In an increasingly unstable global economy, Richard Petty, FCPA (Aust) and president of CPA Australia, believes mainland companies entering global markets can become more compliant and transparent by adopting international financial reporting standards. 'Doing so means that some of the mistakes of the past won't be repeated,' he said. 'With more uniformity in the way [financial] information is presented, it removes variability and uncertainty.' Loretta Shuen, FCPA (Aust), president of CPA Australia's Hong Kong China division and a tax and business advisory services partner at Ernst & Young, agreed that greater disclosure increased investor confidence and helped 'raise capital in international markets'. Petty recommended that mainland companies avail themselves of 'professional services firms with global reach ... typically, that's been the Big Four accounting firms, as well as a few other large firms', because if a company wants to go to a developed market, who endorses and signs off on their information is key. 'Go with a firm that is trusted in the US and Europe if you want to be accepted in those markets,' Petty said. Chaly Mah, FCPA (Aust), president of CPA Australia's Singapore division and chief executive for Deloitte, Asia Pacific, said the Big Four firms were 'well positioned [on the mainland]', but he said Beijing wanted to create mainland accounting firms with a global reach. 'The aim is to build a national network of firms that can compete with the Big Four,' he said. It is prudent advice, according to Bernard Chan, FCPA (Aust), a former Executive Council member who thinks mainland companies will keep on making major foreign acquisitions. 'Since [mainland] companies began listing overseas, they have had to learn to adopt international accounting standards,' said Chan. 'Since the country signed up to the WTO, domestically listed companies are heading the same way.' As for reconciling the gap between the information that markets expect from annual and financial reports, and the information companies provide under statutory reporting requirements, Petty said it was hard for prospective investors in mainland companies to be confident without intimate knowledge. 'Companies must clearly represent what they do,' he said. There was a risk in companies not sharing much, and that caused a lower valuation. 'You're often forced to assume the good stuff doesn't exist - because they've not told you that is does and you can't independently find or verify it - or that bad stuff exists [which tends to be overestimated] when it doesn't,' Petty said. Conversely, when companies voluntarily disclosed more information, they increased transparency and lowered their perceived risk. 'There is plenty of empirical data suggesting greater information in the public domain about a company is associated with higher stock prices,' Petty said. Chan said mainland accounting and corporate governance standards must be raised across the board. While acknowledging regulatory improvements, he cited scandals with milk, toothpaste, pet food and now dry walling in the US as damaging the country's reputation and encouraging protectionism overseas. Shuen backed new corporate governance rules and regulations issued by the China Banking Regulatory Commission, China Securities Regulatory Commission and the National Audit Office, prompting companies to 'self-evaluate their internal controls' - thereby improving the awareness of corporate governance. Shuen also said he was impressed with the progress made by mainland accountants over the past five years and believed the central government had played an important role in enhancing accounting standards through its guidelines. 'They have brought China closer to international standards,' she said. But given the mainland's size, enforcement varied according to locality. As for the mainland's growing dependence on imported fuel and resources, sustainable practices offer a way of improving energy security. Chan said carbon taxes and efficient resource use were issues that went straight to the bottom line. 'In that case, CFOs could be at the forefront of promoting sustainable practices,' he said. The purported reason for driving foreign investors out is mainland tax laws, although according to Shuen, this is probably more a result of the global recession in which investors are looking for more relief in general. 'China has already amended its Corporate Income Tax law, its Business Tax law and its Value-added Tax law and incentives are available in other forms' Shuen said. Nevertheless, Petty said barriers other than taxation and regulation may cause foreign investors to seek greener pastures. 'Fifteen years ago, many foreign companies had a 'China strategy' and they entered China through one of the four top-tier cities,' he said. 'Ten years or so ago they started looking to second-tier cities. For some firms, [the mainland] was the centre of their global manufacturing, then cost barriers were erected through increased wages and office rents. This has led to many companies developing a 'China-plus-one' strategy [the mainland plus Vietnam, Indonesia or Bangladesh].' He agreed that some barriers would be alleviated as more second-tier cities in the mainland's hinterland were connected to the national transport network. As foreign direct investment (FDI) to the mainland falls, some suggest it will have to rely more on domestic consumption for growth and that will create economic opportunities for Brazil, Russia, India, Vietnam, Cambodia, Laos and parts of Thailand where wages are lower. Chan said a shift in FDI flows away from the mainland towards India and Southeast Asia 'certainly looked possible in the coming years, especially where lower-value export manufacturing is concerned', adding that some of that could be outward investment from the mainland itself, especially with looser capital controls. Similarly, Petty agreed that while short-term FDI into the mainland had fallen, it was a short-term effect of the global crisis. 'I'm not convinced FDI into [the mainland] will decrease in a sustained way,' he said. Since a large part of FDI into [the mainland] was funnelled through Hong Kong, 'official FDI numbers' often understated the real FDI level into the mainland, he said. 'It is likely there will be big investment into [the mainland], but it will likely be higher up the value ladder, with technology-intensive industries featuring more prominently, as well as service-based industries,' Petty said. '[The mainland] will still have large product manufacturing facilities into the foreseeable future, however. It won't just be assembly and sub-assembly, but higher-end manufacturing, along with more pharmaceuticals, and quality testing and control because that's where value is being created.'