The new union will be a full-fledged merger, with seven senior managers of Da Hua joining as partners of Ernst & Young Da Hua.

Da Hua is rated as the premier audit firm on the mainland by the Chinese Securities Regulatory Commission (CSRC), in terms of the number of listed companies audited, the asset base of listed client companies and by their combined sales. Anthony T.Y. Wu, chairman of Ernst & Young’s operations in China, will serve as chairman of the new firm. Professor Tang Yun Wei has been appointed managing partner. Tang began his long association with Ernst & Young when training at the firm in the United States in 1981.

Enhanced presence in Mainland China

Commenting on the merger, Ernst & Young’s Wu said: The merger gives both parties what they need at this juncture. Ernst & Young needs the enhanced domestic presence in mainland China and Da Hua needs the international exposure, technical backup, and resources afforded by the merger with a Big Five accounting firm. This merger comes at an exciting time in China’s economic history as it prepares for its accession to the World Trade Organization and will provide us with additional resources and expertise to embrace the opportunities and challenges from this.

Forty-six of Da Hua’s clients are listed companies; some of the well-known names are Pudong Development Bank, Shanghai Hongqiao International Airport Co., Ltd., Shanghai No. 1 Department Store Co., Ltd., Shanghai Wai Gaoqiao Free Trade Zone Development Co., Ltd., Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd., Shenergy Co., Ltd., Shanghai Founder Yanzhong Science & Technology Group Co., Ltd., and Shanghai Automotive Co., Ltd.

A Major Step Forward

A representative of the central government, Li Yong, assistant minister of the Ministry of Finance, attended the launch ceremony as guest of honor. Li said of the merger: This development is in keeping with our policy of economic reform. Ernst & Young’s commitment to embracing Da Hua as its member firm in China is a major step forward for the development of the local accounting profession and will further help the development of the financial markets as a whole.

In the year 2000, the mainland Chinese stock markets raised over RMB143.1 billion (HK$138 billion) in funds. One hundred and thirty five companies came to market last year, raising RMB86 billion with a further RMB51.1 billion raised by issue of additional shares and placements. In Hong Kong, over HK$99 billion was raised through the issue of H shares. The combined total was HK$237 billion.

Looking to the year ahead in China, Wu predicted that the removal of the CSRC quota on listings would lead to an explosion in the number of companies seeking a listing on the mainland China and Hong Kong bourses. Ernst & Young expects there will be a more substantial year-on-year increase in the mainland Chinese market which, together with Hong Kong, is likely to produce funds in excess of HK$320 billion.

On the mainland, the RMB143.1 billion raised represents a 65 percent growth rate over 1999, but this year the predicted increase is likely to far exceed that of last year due to the removal of the quota system, said Wu.

Bringing Accounting Standards In Line

Da Hua was formed over 10 years ago following Central Government directives that the best way forward for the accounting profession on the mainland was to bring it in line with International Accounting Standards. The Ernst & Young Da Hua partnership evolved from an existing technical assistance agreement between the two firms. The new merged unit will operate in China under the Ernst & Young brand. In 1992, the government of the People’s Republic of China decided to permit joint venture firms with local Chinese partners to operate on the mainland. A joint venture firm was then established in the name of Ernst & Young Hua Ming Certified Public Accountants.

Ernst & Young’s China division was established in 1980 in recognition of the need for specialist and professional services with respect to investing and doing business in China following the open door policy. In 1981, Ernst & Young was one of the first professional services firms to establish a representative office in Beijing. Ernst & Young now operates offices on the mainland in Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu. The merger with Da Hua brings the Ernst & Young total staff complement on the mainland to over 1,100. Locally, Ernst & Young is one of the leading professional services firms in the Hong Kong Special Administrative Region with over 1,500 staff.