China is expected to show levels of growth this year well above that of the global economy, which is projected to grow by 3.1% according to the International Monetary Fund.
However, with the challenging global economic and political environment, and tougher business conditions, China’s companies are facing up to how to increase performance and manage costs.
In this FM interview, Andrew Harding, FCMA, CGMA, chief executive–Management Accounting at AICPA & CIMA, together as the Association of International Certified Professional Accountants, shares his observations on China’s business landscape, the impact of new technologies, and how management accounting is developing in this market.
You’ve been a regular visitor to China — most recently within the past year. What things have you noticed in terms of developments in the business landscape during those visits?
Andrew Harding: I think it’s probably almost 30 years since I first visited China. The change over that time has just been enormous and transformational. In terms of business, China has gone from a developing economy to a developed economy. It’s done that faster than anywhere else in the world. It’s interesting to reflect on innovation and change because the shift was fast. It means that China has been able to jump stages of evolution.
Some types of older business infrastructure never existed, so they didn’t need to be replaced. There are great advantages of that.
Interestingly, now you see Chinese businesses wrestling with the same problems that businesses have in other developed economies. The time of fast growth because of wage arbitrage is over. What we see in finance and accounting is the need to have those vital management accounting skills, insights which drive successful and competitive businesses.
What are the unique trends, approaches you’ve seen in Chinese management accounting that differ from the global picture?
Harding: What we’ve seen was a period of catch-up but with differences. Chinese state-owned enterprises in particular have often had objectives beyond the straight profit motive that we expect to see in Western success. They often have social and other objectives, which actually places them in quite an interesting position with today’s moves towards the “S” and “G” aspects of ESG [environmenal, social, and governance]. I often say management accountants have always measured more than the money. As we end up with this multi-capital world, there’s an argument that says that Chinese businesses are very well placed to be embracing that because it’s often already part of the business culture. From that point of view, China is in a unique position
And not just state-owned businesses?
Harding: Yes. It goes beyond that. I spent two years as chairman of a Chinese company. The board meetings were fascinating — the business already had strong environmental credentials, but there was more to it than that. The big difference I would say was the amount of what we now call the “S”, the social, that was on the board agendas. This was as long ago as 2014.
There was a lot around the people in the business, the welfare of the business, its interaction with the community.
That’s interesting, isn’t it? Way back before ESG was a term almost.
Harding: Those days, we were talking about integrated reporting, sustainability reporting. But the other thing, because of this pace of change, is that Chinese businesses have been able to adopt new technologies faster because they’re not invested in their old technologies, or less invested in their old technologies.
The way in which apps are integrated with social media platforms, the way in which the payment platforms like Alipay and WeChat Pay work is world-leading. It changes the way people do business. It changes the way people transact. Chinese cities are pretty well cashless. It was in short order that was achieved.
By linking together those pay platforms with social platforms and other apps, it creates a unique and very efficient way to do business. It’s something that is an example for the rest of the world to look at and probably to follow.
Digital transformation is a fundamental in business. How are Chinese businesses from your experience approaching that?
Harding: The large Chinese businesses are digitising fast. China has its own big tech companies like Alibaba and Tencent, which struck a deal with Meta in November. These companies facilitate digitisation in the same way as we see AWS and Microsoft doing it in other parts of the world. The first examples I’ve seen of artificial intelligence being used on a practical basis have been in China. I’ve seen conference sessions presented by an Avatar speaking with AI. I’ve seen live translation now being done and streamed on a screen behind the speaker using AI, so no longer is there the need to sit there with a headset on to listen to a translation from the main language of Mandarin.
Another example of China’s AI development is a business intelligence tool that can deliver charts for financial data analysis using natural language commands — rather than manually using formulas. This and other AI models are aimed at creating value for companies.
All of these things, they’re possible for all of us. But China is where I’m seeing that sort of thing being done.
And finally, moving to the role of AICPA & CIMA in supporting and contributing to growth and innovation — what’s the role there?
Harding: Our pivotal role goes back ten years, when we started working with the Ministry of Finance and Shanghai National Accounting Institute to really bring best practice management accounting into state-owned enterprises.
That was the point when the Ministry of Finance realised that Chinese business needed to be competitive in its own right. It recognised that without management accounting that would be impossible. That’s a decade ago. We have a phenomenal cohort of senior members in China who have come through those programmes and who are providing world-class finance leadership in their organisations.
As with all things, the world moves on, and we move on within China. We started off doing programmes in English. Ten years ago we started doing our first programmes in Chinese. Now we’re running an entry-level programme for management accountants in China, which we call Digital Management Accounting, DMA — with China International Talent Exchange Foundation (CITEF).
It uses elements of CIMA’s CGMA Professional Qualification, but they’re bundled together in a unique way. They’re presented in Chinese, they’re tested in Chinese, and it gives young people in China faster access and a faster starting point to the profession.
It meets businesses’ needs for skills. It also meets the candidates’ ambitions. Those who want to can then progress to the CGMA programme. We’ve just completed a deal to have the Finance Leadership Program (FLP) delivered in Chinese, which gives us the full suite of products for China.
One of the other interesting things that’s happened in China is that, with the phenomenal growth that’s been experienced over the past 30 years, the opportunities are there to have a successful and prosperous career without having English language skills.
We’re in a position today where some of the world’s largest shared-service centres are in China, and they specifically serve the China market for Chinese businesses.
There’s lots of news around the slowdown in Chinese growth. Growth in China is still higher than in the other parts of the developed world.
The size of the Chinese economy means that the growth it generates is pretty well the size of growth the rest of Asia put together generates. I often say to people, you need to look at two data points. A percentage is fine, but you also have to look at the real number. The Chinese growth percentage might have gone down, but the real number is massive because of the way that percentage drove the numbers for the past 30 years.
— To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.