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A KEY FOCUS OF China's 11th five-year plan for 2006-2010 is the development of the services industry.

The intention is to try and transform China from a low value-added manufacturing economy to a higher value-added economy, with more emphasis on the services industry.

This might be interpreted as directly clashing with Hong Kong's role as a leading professional services hub.

Not so, say local accounting bodies and accountancy practices, which view the growth and development of the mainland's services industry as an opportunity for Hong Kong.

According to the Hong Kong Institute of Certified Public Accountants (HKICPA),  the SAR has two key advantages - it is the preferred location for mainland companies to list and it adheres to internationally recognised accounting standards - both of which are key to the continued and successful integration of the Hong Kong and mainland accounting professions.

US$38billion in capital was raised from the Hong Kong stock market last year, putting it in fourth place after New York, London and Toronto, and proving it is one of the world's best platforms for mainland companies to attract funds from major international financial players and institutional investors.

'Hong Kong is of an international standard in accounting, corporate governance and ethics. And its compliance environment is more familiar to mainland companies wishing to list,' said HKICPA president Paul Chan.

Last year several large mainland companies listed, including China Construction Bank. This year will probably see more smaller mainland enterprises and some Taiwanese-invested enterprises listing.

On February 15, Chinese authorities released a batch of accounting and auditing standards, which formally began a process of convergence with international accounting standards set to come into full effect next January.

Financial market reform in China is sensitive. The converged standards will apply only to listed companies. But by bringing the Chinese accounting standards closer to international standards, the financial reporting process should be infused with greater transparency and better corporate governance.

This will make the financial statements of mainland-listed entities easier to understand for foreign investors and enhance China's capital market, allowing for the channelling of people's savings into a wider range of investment opportunities.

For Hong Kong and its accounting profession convergence is good news because it will ensure that as the mainland's economy grows, the steady stream of mainland-based companies coming to Hong Kong to raise funds will continue.

Mr Chan said fears about Hong Kong losing its competitive advantage in the face of an onslaught of internationally standardised mainland companies were unfounded, and that such developments actually represented opportunities for Hong Kong.

'From the institute's perspective we will take advantage of standards convergence to negotiate the possibility of allowing one more paper exemption in our qualification programme,' Mr Chan said.

The HKICPA's postgraduate qualification programme (QP) is a professional educational programme that examines prospective institute members' core competencies before membership admission and structured training.

The QP was launched in China in February in collaboration with the Beijing National Accounting Institute, which is the HKICPA's partner in Beijing and offers the programme to mainland students. About 20 students have embarked on the QP. This compares with 8,200 enrolments for the professional programme modules and the final professional examination in Hong Kong last year.

Graduates in China sitting the QP are exempt from two papers - financial cost management and auditing - under the terms of the Closer Economic Partnership Arrangement II. A third paper will probably be exempted, which will mean that students in China - including Hong Kong accountant members working in the mainland - would have to take only the papers on mainland tax and mainland company law to gain the HKICPA's professional qualification.

If the Beijing-based arrangements to offer the QP proved to be popular and successful, Mr Chan said the Hong Kong institute would consider expanding the programme to other cities such as Shanghai or Guangzhou.

The HKICPA has a role as the Hong Kong profession's statutory body responsible for the development and education of the local profession. But one of the strategic objectives of its latest five-year plan is to try to contribute to and influence the development of accounting in the mainland and contribute to its development.

'There is good reason for the HKICPA to devote resources to the mainland market and help its professional development,' Mr Chan said.

'Accounting is derived from demand. If the underlying economic activity is high, then the demand for accounting services is high. From that perspective, by helping the mainland draw closer to international standards it is only to Hong Kong's economic advantage,' he said.

According to a survey of HKICPA accountant members last year, a substantial portion  of them go to China to work on clients' businesses, and the frequency of those visits is  high.

Mr Chan said bringing the mainland's standards closer to international standards made it easier for Hong Kong-educated and experienced members to work in China. The QP paper exemptions also allowed them to pursue their ultimate qualification while working over the border.

'For some of the overseas accounting bodies in Hong Kong it is a big business to have their education programmes on the mainland. But we are a statutory body and so we must be accountable to the public and the profession in Hong Kong,' Mr Chan said.

'So in the mainland we want to have a public, collaborative approach, work with the local institute and have the blessing  of the Ministry of Finance for our programme. In this way we will not be considered a threat,  but rather a helping hand. That is the approach we are taking,' he said.



Into a brighter future with China