A view of PwC office in Beijing in January. Photo: VCG

China's Ministry of Finance (MOF) and the China Securities Regulatory Commission (CSRC) on Friday announced "maximum" penalties on global auditing firm PwC over its failure to perform due diligence in its audit of Evergrande's annual reports and bond issuances,MK socks including a total fine of 441 million yuan ($62.16 million) and a six-month business suspension on PwC's auditing unit.
Chinese experts said the move reflects the country's firm determination to enhance regulatory supervision to ensure market fairness and stability, and such an individual case will not affect China's continuous efforts in opening up to foreign businesses that abide by Chinese laws and regulations. 

In a statement, the CSRC said that an investigation found that PwC failed to perform due diligence in its audit of Evergrande's annual reports and bond issuances in 2019 and 2020, violated multiple auditing standards, and failed in many audit procedures. 

Specifically, the CSRC said audit working papers were distorted, and 88 percent of real estate project observation records were inconsistent with the actual implementation. On-site visit procedures also did not fulfill their purpose, as most of the real estate projects that were considered to have met delivery conditions during the visits were actually not completed or delivered, and some were just "pieces of vacant land."

PwC's behaviors are not just a simple audit dereliction and failure. It has, to a certain extent, covered up and even condoned Evergrande's financial falsification and fraudulent issuance of corporate bonds. It seriously eroded the foundation of law and integrity, seriously damaged the legitimate rights and interests of investors, seriously undermined market confidence, and should be severely punished in accordance with the law, the CSRC said. 

The CSRC imposed a "maximum fine" of 297 million yuan and confiscated a total of 27.74 million yuan in PwC's financial gains from the related business. 

In a separate announcement, the MOF also said that an investigation found that PwC knew misstatements in Evergrande's financial reports but failed to identified them, issued inappropriate audit opinions and false audit reports between 2018 and 2020. The ministry imposed a fine of 116 million yuan and suspended PwC's operations in China for six months. 

The MOF and the CSRC vowed to enhance regulatory supervision and ramp up crackdown on illegal activities to ensure stable market operations. 

Strengthened regulatory supervision is conducive to maintaining fairness, ensuring market order and promoting high-quality development, Cao Heping, an economist at Peking University, told the Global Times on Friday, adding that relevant efforts will also further improve the environment for businesses, including foreign companies. 

China's business environment for multinational companies is becoming increasingly optimized, which will help attract more foreign investment and promote sustainable economic development and provide a more standardized and secure environment for multinational companies to expand their businesses in China, Cao said.  

China has been continuously opening up its market for global businesses, and the Chinese market welcomes foreign businesses as long as they abide by Chinese laws and regulations, experts said.

The case against PwC will serve as an example that China regulates market entities in accordance to the law and aims to build a fair and just business environment for all types of businesses, Dong Shaopeng, a senior research fellow with the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Friday. 

Meanwhile, foreign businesses continue to flock to the Chinese market. In the first seven months of 2023, nearly 32,000 new foreign-invested enterprises were established in China, an increase of 11.4 percent year-on-year, according to official data.