PwC defections continue as China Cinda Asset Management ditches auditor facing fines for alleged Evergrande malpractice

State-owned China Cinda Asset Management has become the latest major company to terminate its contract with PwC, after at least five big firms recently cut ties with the auditor amid growing concerns about alleged financial fraud tied to embattled developer China Evergrande.

China Cinda has replaced PwC's services with those of fellow "big four" accounting firm Ernst & Young (EY) for 2024, the asset manager said in a stock exchange filing on Monday.

The decision was made to "practice sound corporate governance and further improve the quality of external audit work," and in accordance with "relevant requirements of the selection and engagement of accounting firms by state-owned enterprises," China Cinda said, adding that details of EY's appointment will be published to shareholders in due course.

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PwC has not yet replied to the Post's request for comment.

China Cinda's announcement came less than a week after Shenzhen-listed China Merchants Port Group withdrew its proposal to hire PwC as its auditor for the year, following similar moves by corporate giants such as China Merchants Bank, China Railway Group, and Mindray Bio-Medical Electronics.

China's Ministry of Finance is considering hitting PwC with a record fine of at least 1 billion yuan (US$138.1 million) for alleged auditing malpractices involving China Evergrande, and could suspend some of the accounting firm's local operations, Bloomberg reported last Thursday.

PwC's troubles have deepened since regulators in mainland China and Hong Kong began investigating its involvement in the financial fraud of China Evergrande. The troubled property developer had inflated its sales by 564 billion yuan, and its profits by 92 billion yuan in the years leading up to its collapse in 2021, according to China's securities watchdog.

Evergrande was ordered by the High Court in Hong Kong to liquidate in January, and its founder, Hui Ka-yan, was slapped with a 47 million yuan fine by the China Securities Regulatory Commission and banned from participating in the country's capital markets for life.

PwC's potential involvement in Evergrande's auditing scandal was made public in a letter from whistle-blowers, which began circulating on Chinese social media in April.

The anonymous letter, titled "Who dragged PwC into the fire pit of Evergrande?" claimed that the auditing firm had "turned a blind eye" for over a decade towards Evergrande's misconduct.

PwC vehemently denied the allegations and said it had taken measures to look into the origins of the "false information".

China's property market has been mired in a historic downturn ever since the authorities unveiled a nationwide campaign in late 2020 to deleverage the sector. Among the main casualties have been Evergrande, Country Garden, and Shimao Group, which have defaulted on their debts in recent years.

Sales reported by the nation's top 100 developers tumbled 47 per cent year on year in the first four months of this year, according to the China Real Estate Information Corp.

New and secondary home prices across China's major cities have have dropped consistently for most of the last year, official data has shown.

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