PwC China in Crisis as Major Clients Terminate Contracts in Wake of Evergrande Scandal

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PwC office building in Shanghai on May 29, 2024. Photo: VCG

A lengthening list of Chinese companies have terminated their auditing contracts with PricewaterhouseCoopers or planned to do so, as the “Big Four” accounting brand faces a crisis over its auditing work for a subsidiary of scandal-struck property developer China Evergrande Group.

PetroChina Co. Ltd. and China Railway Group Ltd. were among the latest to end or decide to end their contracts with PricewaterhouseCoopers Zhong Tian LLP (PwC China), according to the two state-owned giants’ exchange filings released in late May.

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Chinese state-owned firms like PetroChina and China Railway Group have terminated or plan to terminate their auditing contracts with PricewaterhouseCoopers (PwC) China due to the scandal involving Evergrande.
Evergrande’s Hengda subsidiary was fined $577 million for fraudulent activities in 2019 and 2020, significantly inflating its revenue and profits.
PwC China faces potential fines and operational suspensions, risking loss of clients and reputational damage, with ongoing investigations and potential severe penalties.

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Who’s Who

China Evergrande Group: China Evergrande Group, one of China's largest developers, has been embroiled in a debt crisis since 2021. Its major domestic subsidiary, Hengda Real Estate Group Co. Ltd., was fined $577 million by the CSRC for fraudulent bond issuance and breaking disclosure rules. Founder Hui Ka Yan was banned from the securities market for life. Hengda inflated its revenue and profits in 2019 and 2020. A Hong Kong court ordered Evergrande's liquidation in January due to failed debt restructuring.

PetroChina Co. Ltd.: PetroChina Co. Ltd. is a state-owned enterprise in China that recently terminated or decided to end its auditing contract with PricewaterhouseCoopers Zhong Tian LLP (PwC China). This decision followed requests from its state-backed shareholders and is part of a broader trend among Chinese companies severing ties with PwC due to its involvement with Evergrande Group’s auditing issues.

China Railway Group Ltd.: China Railway Group Ltd., a state-owned enterprise, has decided to terminate its auditing contract with PricewaterhouseCoopers Zhong Tian LLP (PwC China). This decision was made at the request of its state-backed shareholders, as reported in exchange filings released in late May. The move is part of a broader trend of Chinese companies ending their contracts with PwC China amid the firm's crisis related to its auditing work for a subsidiary of Evergrande Group.

The People’s Insurance Co. (Group) of China Ltd.: The People’s Insurance Co. (Group) of China Ltd. is a financial institution that terminated or decided to terminate its contract with PricewaterhouseCoopers Zhong Tian LLP (PwC China) or chose not to hire it as originally planned. This decision happened in May, partly due to reaching the maximum hiring duration allowed by relevant authorities.

China Merchants Bank Co. Ltd.: China Merchants Bank Co. Ltd. is one of the financial institutions that terminated or decided not to hire PricewaterhouseCoopers Zhong Tian LLP (PwC China) as originally planned in May. Some terminations were due to firms reaching the maximum hiring duration allowed by authorities.

Hengda Real Estate Group Co. Ltd.: Hengda Real Estate Group Co. Ltd., a major domestic subsidiary of China Evergrande Group, was fined $577 million by the China Securities Regulatory Commission (CSRC) for fraudulent bond issuance and breaking information disclosure rules. It inflated its revenue by 214 billion yuan in 2019 and 350 billion yuan in 2020, and exaggerated profits by 63% in 2019 and 87% in 2020. Evergrande has been mired in a debt crisis since 2021.

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What Happened When

2019：: Hengda inflated its revenue by 214 billion yuan and inflated its profits by 63%.

2020：: Hengda inflated its revenue by 350 billion yuan and inflated its profits by 87%.

January 2024：: A court in Hong Kong ordered Evergrande to be liquidated.

May 2024：: The People’s Insurance Co. (Group) of China Ltd., and China Merchants Bank Co. Ltd. terminated or decided to terminate their contracts with PwC China.

Friday, May 2024：: China Securities Regulatory Commission (CSRC) announced a $577 million fine on Evergrande’s major domestic subsidiary, Hengda Real Estate Group Co. Ltd., and banned Evergrande’s founder Hui Ka Yan from participating in the securities market for life.