the end of last year, China had nearly 1,400 listed companies, with 111 of them listed on overseas markets with an aggregate market capitalization of $450 billion.
Government bonds and financial bonds dominate the Chinese bond market, with corporate bonds taking up a minor proportion. Since 2002, the system of qualified foreign institutional investors had developed rapidly, with many foreign institutional investors acquiring the qualification.
However, in a "warts-and-all" comment, Zhongli said, "The Chinese capital market is short in history, poor in infrastructure, imprecise in institutional design and lacks matching reform measures."
He referred to "deep-level problems and structural conflicts."
Zhongli revealed to the audience of chartered accountants problems with insufficient direct finance versus excessive indirect finance, the non-standard governance structure of market subjects, poor market structure, and insufficient market functions, as well as the need to upgrade the efficiency of resource allocations.
He also referred to an outbreak of scandals concerning the quality of accounting information for the capital markets a couple of years ago, a subtle reference to Chinese banks' problems with loans that turned sour. Those, in turn, had a serious impact on the global capital market, Zhongli explained. Since then, there has been more emphasis placed on cleaning up the accounting profession.
On the subject of convergence with international standards, Zhongli stated: "While performing its duties and responsibilities as council member of IFAC [the International Federation of Accountants], CICPA will also play a positive role in IFAC decision-making concerning material issues and the international accounting/auditing field."
Those close to accountancy regulation in Europe's capital city are well aware of moves to bring Japan into international standards convergence. Some also see India as well as China on the horizon for international financial reporting standards, with South America being brought in via U.S. generally accepted accounting principles.
Reinhard Biebel, at the European Financial Advisory Group, which coordinates accountancy standards issues with the European Commission, echoed the feeling that China should certainly move toward "the convergence fold."
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