Chinese companies have been asked to step up data checks on auditors

China has told state-owned and mainland-listed companies to step up security checks when appointing auditors, as authorities seek to tighten controls over sensitive company information.

State-owned enterprises (SOEs) and publicly traded companies should be more thorough in reviewing auditors’ ability “to safeguard information security” and “strengthen controls of sensitive information,” regulators said Thursday.

The directive of the Ministry of Finance; the State-Owned Assets Supervision and Administration Commission, the top supervisor of China’s state-owned groups; and the China Securities Regulatory Commission, the nation’s securities regulator, also ordered companies to include clauses stipulating the accountability of auditors when handling sensitive information.

The intervention is the last sign of it Chinathe world’s second-largest economy is focusing more on data and information security, potentially undermining its efforts to attract foreign investors.

The big four accounting firm have spent decades expanding their business in China, but their market-leading position was threatened after a string of insolvencies and delayed financial results from customers.

The Big Four of Deloitte, KPMG, EY and PwC were the auditors of 30 of China’s 50 largest SOEs by revenue in 2021, according to a Financial Times review of Chinese groups’ financial statements. Chinese rules require SOEs and domestically listed companies to rotate their auditors every eight years.

Analysts had expected further action by regulators after the finance ministry shut down Deloitte’s Beijing operation for three months in March and hit the firm with a record fine of $31 million for “serious deficiencies” in an audit of bad debt manager China Huarong Asset Management.

In a subsequent meeting with Deloitte’s global chairman, China’s deputy finance minister said Beijing would step up its scrutiny of accounting firms in China.

Regulators did not name any companies on Thursday, but local auditors are also facing increased scrutiny. The finance ministry said last month it would install a “high voltage cable” to eliminate accounting malpractice and fraud.

The pressure on auditors comes amid a growing number of raids by authorities on the Chinese offices of international consultancies, including Bain & Company.