On July 10, the Hong Kong Accounting and Financial Reporting Council (AFRC) responded to the allegations made by a whistleblower against PricewaterhouseCoopers Hong Kong (PwC Hong Kong). Following a rigorous review, they stated that the evidence collected during the review process does not support the three allegations concerning PwC HK's quality management system. The AFRC also mentioned that the investigation regarding the audit quality of China Evergrande Group is still ongoing.
In March of this year, the China Securities Regulatory Commission (CSRC) discovered that Evergrande Real Estate was involved in serious financial fraud and fraudulent bond issuances. Since its initial listing in 2009, PwC has been the auditing firm for Evergrande and has also been under investigation by regulatory authorities in both mainland and HK.
On April 13th, an anonymous letter signed by "Some PwC partners" spread on the internet, directly pointing the finger at Chao, the then Chairman of PwC China and Asia Pacific, as the "ultimate responsible person" for audit negligence. The letter has sparked speculation once again as Raymund Chao was set to retire on June 30th, 2024.
Recently, Raymund Chao granted an exclusive interview to DotDotNews, sharing his perspectives on topics such as the development of Hong Kong's capital market, globalization etc. This was also the first time he addressed the recent controversies in the media over the past few months.
【Anonymous letter: it was intentionally orchestrated by individuals with ulterior motives】
Before this interview, the AFRC issued a formal announcement stating that the allegations made in the anonymous letter against PwC were unfounded. Chao mentioned that due to the ongoing investigation, there were limitations to publicly respond to the matter at the time. However, the incident was immediately reported to the police and addressed through legal means. The incident also triggered an internal investigation within the firm with appropriate involvement of the PwC Network and external lawyers, which lasted for over a month and resulted in a report spanning over 30 pages. The investigation found no evidence of any behavior that violated laws or regulations or that harmed public interests. Additionally, no unethical or inappropriate conduct contradicting the firm's code of conduct or internal policies was discovered. The investigation findings have been reported to the firm's partners, clients, and relevant regulatory authorities.
Chao stated that the anonymous letter incident has had a tremendously negative impact on him personally, on PwC, and on the entire industry. The malicious rumormonger(s), relying on their industry knowledge, deliberately fabricated hot topics and exploited information gaps to mislead public opinion. They disregarded the governance and management structures, division of responsibilities, and regulatory requirements of large accounting firms and deliberately and systematically spread malicious rumors through various channels, with premeditation and planning beforehand, to achieve their nefarious motives. Such behavior flouts the requirements of industry regulations and tramples upon the boundaries of law and ethics. The harm unleashed by this twisted behavior is like a malignant virus, severely disrupting business operations, damaging the industry ecosystem and the market environment, and causing significant adverse effects internationally. These individuals pose a significant threat and warrant vigilance from the entire society.
In fact, the anonymous letter contains many violations of industry norms, but it also includes content that is particularly attention-grabbing and misleading. For example, the so-called claim that Chao single-handedly "led PwC into the Evergrande pit." Chao stated, "PwC has a systematic structure and established corporate management and governance processes. Audit work involves complex steps, procedures, and systems. Whether it's project management, revenue, tax arrangements, or quality control, decisions are never made solely by one person. The recent announcement by the AFRC clearly proves this point." He emphasized that the content of the anonymous letter was a malicious attack, which caused embarrassment and damage to PwC's partners and the firm's reputation, severely harming the entire industry. The rumormongers even made the "ultimate threat" to disclose working papers. These actions not only disregard national laws and professional ethics but would also be looked down upon by professionals and unacceptable in the industry.
As for the rumors about his retirement due to involvement in the "anonymous letter incident," Chao said, in fact, his second term ended on June 30, 2024, and it's a normal retirement in accordance with the firm's constitution. Retirement arrangements and the selection of a successor were completed internally within the firm as early as the end of last year. Chao jokingly said, "At a professional firm like PwC, it's not like you can just say 'I want to retire' today, and then you can go tomorrow.
【Hong Kong's capital market: Technology companies inject confidence into the market】
In the first half of 2024, there hasn't been a significant acceleration in IPO fundraising activities in the Hong Kong stock market. However, the investment sentiment in the market remains cautious, and the fundraising size of new listings is generally smaller. Nevertheless, it is worth noting that there have been gradual signs of recovery since the second quarter of this year. It is understood that more than 100 companies have currently submitted applications for listing to the Hong Kong Stock Exchange, some of which have already been successfully filed with the Securities and Futures Commission, including large-scale enterprises.
Chao pointed out that Chinese concept stocks and technology companies, especially those specialized in specific technologies, coming to Hong Kong for listing can help stabilize investors' confidence in the Hong Kong capital market. He believes that Chapter 18C of the Hong Kong Main Board Listing Rules will also play a crucial role in facilitating the connection between high-growth technology companies and investors, creating better conditions for quality unicorn enterprises and leading technology companies to list in Hong Kong.
On June 13th, QuantumPharm Inc, the first special-purpose technology company to list under Chapter 18C of the Listing Rules, debuted on the Hong Kong Stock Exchange. Chao anticipates that this will begin further development in the technology industry's ecosystem.
【Overcapacity: development of the economy is fundamental】
Recently, there has been a growing chorus in Western public opinion regarding the alleged "overcapacity" in China's new energy industry. In recent years, globalization has faced stagnation due to various complex factors, including the COVID-19 pandemic. Chao states that the pandemic has fundamentally changed people's lifestyles and ideologies. At the same time, the global supply chain has been disrupted, shifting from the previous emphasis on "just-in-time" production to a focus on "just-in-case" to prioritize safety and security. Conflicts, misunderstandings, and biases are inevitable when different interests come into play.
On the other hand, Chao believes that with national elections this year, each country has its own political agenda, which has led to extreme expressions in public opinion. Some of these opinions are due to information asymmetry, while political motivations and needs drive others.
Chao believes that in this context, China should maintain a transparent and open attitude towards the Western world, ensuring effective information dissemination while enhancing its capabilities and market development to strengthen its economy. Only with a strong market and economy can China have a greater voice. Furthermore, greater transparency and openness will allow the Western world to objectively perceive and assess China's development and advantages.
At the same time, in response to discussions about decoupling from certain countries, Chao believes that China should work harder to uphold economic globalization and prevent the disconnection and disruption of global industrial and supply chains. China should also make greater efforts to attract foreign investment, support high-quality outbound ventures by Chinese companies, actively participate in the reshaping of global industrial and supply chains, expand into emerging markets, and promote the upgrading of foreign trade.
【After stepping down, what are your plans? Is there anything specific you would like to do?】
I hope to fully utilize my experience and knowledge to actively participate in and promote the country's development, Hong Kong. Our accounting industry, contributing my efforts and giving back to society. Additionally, I aim to continue participating in more philanthropic endeavors and helping those in need. Furthermore, as the founding president of the Association of Hong Kong Accounting Advisors, I also hope to pay more attention to the sustained and healthy development of the industry to maximize the value, influence, and role of the association's experts while also nurturing more outstanding young professionals to contribute more to the future development of the industry.
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