Ernst & Young sees China business growing
By Zhang Dingmin (China Daily)
Updated: 2004-04-06 08:44

Global accounting giant Ernst & Young (E&Y) expects to see rapid business growth in China in the coming years as the nation's economy powers ahead and the institutions of corporate governance and transparency take root, a senior executive said.

The company's China business expanded by 30-40 per cent per year in the past few years, according to James S. Turley, chairman and chief executive of E&Y Global.

"We expect to continue on that pace for the years to come," he told China Daily in an interview.

"As the Chinese economy continues to grow, it creates needs for large volumes of our services," he added.

Turley arrived in Beijing on Sunday for his first visit to the nation's capital after he took the helm at the firm in 2001 and was scheduled to meet major Chinese clients and regulators during the two-day visit.

Auditing, transaction advisory and tax services are the three major growth areas, with auditing services enjoying the fastest growth as the Chinese Government and companies place more importance on corporate governance and transparency, he said.

E&Y is a leader in the local financial transaction advisory market, especially in the distressed debt market where it served as financial advisor for most major deals completed so far.

"I'm very, very satisfied with the progress Ernst & Young is making in this area (China)," Turley said.

The company is investing aggressively in human resources, the primary cost for accounting firms like E&Y, to back up its ambitious business plans.

After setting up its first Chinese representative office in 1980, E&Y currently employs some 3,000 people at its seven Chinese offices.

It plans to open its eighth office next month in Dalian, a major harbour city in Northeast China's Liaoning Province, and wants to open a larger one later this year in Wuhan, capital of Central China's Hubei Province.

"I expect that number (of employees) to grow by 400 or 500 per year in the next few years," Turley said.

The executive said China's rapid economic growth and substantial progress in such key areas as transparency and the campaign against non-performing loans (NPLs) are still underpinning the confidence of global investors in Chinese stocks, even as weakened market sentiment has, some analysts said, already frustrated a few Chinese initial public offerings (IPOs) in overseas markets.

International investors chased IPOs by two Chinese insurers last year, piling up as many orders as 100 times what was offered.

But they appeared more cautious after State auditors found irregularities at the predecessor of China Life Insurance, which was listed in New York and Hong Kong at the end of last year in the year's largest IPO worldwide, and largely gave the cold-shoulder to a few Chinese technology IPOs launched last month.

Declining to comment on investor interest specifically on the upcoming Chinese IPOs, the chairman said:"I think of the interest of investors in China as a growth story, and China as a nation, is very strong.

"And our interest is extremely strong," he added.

E&Y is the auditor of a number of Chinese State-owned enterprises which are expected to be listed in overseas markets later this year.

Turley acknowledged the "great progress" China has made in reducing the huge NPLs that are hindering its banking reform, but urged for greater efficiency in granting permission to "help open the gates" to speedier progress.

The Chinese  authorities, concerned about State asset losses, have been very cautious when approving NPL deals involving foreign investors. Two joint ventures between foreign investors and China Huarong Asset Management Corp, one of the four asset management companies set up in 1999 to dispose of a total of 1.4 trillion yuan (US$169 billion) in NPLs from State-owned banks, waited for months before they obtained final approval early last year.

"There was great progress, but there are a lot of transactions... that need approval to be finalized," Turley said.

Faster regulatory approvals will help boost foreign investors' interest in China's distressed debt market, which is bound to expand in the coming years as many banks move to clean their balance sheets in preparation for listing shares.

"The faster we move... the stronger the desire will be," he said.

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