Magazine article Financial Management (UK)

In the Red: Although Joint Ventures with Western Companies Are Starting to Bring Modern Management Accounting Techniques into China, the Profession as a Whole Is Still Woefully Underdeveloped. Russell Brown Explains Why the Chinese Accountant's Lot Is Not a Happy One

Magazine article Financial Management (UK)

In the Red: Although Joint Ventures with Western Companies Are Starting to Bring Modern Management Accounting Techniques into China, the Profession as a Whole Is Still Woefully Underdeveloped. Russell Brown Explains Why the Chinese Accountant's Lot Is Not a Happy One

Article excerpt

Accountants in China have a rather tough time. They are often viewed by senior management as expensive cost centres with little real value to add. Their image is a throwback to the days when they were seen as numbercrunchers, required only to check that all was in order and to keep the governing authorities at bay. Add to this low esteem the occasional request to adjust a few numbers here and siphon off a few million renminbi there, and their position becomes even less enviable.

There are around 60,000 certified public accountants in China and 4,000 accountancy firms, most of which employ fewer than 100 finance professionals. There are also around 30 larger local firms, a number of international players in the middle ground and the Big Four. Most of them focus on audit services, which, although they involve a good grounding in compliance rules and risk identification, don' necessarily teach resourceful thinking. There are no management accounting qualifications as such, so there is a tendency for accountants and CFOs to focus on statutory compliance, often at the expense of identifying business drivers and driving management information.

To appreciate the difficult position of accountants, particularly those concerned with adding value through effective forward planning and minimising the impact of potential financial threats, it's necessary to understand the commercial environment. Many foreign business people in China reflect that success is usually as a result of dogged persistence. You can't simply import foreign methods of doing business in this country, since even simple procedures can generate mind-boggling quantities of red tape.

Last year China attracted $52 billion in foreign direct investment (FDI), a 1.5 per cent increase on 2001. China is expected to outshine the US for the second year in 2003 as the largest sponge soaking up FDI, with a record high capital inflow of $60 billion. Recent statistics show that investment is continuing to rise, despite the Sars outbreak and the global economic slowdown. The period from January to June fills year saw the approval of 18,877 new foreign-invested enterprises, an increase of 22 per cent on the same period last year.

Many foreign companies investing in China find they must discard the business formula they have used in other markets and start anew. Almost all of them find that they bare to adjust their expectations and, sometimes, drastically change how they operate in the Chinese market. Key determinants of success are how soon a company realises the need to adapt, and how innovatively it does so.

Negotiating and building effective relationships is vital. They are based on personal connections, known as guanxi. Many foreign companies in China base their activities on market situations without considering the importance of building relationships. The obligations that having good guanxi carries can be developed into loyalty that goes well beyond ordinary business relations.

Unfortunately in China, with its underdeveloped legal system and the tendency for authorities to turn a blind eye for the right price, corruption is still common. The government is working bard to stamp it out, but it's still rife--increasingly so the further you move away from the main cities. Accountants are often key players in corrupt dealings and are therefore under pressure to report wrongdoing to the government. They are often paid lout salaries outside the bigger cities, so there is a temptation to share the spoils rather than report them.

The tendency of foreign business people in the past to try to dominate proceedings has left some Chinese business people sceptical of their foreign counterparts. Consequently, many believe that it's wrong for outsiders to expect to make a big profit in China, sometimes citing their country's current relative poverty to justify this view.

Chinese society generally discourages individuals from straying beyond the accepted way of doing things. …

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