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Accounting and the negative list

China has long restricted foreign investment in sensitive sectors of its economy.  These restrictions appear to have had two primary motivations – protecting state security and social stability, and protecting state owned enterprises from foreign competition. The former has led to keeping foreigners out of media, internet, and defense sensitive sectors. Restrictions protecting SOEs from foreign competition were largely negotiated away during China’s accession to WTO.

Investments were categorized as to encouraged, restricted and prohibited. In 2015 China began a move towards a negative list – investment is allowed unless a sector is on the negative list.  China has just released a new negative list for its 11 free trade zones that goes into effect on July 10, 2017.

Accounting was initially off limits to foreign investment. The international accounting firms entered in the early 1980s through representative offices that were not allowed to practice. In the early 1990s they were permitted to enter joint ventures with state-controlled CPA firms. In the late 1990s the state-controlled CPA firms were separated from the state. In the early 2010s the Big Four restructured into special general partnerships (SGP) that allowed up to 20% ownership by unlicensed foreign partners (started at 40% and phased down). 

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