PwC’s Evergrande crisis deepens with record Hong Kong settlement and criminal probes

(By Caixin journalists Wang Juanjuan, Wang Xiaoqing and Wang Shiyu)

China Evergrande Group’s financial fraud has caught up with PricewaterhouseCoopers in Hong Kong, dealing an unprecedented blow to the accounting giant and deepening an accountability crisis that threatens its future in the region.

On 23 April, the Hong Kong Securities and Futures Commission (SFC) announced a landmark settlement requiring PwC Hong Kong to set aside HK$1 billion (US$120 million) to compensate eligible independent minority shareholders hurt by the property developer’s massive fraud in fiscal 2019 and 2020. The fund will be distributed through a process overseen by independent administrators. Under the settlement, PwC Hong Kong didn’t admit legal liability, and the commission agreed to take no further action as long as the firm meets the agreement’s conditions.

The same day, the city’s Accounting and Financial Reporting Council (AFRC) fined the firm HK$300 million for serious audit deficiencies, barred it from taking on new clients for six months and penalised two executives.

Caixin learned that engagement partners at PwC’s Chinese mainland and Hong Kong firms have been taken away by mainland authorities and are under criminal investigation over their alleged involvement in Evergrande’s financial fraud. Both PwC’s Hong Kong and mainland units declined to comment on the matters.

Regulators alleged that PwC turned a blind eye to — and even facilitated — a multibillion-dollar fabrication by the fallen property giant for years.

The SFC found that Evergrande, now in liquidation, significantly inflated revenue and profits in 2019 and 2020 by recognising sales before property projects were completed and delivered to buyers. The developer overstated audited revenue by 213.9 billion RMB (US$31.3 billion) and 350.2 billion RMB for the two years, respectively. 

The Hong Kong sanctions follow severe penalties imposed on the firm’s Chinese mainland affiliate. In September 2024, mainland authorities imposed a record 441 million RMB fine on PwC Zhong Tian LLP, which audited Evergrande’s core real estate business, suspended the firm’s operations for six months and revoked the licences of several accountants for helping conceal Evergrande’s fraud.

The case underscores the severe consequences of China’s tightened regulatory environment, as authorities shift their focus from merely punishing corporate executives to holding financial gatekeepers accountable.

PwC now faces mounting questions over how it will pay the massive bill, whether its global network will step in and whether former partners will be forced to return past payouts. Its client base is also under severe strain. Before the Evergrande scandal, PwC had long held the top spot in China’s audit industry, with annual China revenue once exceeding 10 billion RMB, most of it generated on the Chinese mainland. Its mainland clients were concentrated among deep pocket financial institutions, large central state-owned enterprises and leading listed companies. Its A-share client roster has since shrunk to fewer than 30 from 107.

Accounting firms operate as partnerships that typically distribute annual profits directly to partners, leaving little cash on their books. Industry insiders say professional indemnity insurance, a longstanding pain point in the sector, often falls short of covering liabilities of this size.

Under Hong Kong industry practice, auditing firms are required to buy professional liability insurance. A senior member of the Hong Kong Institute of Certified Public Accountants said PwC Hong Kong holds a master policy managed by broker Aon Hong Kong Limited and co-underwritten by AIG Insurance Hong Kong Limited and others. But a veteran Hong Kong insurance expert estimated that if the firm bought only the minimum required coverage, payouts would likely amount to only tens of millions of Hong Kong dollars — far short of the HK$1 billion settlement.

Accounting veterans broadly agree that the bulk of the HK$1.3 billion will have to come from internal resources. People close to PwC said the firm is likely to pursue clawbacks of past payouts from former managing partners. If they refuse, civil litigation could follow.

During PwC’s more than decade-long relationship with Evergrande, its China operations were led by Raymund Chao, former Asia-Pacific and China chairman. An anonymous internal letter in April 2024 accused him of prioritising high partner incomes — allegedly earning HK$50 million a year himself — while allowing risk management to fail. Chao stepped down in July 2024 and was succeeded by Chinese mainland partner Daniel Li. Shortly after, Hemione Hudson, a senior partner from the UK, was appointed to lead the China business and manage the deepening crisis. People familiar with the matter said Chao has already retrieved his partnership capital and is now abroad.

There are precedents for global network bailouts. Between 2009 and 2010, EY in Hong Kong faced a US$230 million compensation demand from liquidators of Akai Holdings Ltd. and Moulin Global Eyecare. A US loan ultimately saved the Hong Kong affiliate from bankruptcy.

Civil claims also loom. Evergrande’s liquidators, Alvarez & Marsal Inc. managing directors Tiffany Wong and Edward Simon Middleton, filed a lawsuit in March 2024 accusing the auditor of negligence and misrepresentation. The first hearing is scheduled for 18 May 2026.

The AFRC penalised Zhou Shiqiang and Zhang Zhaochang, but both were in oversight roles rather than on the front line of the Evergrande audits. Zhou, PwC’s then-head of audit for South China and Hong Kong, was responsible for the firm’s quality control system for Evergrande-related audits. Zhang served as quality control reviewer for the Evergrande engagement. In a note to its penalty decision, the council said enforcement actions against the relevant engagement partners are still under way.

Several key individuals linked to Evergrande are already under criminal investigation on the Chinese mainland, people familiar with the matter said. Kenny Yeung, the former PwC audit partner for Evergrande and its auto and healthcare units, is under investigation on the Chinese mainland. Yeung signed off on Evergrande’s 2019 and 2020 financial reports. According to the council, he was stationed at the Guangzhou branch and derived more than 80% of his personal income from Evergrande audits.

Also under investigation is Paul Tang, the signing certified public accountant for Evergrande’s 2019 and 2020 annual reports, whose licence was revoked by the Ministry of Finance last year.

“We didn’t expect them to be actively helping Hui Ka Yan cook the books,” a senior audit professional said. The China Securities Regulatory Commission previously said the firm went beyond simple negligence, actively covering up and facilitating the developer’s financial fraud and fraudulent bond issuances.

In China’s increasingly strict regulatory environment, auditors who cross the line can be charged as accomplices to fraudulent securities issuance, a crime that carries a prison sentence of as long as 15 years, matching the charges faced by Evergrande founder Hui.

The Evergrande fallout has dealt PwC a painful blow, eroding its dominance in China’s audit market.

Before the scandal, PwC Hong Kong audited more than 30% of Hong Kong-listed companies valued at more than HK$50 billion. After the Chinese mainland penalties, more than 20 major clients, including AIA Group Ltd., Li Ning Co. Ltd. and Ping An Healthcare and Technology Co. Ltd., cut ties with the firm between May and June 2025, costing it hundreds of millions of Hong Kong dollars in fees. Hong Kong financial regulators have also replaced the firm with Deloitte.

Tech giants including Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Xiaomi Corp. have yet to jump ship, but industry insiders said the latest April penalties could trigger another wave of defections during the critical May shareholder-meeting season.

On the Chinese mainland, the damage has been severe. PwC Zhong Tian, which led the industry in revenue for two decades, disappeared from the top 100 rankings published in late 2024. Its client roster once included 107 A-share companies, including state-owned giants such as Bank of China Ltd., China Life Insurance Co. Ltd., China Telecom Corp. Ltd. and People’s Insurance Co. (Group) of China Ltd. It has since fallen to fewer than 30.

Under regulations issued in November 2025, state-owned financial enterprises are effectively barred for three years from hiring auditors that have been subject to recent regulatory penalties. That means PwC is unlikely to be eligible to bid for lucrative state-owned clients until at least March 2028.

PwC Zhong Tian’s remaining A-share clients are mostly private or foreign-backed companies, including top fee payers such as Foxconn Industrial Internet Co. Ltd., SF Holding Co. Ltd. and Midea Group Co. Ltd. Its domestic audit revenue fell to 5.77 billion RMB in 2024, down more than 1 billion RMB from 2022, according to a disclosure by Foxconn Industrial Internet.

As clients leave, talent has followed. PwC’s headcount in China has fallen to about 13,000 from more than 20,000 before the crisis.

“Although the firm’s business suspension period on the Chinese mainland has passed, under current regulatory standards, PwC will not be able to return to its former place at the table for two or three years,” an audit executive said. “High-paying financial institutions and state-owned enterprises cannot and will not invite them to bid.”

This article was first published by Caixin Global as “In Depth: PwC’s Evergrande Crisis Deepens With Record Hong Kong Settlement and Criminal Probes”. Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

Related: Evergrande’s Hui Ka Yan: From rags to empire to prison | [Big read] Colluding in deceit: Will PwC get a second chance in China after the Evergrande scandal?