Accounting Evolution in China, 1949 to 1994

Xie Shaomin, Accounting Evolution in China, 1949 to 1994 (Chugoku no kigyokaikeiseido) (Tokyo: Soseisha, 1997, 461 pp. (published in Japanese), $43) Reviewed by Yang Yugi, Nihon University Hiroshi Kawakita, Toa University Yoshiro Kimizuka, Denkitsushin University, Emeritus This book works to clarify the history, the status quo, and the unique characteristics of the Chinese Business Accounting System (CBAS) since 1949, when the People's Republic of China (PRC) was born. To the best of our knowledge, it is the only systematic book on the modern accounting history of the PRC. The author, Xie Shaomin, was born in the PRC and is now an associate professor at Shizuoka Seika College in Japan. From 1986 to 1989, prior to earning her doctorate in 1995 in Japan, she was an assistant professor of finance and economics at Shanghai University. We cannot but admire her efforts as well as her talents that enabled her to master the intricacies of the Japanese language and complete this wonderful work in such a short period of time. Dr. Xie Shaomin outlines her objectives in the preface: (1) to introduce the CBAS objectively and in its economic and social contexts; (2) to grasp the character of the CBAS as it reflects accounting methods for state enterprises; (3) to understand trends through comparison and analysis of financial statements; (4) to hypothesize that the CBAS is a subsystem of public finance; that is, that that system evolved in response to changes in the distribution of economic profits; and (5) to explain how the new accounting system reflects a change in accountability from the government to the business entity itself. This ambitious work is divided into two parts - the development of the Chinese accounting system and the internationalization of that system. The three chapters in Part I describe the development of the planned economy following the revolution in 1949, the socialist market economy since 1979, and the socialist market economy since 1993 when CBAS, CPA Law, and Company Law were published. Some of the interesting facts from Part I include the problems caused by the Great Cultural Revolution (circa 1966 to 1977), creating disorder similar to the disregard for accounting practice following the 1917 revolution in Russia [Chapter 1]. Later, when the PRC reopened diplomatic relations with the U.S. in 1979, economic innovation and the open-door policy resulted in numerous changes in accounting regulations. The ensuing trend towards separation of management from ownership introduced new forms of business as part or all of state enterprises were put out to contract, leased or sold to employee groups [Chapter 2]. As a result, the weight of state enterprises in the gross products decreased from 78.5% in 1979 to 48.1% in 1991, while that of group-owned enterprises increased from 21.5% and 38.0% respectively [p. 148]. Unfortunately, this reorganization of state enterprises was accompanied by the disappearance of enormous amounts of state assets as the hasty privatization bred private profiteering and hopeless disorder (similar to what has occurred more recently in Russia). It was estimated that between 1982 and 1992, 100 million yuan evaporated every day. Eventually, systematic accounting regulations, including standards of business accounting and finance, were introduced, including the modern concepts of GAAP, double-entry bookkeeping (assets = liabilities + capital), accounting for bad debts, and LIFO inventory cost flow. …