PwC has halted construction of a lavish campus in China that it planned to use as a training institute for “building trust in leadership”, amid mounting fallout from its audits of bankrupt property group Evergrande.
Work on the “Reimagine Park” at Haitang Bay on China’s tropical island of Hainan began last year, but was stopped in recent weeks, according to one person close to the firm and workers on the site and a neighbouring project. The project is under strategic review, another person briefed on the matter said.
The review comes as PwC Zhong Tian, the entity commonly known as PwC China, reels from financial sanctions from the Chinese government.
The unit was Evergrande’s long-time auditor and gave its accounts a clean bill of health, but Chinese authorities announced this year that the developer’s mainland subsidiary had inflated revenues by nearly $80 billion (€72 billion) in the years before it defaulted on its debts in 2021.
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On Friday, authorities handed a six-month ban to PwC China and a fine of Rmb441mn (€55 million), saying staff had “concealed or even condoned” fraud in audit failures in relation to Evergrande’s accounts.
The crisis has led to an exodus of clients, and the firm has been shedding staff and cutting costs in anticipation of the financial hit.
[ PwC fined €56m and banned for six months in ChinaOpens in new window ]
Reimagine Park, on a 16-acre plot of land by the picturesque Haitang Bay, a tourism hub in the southern Hainan city of Sanya, was due to be completed next year. Blueprints envisaged a “net zero” facility comprising nine buildings connected by futuristic shuttles.
PwC China said in 2022 that it would invest more than Rmb1bn (€126 million) in the project. It invited partners at the firm to personally invest in the project, according to two people familiar with the matter. It is not clear whether PwC tapped other sources of financing.
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The institute would have been open to a broad swath of Chinese students and professionals as well as PwC staff.
When the Financial Times visited the site, the shells of three buildings had been erected, with interior work only partially completed.
“The workers left at the end of July. There were loads of them, now it’s empty,” said one worker building a road that winds past the campus. “It must be to do with Evergrande. There’s no money any more,” he added.
A person still employed at the now almost deserted site confirmed that construction work had halted a few weeks ago.
“Reimagine Park is all about creating powerful and immersive experiences ... where businesses, governments and communities can build trust,” said PwC China’s then chair Raymund Chao in a promotional video last year in which he high-fived his own avatar. “Let’s leap into the future together,” he said.
[ PwC UK fined €17.6m over costly audit failuresOpens in new window ]
According to the 2022 company announcement, Reimagine Park was designed to host the “PwC Asia Pacific Trust Leadership Institute”.
The firm said it was partnering with Insead Business School, Thunderbird School of Global Management and the Danish Design Centre to design the curriculum for the institute. The three institutions said they were no longer involved in the project.
Further north in Hainan, in the city of Danzhou, Evergrande spent billions on developing “Ocean Flower Island,” an artificial orchid-shaped island designed to feature a theme park, shopping plaza, wedding venue and luxury villas.
Senior Hainan politician Zhang Qi, who approved the land reclamation, was convicted of corruption in 2020. In 2022, authorities ordered the demolition of part of the project because of violations of environmental and construction regulations.
The six-month suspension imposed on PwC China highlights the sharp reversal of fortune suffered by the unit, which had long been the country’s largest accounting firm by revenue in part because of its extensive work for property developers.
As a result of the reputational damage from Evergrande, PwC’s international bosses last week imposed a new leader on the Chinese firm, Hemione Hudson, who said in a note to staff that the coming weeks would “not be easy as we put in place a detailed remediation plan”.
PwC China has told clients it will still be able to sign off on their end-of-year audits after the suspension lapses in spring 2025, and Hudson told staff the international leadership promised to keep making “tangible investments” in the Chinese business. – Copyright The Financial Times Limited 2024
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