PwC China’s Partner Reduction and Operational Challenges
In recent months, PwC China has faced significant operational challenges, leading to a reduction in the number of partners within its Chinese division. According to regulatory filings from December and January, the number of partners at the mainland Chinese arm of PwC decreased by 66. This reduction comes as the firm grapples with the aftermath of its involvement in the Evergrande scandal, which has resulted in a record fine, a six-month suspension of operations in China, and a decline in its Asia-Pacific business.
The Evergrande Scandal and Its Fallout
The Evergrande scandal has had a profound impact on PwC China. In September, the firm was found to have played a role in concealing fraud at the now-collapsed Chinese property developer Evergrande by issuing false audits. The investigation revealed that Evergrande had inflated its revenues by $78 billion in 2019 and 2020, making it one of the largest fraud cases in history. PwC was subsequently fined approximately $62 million and had its license to operate in China revoked for six months. Additionally, 11 employees were fired or left the company, and state-owned enterprises have since dropped PwC as their auditor.
Reshaping Business and Partner Exits
PwC China has been reshaping its business to focus on delivering high-quality services to its clients, according to a spokesperson. As part of this process, some partners have retired from the firm. The spokesperson emphasized that this restructuring is aimed at ensuring the firm continues to meet the highest standards of service. Despite the addition of four new partners in December, the overall number of partners has significantly decreased, reflecting the challenges the firm faces in the wake of the Evergrande scandal.
Financial Impact and Declining Business
The financial impact of the scandal and the resulting operational challenges have been significant. In October, PwC reported a 12.7% decline in net income for the Asia-Pacific region for the financial year ending in June. The firm noted that demand was particularly slow in China, where revenue fell. This decline underscores the broader challenges PwC faces in retaining business in the region following the scandal.
Global Response and Rebuilding Trust
Mohamed Kande, PwC’s global chairman, has acknowledged that the findings of the Evergrande audit were in "stark contrast" to the high-quality work PwC typically produces and were not representative of what the firm stands for. The firm has been working to rebuild trust and retain business in the region. However, the fallout from the scandal has been severe, with PwC facing not only financial penalties but also reputational damage.
The Road Ahead for PwC China
As PwC China continues to navigate the aftermath of the Evergrande scandal, the firm faces significant challenges in rebuilding its business and restoring its reputation. The reduction in partners, decline in revenue, and loss of clients all point to a difficult road ahead. Nevertheless, PwC remains committed to delivering high-quality services and regaining the trust of its clients and stakeholders. The firm’s ability to weather this storm will depend on its ability to implement meaningful reforms and demonstrate a renewed commitment to integrity and accountability.
