BOFIT Viikkokatsaus / BOFIT Weekly 2019/32

Billions of dollars in fraudulent bookkeeping of Chinese firms has come to light this year. Many firms caught up in the revelations have been unable to repay their debts, even if their financial statements show excellent cash positions. Several accounting firms have been swept up in the scandals.

The latest round of accounting firm problems started when officials launched an investigation into the practices of the Chinese accounting firm GP in May. Last month, Ruihua, one of China’s largest domestic accounting firms, was also targeted for investigation. That investigation implicated a number of Ruihua’s clients as many of them have had to freeze their plans to get new funding.

At the end of May, the auditors of Jinzhou Bank, which is listed on the Hong Kong stock exchange, quit after the bank refused to provide additional information about its lending activities. To bail out the troubled bank, state-owned ICBC, Cinda and Great Wall announced in July that they would inject billions of yuan into the bank.

There is a long history of reporting on the bookkeeping problems and scandals surrounding Chinese firms, but slowing economic growth seems likely to expose more troubles. Chinese firms have long felt comfortable cooking the books as they faced only relatively small punishment if caught. Officials routinely threaten harsher punishments, but very little has actually happened.