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Mittwoch | 11. Oktober 2000 |
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World Bank Project on Accounting in China: Project
Name: Region East Asia and the Pacific Region Sector Financial Sector Project
ID CNPE51856 Borrower Government of China Implementing Agency
2. China Accounting Standards Committee (CASC) Date PID Prepared April 20, 1998 (revised November 16, 1998) Projected Appraisal October 13, 1998 Projected Board Date March 15, 1999
Legal Situation: Accounting Regulations of China Steuern, Rechungswesen und Buchhaltung in China Recent Economic DevelopmentsChina's
current economic situation represents a point of reform acceleration, with
a new government, and a new package of economic stimuli and reform, ending
a period of gradually paced reform designed to bring about a 'soft landing'
from the economic overheating of 1993-94. Recent economic indicators
confirm that the 'soft landing' has been successfully achieved, with real
GDP growth in 1997 reported at 8.8 percent, 11 percent industrial growth
and consumer price growth of only 2.8 percent.
In addition, China has earned a $40 billion trade surplus in 1997,
with foreign direct investment growing to $45 billion, and the accumulated
foreign exchange reserves growing to an unprecedented $140 billion.
Unexpectedly, export performance has been sustained over early 1998,
despite the relative depreciation in the currencies of neighboring Asian
countries. Exports in the first two months of 1998 grew by more than 10
percent. However, there have been indications of a slowdown in GDP growth
in the last quarter of 1997, and a contraction in demand. GDP growth in
the last quarter of 1997 was only 8.4 percent, down from 9.6 percent in
1996, with industrial growth down to only 8 percent. In the first quarter
of 1998, GDP growth has slowed further, and inflation measures are
negative. In the real sector, growth of electric power demand has been
slow and the growth of volume of transport has been near zero. There is a
prospect for a significant reduction this year of both exports and foreign
investment, due to the regional financial crisis. While restrictions on
capital flows have protected China from externally imposed financial
shocks, and sizable trade surpluses and foreign exchange reserves have
provided a cushion against immediate currency pressures, there is
increasing concern about the medium term impact of the crisis. In the near
term, the impact of the crisis on China is expected to be manageable.
China's exports to the countries most affected by the crisis are
relatively small (4%), and exports in third country markets are likely to
remain competitive, thanks to China's low labor costs, despite competitor
devaluations. The overall trade balance is however expected to decline,
and this reduction in foreign demand could lead to a reduction in domestic
growth of 1-3 percent. Foreign direct investment from traditional sources
such as Hong Kong, and from the overseas Chinese community in Asia, is
also likely to decline. Despite
concern about the impact of the Asian crisis, China has pledged not to
devalue the yuan, as part of its contribution to restoring financial
stability in the region. This will require careful macroeconomic
management. Moreover, the severity of the crisis has alerted China's
leaders to the vulnerability of some segments of its own economy, and the
need to build urgency into its own reform program. It has clearly
increased the urgency with which top leadership is considering its
approach in areas such as financial sector reform and SOE reform. Sector
Background and Government's Reform Strategy China has made steady progress
in terms of financial sector reforms since the Bank's Financial Sector
Technical Assistance loan of 1992. The Central Bank law of 1994 confirmed
the People's Bank of China (PBoC) as the key agent of monetary policy,
prudential supervision, and the lender of last resort. China also passed a
Commercial Bank law in 1994, which required the banks to operate on a
commercial basis, and mandated the separation of bank and non-bank
financial sector operations. Commercial banks were required to adopt
asset-liability management ratios, introduced at the same time. Yet,
China's banking system is known to be fragile. Non-performing loans have
been conservatively estimated to form 20-30 percent of total loan
portfolios, in the big four state banks which dominate the banking system.
In 1994, three 'policy banks' were established which were intended to take
over the policy-based, non-commercial lending of the state banks, thus
alleviating their burden of financing projects, enterprises or sectors
known to be unviable or risky, because of government priorities. But a
real transfer of non-commercial lending away from the state banks has yet
to occur. China's loan loss provisioning methods have been known to be far
from satisfactory, due to the limit of 1% of loans permitted as a write
off in any given year. Attention to financial sector reforms has accelerated, as a result of
the regional financial crisis. A high-level conference of China's top
leadership was held in November, which led to a new round of reform
measures. Most of these focus on the banking system, and are designed to
reduce the accumulation of non-performing loans. Key measures include (i)
the abolition of credit quotas (for both working capital and investment
loans) for the four state banks. From January 1, 1998, the government
removed the credit quotas for both fixed capital and working capital loans
for the state banks, replacing it with the asset-liability management
ratios to which other financial institutions are subjected.
(ii) The government has introduced a risk-based loan classification
system, to be adopted by the end of 1998, which divides loans into five
categories; normal, 'special mention', substandard, doubtful, and lost,
following recommendations of the Bank of International Settlements.
Another initiative (iii) is the reorganization of the central bank, to
break the link between local governments and the central bank branches.
The PBoC has already appointed some senior level officials to head the new
provincial branches. In
addition, a special $32.5 billion bond issue was approved on February 28
to strengthen the capital base of the state banks. The recapitalization
plan will be implemented in three steps, with a reduction in banks'
reserve requirements, which then permit the banking system to use the
freed up resources to purchase the special bonds. The government will then
use the proceeds from the purchase to strengthen the capital base of the
banks. China's
strategy for SOE reform has accelerated, as the performance of state
enterprises in the Chinese economy has deteriorated. Once contributors of
over 80 percent of industrial output, the share of SOEs has now declined
to less than a third, and SOE losses now exceed profits. A number of pilot
programs in mergers, divestiture, bankruptcy, governance and ownership
reform have now begun to expand to nationwide implementation. Success will
depend on whether GDP growth rates can support the absorption of large
scale layoffs, and also on the extent to which large enterprises can adapt
to a new profit driven management culture and governance structure. The
number of laid-off workers who retain links to SOEs but have yet to find
alternative jobs rose to 12 million in 1997, and is expected to rise
further to 15 million in 1998. Recently announced initiatives suggest a
further increase in layoffs—the textile sector alone is estimated to add
12 million layoffs in the next three years. The
core of China's present strategy is to support the large SOEs, with
resources saved from cutting links from the small SOEs. That is, resources
will be concentrated on those large SOEs considered strategic for national
development. The approach is supported by the superior performance and
profitability patterns observed in many large SOEs in coastal regions
especially those owned by the central government. Eventual privatization
is a possibility, and some small-scale divestiture has already begun. The
present strategy embraces a variety of corporate forms and stock/share
ownership vehicles. Rationale for Bank / IDA InvolvementThe
World Bank committed itself to supporting reform of China's accounting
system some years ago, with the FSTA-I project of 1992. Good progress has been achieved under this project. The
present project would acknowledge this progress, building further upon the
success already achieved. It
would reinforce our role as a supporter of financial infrastructure in
China, complementing our role in the development of payments systems. Project Objectives and DescriptionThe
project comprises two related components.
The first component would support government efforts to familiarize,
on a large-scale, existing accountants with accounting, auditing and
business administration principles and practices that are generally
accepted in market economies. The approach to be adopted is to establish a
large residential continuing education facility in Beijing which would
offer a wide selection of short courses on specific accounting and
business topics and issues. Such courses would include, for example,
accounting practices, auditing techniques, taxation, professional ethics,
computerized management systems, and various functional management topics.
The facility envisaged can accommodate 1,500 persons at a time. Based on
courses of around 2 weeks, average, the throughput of the institution will
be around 25,000 persons per year. The
second component would consist of continuing support of the government's
ongoing efforts to develop and promulgate accounting standards predicated
upon which this is to be effected is the China Accounting Standards
Committee (CASC), the formation of which was approved by the State Council
in February 1998.
The Committee was formally established on September 16, 1998, and
on October 6, 1998, an official circular of the MOF was sent to all
relevant agencies, informing them of the new Committee.
The committee, intended to be a permanent body, has been charged
with a series of tasks which include the researching, drafting review and
evaluation of accounting standards; coordination of accounting activities
with international accounting bodies; and responsibility for the proposed
World Bank accounting project.
The secretariat of the CASC includes some staff from the former
Accounting Standards Task Force of the Accounting Department of MOF; but
additionally has a Board with external experts, and enjoys greater
independence. Assistance to the CASC would comprise: the development and
publication of a series of accounting standards, additional to those
already undertaken (including basic accounting standards, reporting
standards, and selected sector and business standards); maintenance and
revision of existing standards, development of an advisory/ best practice
service for users (including a website), development of a staffing and
training program, and supporting equipment and training materials. Project FinanceUnder
the CICPA component, it is proposed that the Bank would finance those
parts of the training center that relate to the provision of training,
such as classroom equipment, teaching materials, as well as consultant
inputs for curricula design, preparation of
course materials, and the provision of instructors in the startup
period,
and provision of
overseas training for Chinese trainers. The
Bank does not propose to finance costs related to land, buildings, or
their associated general equipment and infrastructure. Such costs would be
met entirely through local counterpart funds. Under
the Accounting Standards component, the Bank proposes to finance costs
related to the preparation, finalization, dissemination and monitoring of
new accounting standards, and training for the members of the Accounting
Standards Committee. Project ImplementationThe
CPA training institute component will be executed by the China Institute
of Certified Public Accountants in close cooperation with Beijing's
leading universities. The CICPA (which is currently closely associated
with and subject to the supervision of the Ministry of Finance) plans to
draw upon world
wide resources for professional educational materials, courses and
instructors. This would include the resources such as the American
Institute of CPAs (AICPA), major international CPA firms, and
international universities for accounting and business. The
China Accounting Standards Committee is responsible for the implementation
of the Accounting Standards component. Coordination with Other Donor AssistanceAs
far as known, no other donor agencies are providing China with assistance
in the area of accounting reform. Lessons From Previous Bank ExperienceThe
Bank has had a limited number of past projects dealing with accounting
reform. The one related Bank financed project in China took place six
years ago. Two projects with similar components have been financed by the
Bank in other client countries, which offer some useful lessons. In all
three projects, the accounting components are small parts of larger
projects. The principal prior projects are: 1.
China - Financial Sector Technical Assistance loan (1992). The overall
$60m project was broad based in scope and covered a number of areas in the
financial
sector. One component ($2.4 million) was for accounting standards reform.
This component is largely disbursed. A series of 25 new standards have
been drafted but not finalized. 2.
Indonesia - Second Accountancy Development Project, 1995. The scope of
this project included government accounting systems, accounting standards
setting, preparation and administration of professional qualifying exams
for accounting professionals.
The project also had components for capital markets regulations.
The project is currently about half-way through in terms of execution.
A mechanism has been set up for the preparation of accounting
standards, and a number of standards have been issued. 3.
Russia - Financial Institution Development Project (1994; $200 million).
One component of this project amounting to $2 million, was allocated for
enterprise accounting reform. The project is currently under
implementation. The accounting component has had a slow start. Under the
project, an institute of professional accountants has been set up,
independent of the government, and aided by an expert counsel for
assistance for the preparation of TOR for the drafting/review of standards From
these projects, the first lesson which emerges is that the drafting of
standards is not enough; the project should include in its scope the
finalization and dissemination of new standards. Most of the 25 draft new
accounting standards have yet to be officially issued. Only one standard
has been issued so far, in 1997.
Widespread general acceptance of the new standards also requires
the provision of public information and guidelines on application, as well
as the appropriate follow-up training of practicing accountants and
auditors. The present project incorporates these lessons by giving a
role to dissemination and roll-out; both through programs of
seminars and public knowledge in the first component, and through the
CICPA training component. A
second key lesson is the value of practical international experience in
the development of accounting standards. The present project takes this
into account by providing for overseas training for the newly formed China
Accounting Standards Committee, and interchanges with associated
international bodies, in addition to consultancy advice. The project team
will also emphasize to its counterparts the value of
adequate international consultation for the design of the training
center and its curricula. BenefitsBenefits
of component (1)—support to the China Institute of Certified Public
Accountants' training center:
China has a large reservoir of accountants, reasonably well trained,
but in the traditions of a planned economy. The aim of the training
imparted at the CICPA facility is that it would (i) help such persons to
be able to familiarize themselves with the many facets of new accounting,
auditing and business administration principles, appropriate to a market
economy;
(ii) acquaint these accountants with the new accounting norms and
standards developed under the first component (which would comprise a
small but important part of the total curriculum); and (iii) provide
ongoing training to professional accountants to keep abreast of new
developments in their field, following the practice of continuing
professional education for accountants adopted in other market economies.
The target population for this component would include persons
currently practicing as accountants in state-owned enterprises as well as
accountants in public practice in accounting firms and finance bureaus. Benefits
of component (2)—support to the China Accounting Standards Committee:
The accounting reform envisaged in the government's program has
potentially far-reaching benefits. The reforms suggested under the present
project form an important basis for having consistent, comparable and
reliable enterprise financial statements, to be used by a vast 'target
population' of managers, individual and professional investors, bankers,
regulators and other interested parties. RisksDemand
for training and occupancy of the training institution. The most sensitive
variable, for break-even, in total costs, is expected to be the degree of
throughput or overall utilization of the institute and its facilities.
There is a risk that due to scheduling inadequacies, the institution is
not utilized to its fullest. In order to guard against this risk the
project team has (i) made detailed demand estimates, (ii) investigated the
requirements for continuing professional education, and (iii) conducted a
break-even cost analysis which shows that at 50-60% capacity, there will
be cost recovery. Course
fees for the training institute. Low fees would attract broad utilization,
but may be too low to cover operating costs of the training center. This
issue was investigated at pre-appraisal and revisited at appraisal.
Based on a comparison with the European Institute of Management at
Shanghai, it appears that the proposed fees are affordable by
institutional employers. Establishment
of the China Accounting Standards Committee.
The extent to which the newly constituted body will be able to
recruit and retain skilled staff is not known, and its future
institutional capacity to carry out its mandate is hard to predict. Program Objective CategoryThe
program objective categories are, macroeconomic strengthening, financial
sector development and enterprise reform, through the reform of the
accounting system and training of accountants. Poverty CategoryThe
proposed loan is not part of the World Bank's poverty category program. Environmental AspectsIn
accordance with the Bank's Operational Directive on Environmental
Assessments (OD 4.01, Annex E), the proposed loan is placed in
environmental Category C. The project will have no discernible
environmental impact. The World bank does not propose to finance any land
acquisition or building construction. Contact
Point: Fax No. (202) 522 1500 Task Manager: Anjali Kumar, Sr. Financial Economist Telephone (202) 458-0004 Fax (202) 522-3454 E-mail: akumar@worldbank.org
Note:
This is information on an evolving project. Certain activities and/or components
may not be included in the final project. Processed
by the InfoShop week ending December 18, 1998. Ministry
of Finance, P.R. China. Contact:
Dong Xiao Chao, Vice Secretary General,
Tel: (86-10) 6841-5511/2514, Fax: (86-10) 6847-4986 Ministry
of Finance, P.R. China. Contact Mme Shen Xiaonan, Vice Director General, China Accounting Standards Committee, Tel: (86-10) 6851-6007/6028; Fax: (86-10) 6855-6015. |
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2000, Asien
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