Political ideology and accounting regulation in China

Accounting, Organizations and Society 32 (2007) 669–700 www.elsevier.com/locate/aos

Political ideology and accounting regulation in China Mahmoud Ezzamel b

a,*

, Jason Zezhong Xiao a, Aixiang Pan

q

b

a Cardiff Business School, Cardiff University, Cardiff CF10 3EU, Wales, UK School of Accounting, Beijing Technology and Business University, 33 Fucheng Road, Beijing, China

Abstract This paper analyzes the relationship between political ideology and accounting change covering the transition from Maoism to Dengism in China. Under Mao, the ideological principles of class struggle primacy, central planning, and public ownership were mobilized to construct a class view of accounting according to which Western accounting concepts were prohibited because they were considered a tool of capitalist exploitation. Under Deng, the new ideological principles of economic development primacy, marketization, and mixed-ownership paved the way for a different view of accounting to emerge. Accounting was re-presented as a science and a neutral technology with no national boundaries, and the adoption of what were deemed Western accounting concepts, such as conservatism, was encouraged. In both eras, accounting was construed as a malleable object shaped by the force of the dominant political discourse. We show how in each era political ideology created a context that was rendered more or less compatible with the adoption of particular accounting concepts.  2006 Elsevier Ltd. All rights reserved.

q

An earlier draft of this paper was presented at the Interdisciplinary Perspectives on Accounting (IPA) Conference, Madrid, July 2003. We acknowledge financial support from a Cardiff Business School Seedcorn grant and the Chinese Accounting, Finance and Business Research Unit at Cardiff Business School. We thank the interviewees for their cooperation and Guowei Gong, Luan Lee, Ping Meng, Guliang Tang, Bin Wang, Linda Liang Sun, Huacheng Wang, Zhihua Xie, Youhong Yang, Arthur Zhang, and Yikuan Zhang for their help in arranging the interviews. We also acknowledge the helpful comments made by the participants at the IPA, Keith Robson, and the two anonymous reviewers. * Corresponding author. E-mail addresses: ezzamel@cardiff.ac.uk (M. Ezzamel), xiao@cardiff.ac.uk (J.Z. Xiao), [email protected] (A. Pan).

Introduction Researchers have increasingly become interested in examining the relationship between ideology and accounting, with the latter being recognized not just as a technical apparatus but also as a practice that shapes and is shaped by society (Burchell, Clubb, Hopwood, Hughes, & Nahapiet, 1980). Stressing the importance of understanding the link between ideology and accounting policy choice, Mason (1980, p. 30) argues that: ‘‘At the highest level the social norms which guide the selection process are ideological. . . This raises the rather

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intriguing question of how ideology percolates down into accounting practice.’’ It has been suggested that accounting policies can serve the ideologies of the dominant social groups in society [dominant ideology1] and that accounting is the site of conflict between groups of different interests (Arnold & Hammond, 1994; Tinker, 1980). Researchers have attributed specific ideologies to accounting itself (Gilling, 1976; Tinker, Merino, & Neimark, 1982) and to the accounting profession (Robson, Willmott, Cooper, & Puxty, 1994). Yet, much remains to be known about how ideology facilitates or inhibits the use of specific accounting concepts. We know precious little about the impact of ideological discourse on accounting regulation, and how such an impact may change with shifts in political ideology over time. This paper examines the impact of political ideology on accounting regulation in China, focusing on the transition from Maoism to Dengism.2 It locates the emergence of specific ideological discourses within the relevant Chinese socio-political and historical contexts, and explores how these discourses diffused into the domain of accounting. Maoism prevailed in China between the 1950s and the late 1970s, and was gradually replaced by Dengism thereafter. Maoism is orthodox socialism stressing class struggle, central planning and public ownership. Under Deng, a major ideological shift occurred: from production relations to productive forces, from central planning to socialist market economy, and from state-ownership to mixedownership (Expert Group, 1995). We investigate the impact of the dominant political ideology in each era on the debate on the nature of account-

1

For insightful discussions of dominant ideology within Marxian analysis, see Abercrombie, Hill, and Turner (1980) and Bottomore (1984). We adapt the term here to signify the set of beliefs produced, circulated and promoted by any ruling class. In the case of China, we are concerned with the beliefs of influential individuals, political organizations and state apparatus in the Mao and Deng eras. 2 Our examination of accounting regulation in China focuses mainly on mandated accounting and mandated changes in it by the state, although in the course of our analysis we also refer whenever relevant to regulatory bodies in terms of their involvement in producing and disseminating discourses on accounting change and also promulgating new regulations.

ing, why political ideology had such an impact, and how that impact was effected. We focus on how dominant political ideologies shaped the terms of the debate on accounting and how they created contexts which occluded or sanctioned the adoption of particular accounting concepts. Our theoretical framing is informed by the work of Abercrombie et al. (1980), Thompson (1984), Eagleton (1991) and Laclau and Mouffe (2001) in our effort to unpack the notion of dominant political ideology, and by the ideas of Foucault (1972), Bourdieu (1991), and Said (1991) in order to develop the notions of ‘‘discourse of authority’’ and the context-dependence of discourse (see Alvesson & Ka¨rreman, 2000 for varieties of discourse analysis). Our main focus is on accounting in general, but to illustrate our argument we make some reference to conservatism by way of an example for three reasons.3 First, the rejection of conservatism under Mao and its adoption under Deng exemplifies the nature of the process of accounting regulations since the launch of the economic reform in China. Second, the discourses mobilized to discredit conservatism under Mao and to support it under Deng demonstrate clearly the impact of the dominant political ideology on accounting regulation. 3

‘‘Conservatism’’ and ‘‘prudence’’ have two corresponding Chinese words ‘‘wenjian’’ and ‘‘jinshen’’. Literally, ‘‘wenjian’’ means ‘‘firmness; steadiness’’ while ‘‘jinshen’’ means ‘‘prudence; caution; carefulness’’. Both terms are used interchangeably in the Chinese accounting literature (Li, 1991; Yang, 1993), and by our interviewees. Moreover, these terms are defined in China in a way similar to the ways in which conservatism has been defined in the West. For example, Xia (1946, p. 6) defines ‘‘wenjian’’ as a principle that results in ‘understatement of assets and income and overstatement of liabilities and expenses’’. Similarly, Zhang (1990) defines ‘‘wenjian’’ as a principle for dealing with uncertain factors by fully estimating potential risks and losses, not recognizing potential income, preferring lower assets valuation and higher liability valuation . . .so that the financial statements do not cause their users to be over optimistic. In addition, the two Chinese terms are often illustrated by reference to specific applications or practices: ‘‘The ‘wenjian’ principle is considered an important convention in capitalist financial accounting. Based on this convention, it is acknowledged that the lower of cost or market rule is widely adopted for stock valuation in the preparation of the balance sheet.’’ (Ge, 1981, p. 180). Hence, throughout the paper we will consistently translate these terms as ‘conservatism’.

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In both eras, the debate over conservatism was a particularly sensitive issue among Chinese academics, accounting regulators, and practitioners. In the Mao era, conservatism was viewed as the embodiment of capitalist production relations and class interests more than any other Western accounting principle. For example, Xin and Huang (1951, p. 15) argued that ‘‘capitalist accounting theory is biased and hypocritical in many respects and is required to mask secrets. . .Indeed the valuation principle for the balance sheet arbitrarily distorts facts. For example, the lower of cost or market value . . . is adopted in capitalist accounting theory as a valuation rule typical of conservatism.’’ Third, conservatism was considered contradictory to other accounting principles consistent with socialism, such as objectivity and consistency. Conservatism, as understood in both the Western (Watts, 2003) and Chinese (Jia, 1987; Xin & Huang, 1951) literatures, typically refers to tempering over-optimism in reported profits by means of recognizing both realized and unrealized but anticipated losses while recognizing only realized profits. Mainstream Western literature (e.g., Watts, 2003) links the use of conservatism primarily to accounting’s contracting role (determination of distributable profits and agent performance), reducing incentive for managers to bias valuation estimates, paying lower taxes, or dealing with uncertainty but without any explicit link to political ideology. Our analysis shows that the attitude towards conservatism in China has changed under different ideologies (see also Maltby, 2000 on the changing rationales for conservatism in the West). Despite the presence of uncertainty and much optimism under Mao, conservatism was conceptually denounced and its practice prohibited (Xin & Huang, 1951) because it was portrayed as a means of deliberately understating profits in order to exploit workers, or a way of building secret reserves to evade taxation. Only when Dengism became a dominant ideology was the use of conservatism in accounting sanctioned in China (Ministry of Finance, 1992b), as it was presented as a tool that would help address market uncertainty and improve the reliability of accounting information (Li, 2001).

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This paper aims to make two distinctive contributions to the literature. First, it emphasizes the discursive characteristics of the changes in accounting regulation brought about by changes in political ideology. It shows how political discourses under Mao and Deng provided the conditions of possibility for certain accounting concepts to operate as discourses of authority (Bourdieu, 1991), armed not only with political power and state might, but also with the pronouncements of knowledge experts in the form of influential academics, practitioners, party members and government officials. Accounting was treated as a malleable object, viewed as a class tool under Mao and re-presented as a science and a neutral technology under Deng. Second, the paper examines the impact of political ideology on accounting regulation in a Chinese context that is vastly different from the AngloAmerican focus of much of the previous literature. With few exceptions (e.g., Arnold & Hammond, 1994; Lin & Chen, 1999), previous studies on accounting change were mainly conducted in advanced capitalist countries. In contrast, this paper focuses on ideology and accounting regulation in China as a major transitional economy. The next two sections discuss the relationship between ideology and discourse analysis and the research method. In two further sections, we analyze the discourses centred on the nature of accounting. Although our main focus is upon accounting change during the shift from Maoism to Dengism, we devote some of our analysis to the Mao era in order to clarify the nature and extent of the ideological change under Deng and its impact on accounting. The final section provides a discussion of our key arguments and conclusions.

Ideology and discourse analysis The literature is replete with efforts to unpack the term ‘‘ideology’’; a broad definition (which Geuss, 1981, p. 4, calls the descriptive sense) entails the process of producing ideas, beliefs and values in social life (e.g., Baradat, 1991; van Dijk, 1998), but this almost equates ideology with a notion of culture that emphasizes the signifying

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practices and symbolic processes in a society (Eagleton, 1991, p. 28). As Thompson (1984, p. 4) notes, in this view ideology is assumed to be present in ‘‘every political programme, irrespective of whether the programme is directed towards the preservation or transformation of social order.’’ Such a definition is too ‘‘politically toothless’’ (Eagleton, 1991, p. 7) to be helpful for our purposes, since our interest is in pursuing how dominant political and intellectual elites in China produced and circulated performative ideological discourses that impacted the regulation of accounting. Geuss (1981, p. 8) has suggested that ideologies can be distinguished in the narrow sense by appealing to differences in their ‘‘manifest content’’, by reference to what the beliefs are about or to differences in their functional properties, i.e., the manner in which ideology influences action. Following this lead, we view ideology as being intertwined with the process of sustaining asymmetrical relations of power and domination (Geuss, 1981; Thompson, 1984; Torfing, 1999, p. 159). We pay special attention to ‘‘political ideology’’, whereby ideology becomes the means by which actors engage into political battles ‘‘at the level of signs, meanings and representations’’ (Eagleton, 1991, p. 11). We use the term ‘‘political ideology’’ to designate either beliefs that are intended to be about political values and structures, and/or beliefs that impact upon political behaviour and action. Dominant ideologies can pursue various strategies: ‘‘A dominant power may legitimate itself by promoting beliefs and values congenial to it; naturalizing and universalizing such beliefs so as to render them self-evident and apparently inevitable; denigrating ideas which might challenge it; excluding rival forms of thought, perhaps by some unspoken but systematic logic; and obscuring social reality in ways convenient to itself’’ (Eagleton, 1991, pp. 5–6, original emphases). Such strategies are not orthogonal to each other but interact with each other. This brings us much closer to the notion of ‘‘dominant ideology’’ with that being the ideology promoted by political and intellectual elites. Dominant groups would seek to promote and legitimate their own interests in the face of oppos-

ing groups, by sustaining or challenging the political form of life: ‘‘Ideology can here be seen as a discursive field in which self-promoting social powers conflict and collide over questions central to the reproduction of social power as a whole’’ (Eagleton, 1991, p. 29). Dominant ideologies also seek to generate a unified social formation by all manner of persuasion, including distortion and dissimulation. While we wish to emphasize the role of dominant ideology in accounting regulation, we are aware that not every belief/idea that people consider to be ideological is of necessity the preserve of dominant political groups. We also acknowledge that no ideology, however dominant, fully denies the space for opposing ideologies, hence below we consider alternative ideologies that are marginalized or oppressed by the dominant ideology since no dominant ideology can ever provide a closure of ideological debate. The ‘‘Field of Discursivity’’ Ideology operates through language and discourse with the aim of producing specific effects (Larrain, 1979; Thompson, 1984); it is about ‘‘who is saying what to whom for what purpose’’ (Eagleton, 1991, p. 9). In discourse analysis human cognition and speech-acts assume meaning only within certain pre-specified discourses, whose differing structurations undergo change over time. Hence, ideology is not a static ensemble of ideas, rather it is a set of complex effects internal to discourse (Eagleton, 1991, p. 198). Laclau and Mouffe (2001) emphasize differential positions and distinguish four key concepts: elements, moments, articulation and discourse. An element is a difference that has not been developed via discursive articulation. Once an element is identified linguistically it is transformed into a moment (or a differential position). Articulation is the practice of establishing a ‘‘relation among elements’’ that modifies their identity (Laclau & Mouffe, 2001, p. 105), and discourse is the ‘‘structured totality resulting from the articulatory practice’’ (Laclau & Mouffe, 2001, p. 105). If all permissible elements have been fully discursively articulated, a closure is attained as the discursive formation becomes a completely constituted totality. Alternative dis-

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courses, however, are always possible because ‘‘no discursive formation is a sutured totality and the transformation of the elements into moments is never complete’’ (Laclau & Mouffe, 2001, pp. 106–107). It is within such an understanding that Torfing (1999, p. 85) describes ‘‘discourse’’ as ‘‘a differential ensemble of signifying sequences in which meaning is constantly renegotiated’’; hence meanings are partially fixed rather than fixed once and for all. This partial fixation of meaning leads to a ‘‘surplus of meaning’’ which is the necessary terrain ‘‘field of discursivity’’ in which the articulation of discourse occurs (Laclau & Mouffe, 2001, p. 111, original emphases). The partial fixation of meaning represents privileged discursive points (nodal points), but the field of discursivity is never totally dominated by any particular discourse. Zˇizˇek (1989, pp. 95–96) notes that a nodal point, such as ‘‘Class’’ has no rich, dense meaning but is an empty signifier with the ability to unify a discursive field and give it its identity: ‘‘it [a nodal point]. . . is nothing but a ‘‘pure difference’’: its role is purely structural, its nature is purely performaˇ izˇek, 1989, p. 99). The field of discursivity tive’’ (Z provides the scope for a multiplicity of competing discourses (even though only one may be dominant) to be more or less articulated, thereby always holding the promise for the demise of the dominant discourse and the rise of another. The discourse of authority and its ‘‘worldly’’ context Traditional discourse analysis has been criticized for its emphasis upon texts to the exclusion of their social and political contexts. For Foucault (1972), the rules and formations of a particular discourse, say medical discourse, have to be articulated within their non-discursive conditions which include political events, economic phenomena, and institutional changes.4 Foucault is clear that the relationship between the discursive and nondiscursive is not deterministic. Non-discursive formations impact the mode of emergence and 4

While Foucault (1972) draws a distinction between the discursive and non-discursive, others (e.g., Laclau & Mouffe, 2001) reject such a distinction.

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functioning of discourse, but no discourse is so passive as to be fully transformed according to the force of the non-discursive. Rather, discourse retains an element of autonomy and specificity. Said (1991, p. 4) has also noted, ‘‘texts are worldly, to some degree they are events, and, even when they appear to deny it, they are nevertheless a part of the social world, human life, and of course the historical moments in which they are located and interpreted.’’ Similarly, Bourdieu (1991, p. 169, original emphasis) underlines the social conditions of the production and functioning of ideological discourse: ‘‘ideologies are doubly determined. . . [and] owe their most specific characteristics not only to the interests of the classes or class fractions they express. . ., but also to the specific interests of those who produce them and to the specific logic of the field of production’’. This is a context that is imbued with symbolic power in which ‘‘the power relations between speakers or their respective groups are actualized’’ (Bourdieu, 1991, p. 38) through the discourse of authority. For Bourdieu, the conditions that render authority discourse specific consist of it being understood, of it exercising its effects only once it is recognized as such, and of it being uttered by the person(s) legitimately licensed to do that (Bourdieu, 1991, pp. 111–113). As our theoretical framing signals the importance of the context of discourse, our analysis emphasizes two dimensions: agents involved in producing and circulating discourse and sites of discourse. In discourse analysis, agents (subject positions) matter (Said, 1978, p. 23). Thus, we identify the key individuals/groups associated with a particular discourse, and their occupation and standing within their professional grouping. Sites of discourse (geographical locations, issues debated, and media through which discourse is disseminated) are not the outcome of random choice but, we contend, are carefully selected by those who produce and circulate discourse in order to produce maximum effects. Hence, in our analysis, we contextualize the discourses on political ideology and accounting in China within the appropriate geographical locations in which they were produced and circulated, and we highlight the issues debated and the media chosen for dissemination (e.g., conferences, journal publications).

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Research method The paper draws upon primary sources, secondary documents and interviews. Our primary sources include works and speeches by prominent Chinese politicians such as Mao and Deng and the pronouncements of the Communist Party of China (CPC); these are used to articulate Maoism and Dengism as political ideologies. In addition, accounting regulations and rules issued by China’s State Council and the Ministry of Finance were examined in order to discern the extent to which accounting regulation mapped onto political ideology. The secondary documents are articles and books containing debates on Maoist and Dengist ideas by academics, government officials, practitioners, and regulators. The focus upon these individuals/groups/institutions is a reflection of our theoretical framing which considers subject positions and sites of discourse production and dissemination as part of the context of the discourse. Most of these sources are in Chinese, and were translated into English by one of the authors. The primary and secondary sources were supplemented by 52 semi-structured interviews with accounting regulators, government officials, accounting academics, accounting practitioners, and managers in state-owned enterprises and Chinese–foreign joint venture companies undertaken during the period 2001–2004 (see Table 1). The interviewees were selected on the basis of the authors’ knowledge of the accounting profession and accounting regulatory bodies in China, literature search that identified key state apparatuses and influential individuals, and suggestions made by informants in the interviews. Following our theoretical framing, we have focused upon those individuals whom our search has identified as having been prominent actors in the production and dissemination of discourses on political ideology or accounting regulation. In most cases, each interview was conducted by two of the authors. All interviews were conducted face to face except for one telephone interview and one interviewee who provided lengthy written responses to our questions. As Table 1 shows, 17 interviews were tape-recorded and transcribed, and detailed notes were taken in the remaining interviews where

recording was not permitted. Three interviews were conducted in English, one in a mixture of English and Chinese, and the remaining in Chinese. In the case of the interviews conducted in Chinese, each interview was led by the bilingual author who instantaneously wrote an English summary for the benefit of the non-Chinese speaking author. This made it possible for the latter to participate fully in the interview by asking further questions through the bilingual author. Each interview lasted between one and a half hours and three hours, except for the telephone interview which lasted for 20 min. A list of interview questions was prepared by the authors, based on the research questions and the theoretical framing, modified in light of findings from earlier interviews. The issues covered included: • Ideological shift from Maoism to Dengism and key elements of each ideology. • Major changes in accounting regulation since the 1950s; contexts of and reasons for change. • The groups or key individuals involved in these changes. • Reasons for, and processes of, setting accounting standards. • Debates on accounting regulation and on the nature of accounting under Mao and Deng, and how these debates were connected to political ideologies. To preserve anonymity, given political sensitivity, we designate interviewees as Regulator A, Academic A, Practitioner A, etc. and provide their background information in Table 1. The transcripts of interviews conducted in Chinese were translated into English by one of the bilingual authors.

Accounting under Mao In this section we analyze the discourses on accounting in relation to three key concepts promoted to establish differential positions or discursive moments for Maoist political ideology: class struggle primacy, public ownership and central planning. These ideological developments took

Table 1 Information about interviews and interviewees Company

Experience

Date of interview

Language

Records

Regulator A Regulator B Regulator C

Retired. Involved in accounting regulation from the 1960s to early 1990s Retired. Involved in accounting regulation from the 1960s to early 1990s Involved in accounting regulation from the 1980s to present

2001/2002/2004 2001/2002/2004 2001/2004

Chinese Chinese Chinese/ English

Notes Notes Taped

Involved in accounting regulation from the 1980s to late 1990s

2001/2004

Chinese

Involved in accounting regulation from the 1980s to present Involved in accounting regulation from the 1980s to early 1990s

2001 2004

Chinese English

Taped/ Notes Notes Taped

Regulator H Government Official A Government Official B Local Government Official C

Ministry A Ministry A Accounting Professional Body A Government Agency A Ministry B Accounting Professional Body B Ministry A Provincial Government A Provincial Government A Large Municipal Government A

2004 2002

Chinese Chinese

Taped Taped

2002

Chinese

Taped

2004

Chinese

Taped

Local Government Official D Academic A

Large Municipal Government B University A

2004

Chinese

Taped

2001/2002

Chinese

Notes

Academic B

University B

2001

Chinese

Notes

Academic C

University C

2002

Chinese

Notes

Academic D

Audit Firm A

2002

Chinese

Notes

Academic E

University C

2002

Chinese

Notes

Academic F Academic G Academic H

University D University E University F

Involved in accounting regulation from the 1980s to present Retired chief accountant and deputy director of a local government commission. Experienced accounting change since 1950s Retired director of accounting at a local government commission. Experienced accounting change since 1950s Accounting teacher for eight years. Practicing CPA for three years. Involved in implementing accounting regulations and setting local accounting regulations since 1992 Involved in implementing accounting regulations and setting local accounting regulations since the early 1980 Leading accounting theorist in China. Academically very active from the 1950s to 2003, with a strong involvement in accounting regulation. Received post-graduate training by Soviet experts in the 1950s Leading accounting academic in China. Involved in accounting regulation from the 1980s to present Retired full professor. Expert in financial management. Received post-graduate training by Soviet experts in the 1950s Retired full professor, CPA, chief auditor of the audit firm, with expertise in financial accounting Retired full professor. Deputy president of the Auditing Society of China, ex-government official. Leading academic in auditing and accounting systems design Full professor, leading expert in costing Retired full professor with expertise in Russian and auditing Retired full professor. Received post-graduate accounting training from Soviet experts in the 1950s. Expertise in Western accounting and Chinese economic history

2002 2002 2002

Chinese Chinese Chinese

Notes Notes Notes

Regulator D Regulator F Regulator G

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Interviewee

(continued on next page) 675

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Table 1 (continued) Company

Experience

Date of interview

Language

Records

Academic I Academic J

University E Research Institute at Ministry A Listed Company A (Beijing) Audit Firm D (Beijing) Audit Firm E (Beijing) Chinese–Foreign Joint-Venture A (Beijing) Chinese–Foreign Joint-Venture B (Beijing) Chinese–Foreign Joint-Venture C (Beijing) Chinese–Foreign Joint-Venture D (Beijing) Foreign Invested Firm A (Xiamen) Chinese–Foreign Joint-Venture E (Xiamen) Chinese–Foreign Joint-Venture F (Xiamen)

Full professor, expertise in financial accounting and tax accounting Research fellow

2002 2004

Chinese Chinese

A is CEO, board director and deputy chairman of the board of directors. B is Deputy CEO and chief accountant CPA. Retired director, department of accounting at a large group grocery company. Experienced accounting change since the 1950s CPA. Retired director, department of accounting at a large group department store company. Experienced accounting change since the 1950s Worked for Chinese–Foreign Joint-Ventures since 1998. Prior to that, CPA for a Big Five for five years. Currently Financial Director. Foreign partner from US Currently Financial Director, Internal Auditor and Finance Manager respectively. Foreign partner from the US

2001

Chinese

Notes Written response Taped

2002

Chinese

Notes

2002

Chinese

Notes

2004

English

Notes

2004

English and Chinese

Taped

A former state auditor. Currently Deputy Financial Controller. Foreign partner from Hong Kong

2004

Chinese

Taped

Currently Financial Controller. Foreign partner from Germany

2004

Chinese

Notes

Currently Accounting Manager and Accountant respectively. Foreign investors from Hong Kong M is currently responsible for finance as Special Assistant to CEO. N is Head of the Finance Department. Foreign partner from the US

2004

Chinese

Taped

2004

Chinese

Taped

O is accounting and personnel officer for subsidiary 1. P is an accounting manager for Subsidiary 2. Q is an accounting officer of the group. R is accounting manager for Subsidiary 3. The group is a private company. Each subsidiary is a Chinese–foreign joint-venture. Foreign partners from Taiwan and Canada Currently Deputy CEO responsible for finance. Foreign partner from Hong Kong

2004

Chinese

Notes

2004

Chinese

Taped

Former state auditor. Formerly finance director and currently Deputy CEO responsible for finance. Foreign partner from Netherlands

2004

Chinese

Taped

Practitioners A and B Practitioner C Practitioner D Practitioner E

Practitioners F, G, and H Practitioner I

Practitioner J

Practitioners K and L Practitioners M and N Practitioners O, P, Q, and R

Practitioner S

Practitioner T

Chinese–Foreign Joint-Venture H (Xiamen) Chinese–Foreign Joint-Venture I (Shenzhen)

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Interviewee

Taped

Taped

Chinese

Chinese

2004

2004

Previously an accounting regulator at Ministry A, V is currently Deputy CEO responsible for external relations and finance. W is The Head of Finance Department. Foreign partner from South Korea X is currently Head of Accounting Department. Y is Accountant. Foreign partner from Hong Kong Practitioners X–Y

Practitioners V–W

Practitioner U

Chinese–Foreign Joint-Venture J (Shenzhen) Chinese–Foreign Joint-Venture K (Shenzhen) Chinese–Foreign Joint-Venture L (Shenzhen)

Currently Head of Finance Director. Foreign partner from Hong Kong

2004

Taped Chinese

M. Ezzamel et al. / Accounting, Organizations and Society 32 (2007) 669–700

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place in a context articulated as hostile to China because of the Korean and Vietnamese wars with capitalist countries and the strained ties with the Soviet Union due to border and ideological disputes between the 1950s and the 1970s. Accounting and class struggle primacy The Marxist notion (Marx & Engels, 1844, 1848; Marx, 1867) of class struggle between the proletariat and the bourgeois could be viewed as the nodal point and primary focus of the Communist Party of China (CPC) and the government. Domestically, class struggle was mobilized as an essential part of the political discourse and was manifest in several mass political campaigns, including the Anti-Rightists movement in 1957 and the Cultural Revolution, 1966–1976 (Mao, 1952, 1957a, 1957b; CPC, 1966a, 1966b, 1981). When the People’s Republic of China was founded in 1949, large private and state-owned enterprises used Western double-entry bookkeeping while government and small enterprises adopted a Chinese bookkeeping method called Receipt (Shou)–Payment (Fu) (Regulator A). This divide gave rise to a political debate as to whether foreign bookkeeping methods should be adopted in China (Zhang, 1950a, 1950b). The focus of the debate, however, soon shifted to a consideration of whether accounting is inherently class-based. For example, Xin and Huang (1951, p. 12), two leading academics, argued in an article published in New Accounting (a leading accounting journal): ‘‘Capitalist accounting theory . . . is suited to and protects the capitalist economic system.’’ Academic E suggested that the class-based view of accounting as a means of regulating production relations (such as property rights and class exploitation) was embraced by an overwhelming majority of those engaged in the debate because of the dominance of class struggle (a super signifier of Maoist ideology). He stated that ‘‘socialist accounting should be based on Marxist political economy and therefore there was a need to address the questions of: Whose interest does accounting serve? And who controls accounting?’’

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In this debate, conservatism was invoked as a prime illustration of the nature of capitalist accounting: . . . in capitalist accounting theory, asset valuation principles are designed to mask facts the interest of capitalists: if a high profit is desired, assets are valued high whereas if a reduced profit is desired, assets are valued low. (Xin & Huang, 1951, pp. 13–14) Similarly, Yan (1951, p. 20) remarked that conservatism ‘‘leads to building secret reserves in order to mask the exploitation of surplus values and to speed up capital accumulation. Accounting theory serves the capitalist classes and should no longer be allowed to continue in today’s new democratic society.’’ A minority of those engaged in the debate held the view that accounting is a neutral technology based on language that underpins productive forces (such as labour, material and technology). For example, Tao (1951, p. 434), an accounting practitioner, wrote in New Accounting: Accounting theory is essentially free of class nature. . . It is merely an applied technique. . .Accounting basically follows common productive forces, not necessarily private capitalist production relations. This view was criticized for its misplaced political orientation. New Accounting (No. 7, 1951), published six articles written by academics, practitioners, students and government officials, attacking Tao’s ideologically neutral productive perspective on accounting: In socialist systems, the economic category ‘‘capital’’ no longer exists, and thus the mission of accounting is not to function for the purpose of adding value to capital, but in order to reflect systematically the implementation process of national economic plans (Jia, an academic, 1951, p. 16). Ren (1951, p. 18), a government official, argued that productive forces entail specific production relations and once these change accounting has to change so that it is ‘‘suited to the requirements of new economic development and the changing

environment.’’ Amid these debates, by 1953 a unified accounting system, based on Soviet accounting, was adopted in China, and this was attributed to the desire to (1) learn from the experience of the Soviet Union; (2) match the fiscal and financial policies sought to be required by China’s post-liberation war situation; and (3) ensure consistency with political ideology by drawing on the practice of a communist country (Regulator A; academic A). Soviet accounting was uncritically accepted in China as socialist accounting, even though it contained some elements of what may be constituted as capitalist accounting (Yang, an academic, 1998, p. 29). For example, in the Uniform Accounting System for Enterprises and Economic Units of the Ministry of Heavy Industry, designed in 1950 with Soviet help (Ma, a Soviet expert, 1953), the ‘‘capitalist’’ accounting equation [Assets Liabilities = Equities] was adopted until 1952 when it was revised to [Sources of Funds = Applications of Funds]. Also, from the 1950s onwards, industrial enterprises adopted a cash basis in revenue recognition (a manifestation of conservatism) and thus products sold to customers on credit were treated as Issued Commodity in Transit by the selling firm. Another round of debate over the nature of accounting occurred in the 1960s before and during the Cultural Revolution. This debate was triggered by an article which regarded the process beginning with the collection of accounting documents and culminating in the preparation of financial statements as being the same in both capitalist and socialist accounting (Huang & Gu, 1963). Writing in the 1960s, Gu (1982), an influential academic, stated that accounting serves different purposes: accounting can be used by capitalists to help exploit the working classes, but it can also be used by socialists to protect socialist properties and develop socialism. Yi (1963), an academic, suggested that accounting must serve proletarian politics in China. Yu (1964, pp. 32–33), another academic, remarked: Socialist accounting documents and analyzes any issue using a proletarian standing, perspective and methodology. It serves proletar-

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identify and mobilize potential resources, to ensure that the enterprise utilises internal resources properly, to help national plans to correctly reflect the requirements of the law of national economic development in a planned and proportionate manner and the requirements of the basic socialist economic law. (Industrial Accounting: a practitioners’ journal)

ian political purposes and helps maintain and develop a socialist economic system. Therefore, it cannot be understood as a pure technical subject; it has a clear class nature. The class-based view of accounting remained dominant (Yi, 1963). Regulator A explained that ‘‘Accounting issues are never purely technical. They relate to economic and political interests.’’ As a consequence, conservatism was regarded as part of capitalist accounting. Regulator B argued that ‘‘Political ideology and the nature of accounting are related. The use of conservatism is a typical example. Conservatism was regarded as a tool for protecting capitalist interests, rather than a means of maintaining competitive advantage and capital maintenance as under a market economy.’’ Interviewees cited China’s previous capitalist experience as having an impact on the rejection of conservatism under Mao. Having experienced how the private firms for which they worked adopted conservatism to build secret reserves and minimize tax liability in the 1940s–1950s, Government Officials A and B argued that conservatism was considered incompatible with the emphasis on truth in socialist accounting. Accounting and central planning Under Mao, central planning was adopted as a mechanism to balance demand for and supply of resources. Enterprises were considered units for implementing central plans with very little autonomy, and government and the CPC controlled the hiring and firing of managers. The main incentive was construed as moral/political rather than material as workers and managers were awarded such titles as model workers or excellent managers rather than given financial rewards (Expert Group, 1995, p. 27). In this context, accounting was seen as a tool for central planning. Gu (1982), writing in the 1960s, argued that socialist accounting should serve the planned economy. Also, Ge (1955, p. 1), an academic, stated: The main purpose of socialist accounting is to provide information on the implementation of plans by the enterprise, to systematically reflect progress and outcome in order to

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The fulfilment of central plans was of paramount importance to government officials and enterprise cadres. Government Official A recalled that, under the planned economic system, he had to go to the Ministry of Commerce every year to obtain targets determined by government for his province which were then allocated top-down within the province. Building budgetary slack was commonplace practice at each level to ensure meeting targets. Ironically, this led to building secret-reserves, a form of accounting conservatism criticized by proponents of the class-view of accounting. To facilitate the implementation of the central plans, a uniform accounting system was used. This system typically consisted of a chart of accounts and guidelines of how to use them, a set of prescribed financial statements, and detailed regulations concerning depreciation, costing and spending. The basic features of this uniform system were described by Regulator D as follows: Under the traditional planned economic system, there was no separation between accounting, [public] finance and taxation. It was not like now, with the three being separate. Accounts were prepared according to the requirements of [public] finance and tax regulations. At that time, people often ‘‘joked’’: ‘Do not make unauthorized changes [in the accounting system]; otherwise, if fiscal revenues fell, you will have to bear great responsibilities’.5 5

Accounting regulators enjoyed less power than public finance and tax regulators. If state revenues were reduced as a result of accounting changes, accounting regulators would bear serious political risks. Aware of such consequences, accounting regulators used humour to underline the serious consequences.

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The uniform accounting system was geared towards maximizing state revenue (Chen, a key accounting regulator, 1999) which was deemed necessary both to sustain and legitimize central planning and to support political aspirations such as promoting a peaceful and flourishing economy, emphasizing the victory of class struggle and preparing for international conflicts (Expert Group, 1995). Conservatism was viewed as a tool that would reduce government control over firm earnings. The market mechanism was discursively constituted as an exclusive feature of capitalism that contradicts central planning (Yu, 1998), a disruptive force, and a means of exploitation causing unemployment and inequality; hence capitalist accounting was discredited. Because the development of socialist economies in a planned manner was construed as a natural economic law (Yu, 1998), uncertainty and risk were assumed absent in the dominant discourse. To the extent that conservatism in accounting is assumed to help mitigate the effects of market uncertainty, the Maoist discourse that constructed this supposedly uncertainty-free context rendered conservatism redundant. Also, as Mao (1951, 1954) argued that socialism is superior to capitalism, to say that socialism requires capitalist accounting principles, such as conservatism, was tantamount to denying the superiority of socialism. Ideologically, therefore, conservatism was construed as being inconsistent with the notion of central planning. In addition, because prices were stable as they were fixed by government, asset valuation could simply be based on historical cost with no need for conservatism. Ge (1956, p. 2), an academic, argued in an academic journal: In the evil capitalist system, it is impossible to have a national uniform valuation rule and even more impossible to adopt the reasonable actual cost as the valuation basis. . . The choice of valuation method depends on whether a method helps capitalists maximize profit. Accounting and public ownership By 1955, all private ownership was transformed into public ownership (either state-ownership or

collective-ownership: CPC, 1981) in the hope of eliminating exploitation and class differences (Expert Group, 1995). In this context, Chinese accounting simply focused upon basic bookkeeping (Yang, 1998). Apart from the debate on the choice between the Chinese Receipt–Payment method and the Western Debit–Credit method in the 1950s, further debates in the 1960s and 1970s centered on whether to adopt the Chinese Increase–Decrease method (Research Group on the Increase–Decrease Method, 1984) or the Western Debit–Credit method. Under public ownership, state owned enterprises (SOEs) were considered like factories that simply had to pay their surplus to the state and await their share of fund allocation from the state: Under state-ownership, fiscal revenues were obtained through profit submission [by SOEs] and an SOE was not an independent entity in the modern sense, lacking the rights, interests and scope for determining its own fate. The Finance Department of the Government was a profit centre, and the SOEs were only factories, units for creating profit. The relationship between the enterprise and the state was one of submission and allocation. (Practitioner T) Public ownership was a discursively articulated nodal point by which the differentiated positions of socialist accounting and capitalist accounting were partially fixed. Socialist accounting was constructed to reflect public ownership. Gu (1982) argued that accounting reflects ownership and distribution relations: capitalist accounting focuses upon capital and dividends whereas socialist accounting emphasizes state funds. The discourse on socialist accounting centered on the claim that it serves and protects public ownership and properties. An Outline for Enterprise Accounting Reform (Draft) issued by the Ministry of Finance (1965) stated: [E]nterprise accounting has secured many achievements under the leadership of the Party. It has played a positive role in strengthening planning and economic calcu-

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lation, promoting productivity and savings, and protecting socialist properties. (p. 1, our emphasis) Accounting was promoted as a tool for dealing with what were deemed to be the conflicting interests of the state, enterprises and individuals, which were prioritized in the order ‘‘state interest comes first, enterprise interest second and individual interest last’’ (Expert Group, 1995, p. 27; Xiang, 1999). Hence, enterprises and individuals were assumed to subordinate their interests to those of the state and capitalist accounting was deemed contradictory to state interest. The biggest problem facing public ownership was ‘‘the socialist iron bowl’’ (life time employment and social welfare), what Kornai (1980) termed the soft budget constraint as opposed to the hard budget constraint faced by capitalist enterprises where resources are assumed to be allocated to the most profitable alternatives. SOEs were evaluated on the basis of their outputs. Being supported by the state, SOEs could live beyond their means over the long run, unlike loss making capitalist firms which lacked this protection. Excessive public ownership was held to have given rise to ‘‘shanbufeng’’ (no separation of responsibilities between the CPC and the government, or between the government and the enterprises, or between the government as the owner and the government as the administrator of the state). Property rights relations were unclear and the concept of economic agency was ill-defined, or even absent, as lines of responsibility were blurred (Lin & Tan, 1999). The conditions of ‘‘shanbufeng’’ and the soft budget constraint rendered it easier for the discourse discrediting Western accounting to gain credence: with accountability lines being unclear and resources being allocated on the basis of government plans, Western accounting did not seem relevant. For example, Regulator A argued that conservatism was not necessary because the state claimed profits and the provisions for depreciation from SOEs, and also controlled their expenditures and costs. In return, the state was responsible for allocating funds to SOEs, a scheme that was replaced by bank loans only in the mid-1980s. He stated that

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there was only accounting for the national economy, with no accounting for individual SOEs. Even when there was much exaggeration of reported outputs by enterprises during the Great Leap Forward movement that sought to speed up economic development, but was later constituted as a failure (CPC, 1981), conservatism was not proposed as a remedy. Those who criticized the output exaggeration trend brutally lost their favour in the political circles.6 Moreover, ‘‘shanbufeng’’, the soft budget constraint, and political sentiments were invoked to marginalize the role of accounting. For example, during the Cultural Revolution, some enterprises did not keep any accounts because political struggle was given the highest priority whilst economic management was considered of secondary importance (Yang, 1998). Implications: accounting and Maoist ideological discourse Maoism exhibited the major attributes typically associated with dominant ideologies: it promoted class struggle primacy, central planning and public ownership as key beliefs congenial to Maoism, and as a consequence it construed a class-based view of accounting as being desirable; it took steps to naturalize anduniversalize these beliefs and render them self-evident; it denigrated the possibility of using Western accounting concepts as being counter to socialism; and it actively sought to exclude alternative discourses. The constitution of accounting as a class-based technology was achieved by producing a discourse that drew on Mao’s political ideology, championed by those licensed to speak (Bourdieu, 1991): key CPC members, government officials, accounting regulators, academics, and practitioners. Maoist political ideology was invoked to construct, enunciate and enact this radically different conception of accounting. While some discourses reduced its status to mere bookkeeping, accounting was explicitly defined as a tool for promoting production 6

For instance, Marshall Peng Dehuai was dubbed a counterrevolutionary because he did not agree with some of the Great Leap Forward movement policies (CPC, 1981).

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relations and was expected to comply with the requirements of public finance and tax regulations. The discursively constituted roles of accounting involved: facilitating central planning, producing relevant economic calculations, promoting productivity and savings, protecting public ownership, stamping out corruption, theft, embezzlement, and waste, and in general dealing with emerging conflicts between the state, SOEs and individuals. Accounting conservatism, our illustrative example, was dubbed a capitalist tool inconsistent with Maoist ideological signifiers of class struggle, public ownership and central planning. Despite reported uncertainties attributed to a malfunctioning central planning system and overstatement of output during the Great Leap Forward Movement, conservatism was categorized as a capitalist tool, as its adoption would have been tantamount to an admission of the failure of central planning to eliminate uncertainty. Like any discourse, Maoist-inspired ideological and accounting discourses were indexical (Foucault, 1972) in being made sense of within the discursively articulated socio-political and economic context of the time. These discourses were produced, articulated, and disseminated via a variety of media; such as the speeches and writings of Mao, the pronouncements made at CPC conferences held at important venues, and official publications, as well as specialist articles published in prestigious academic and practitioner outlets. Subjects engaged in the debate occupied different positions in the social space, and no doubt had differing intentions and interests (Said, 1978). Yet, the majority of them mobilized their collective skills to construct a dominant ideological discourse with one voice in their diversity. This was a specialized discourse produced, circulated and promoted by ‘‘knowledge experts’’; it was not directly intended for the masses, but seemingly conducted on their behalf. Bourdieu (1991, p. 41) has suggested that specialized discourses derive their efficacy from the ‘‘hidden correspondence between the structure of the social space within which they are produced – the political field, the religious field, the artistic field, the philosophical field, etc. – and the structure of the field of social classes within which the recipients are situated

and in relation to which they interpret the message.’’ However, Bourdieu’s comments relate more to situations where discourses become diffused beyond the specific field by undergoing a ‘‘kind of automatic universalization’’ (Bourdieu, 1991, p. 41). We would speculate that the specialized debate on the nature of accounting was diffused, and had important ramifications, beyond the specific field of the key actors who were active in that debate, but our archival material does not allow us the opportunity to pursue this possibility. Hence, our concern remains with the terms of the discourse within that specific field, where there was a scope for correspondence to exist between the structure of the social space within which the Maoist-inspired discourse was produced and promoted, and the structure of the field of social relations of those promoting the discourse. The dominant Maoist discourse was strongly shaped by the discourses on the recent history of China and her quest for protection from external enemies following several wars7 and the struggle against internal enemies in the form of China’s Nationalist army, feudalism and bureaucratic bourgeoisie. Within this context, it can be seen why a class-view of accounting gained ascendancy, and why the use of Western accounting, e.g., conservatism, with its discursively forged links to capitalism and class exploitation, was prohibited at least in theory if not always in practice. The Maoist discourse was underpinned by the power of a discourse of authority: ‘‘In politics, ‘to say is to do’. . .When it is acknowledged that the future under discussion depends on collective will and action, the mobilizing ideas of the spokesperson who is capable of giving rise to this action are unfalsifiable because they have the power to ensure that the future they are announcing will come about’’ (Bourdieu, 1991, pp. 190–191). It was the ability of those officials in government, policy makers and the CPC, from the very apex of the

7 These were the First Opium War against Britain (1840– 1942), the Second Opium War against the British and French Allied forces (1858–1860), the Sino-French War (1884–1885), the Boxier Uprising against the Allied forces of Britain, France, the USA, Austria, Italy, Germany, Belgium and Japan (1899– 1900), and the Sino-Japanese War (1937–1945).

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political structure of China, supported by the military and police, to speak with the authority of a power that will deliver, and to construct the promised future into a ‘reality’ that endowed the discourse on the class-based view of accounting with authority. The key tenets of Maoist class struggle primacy and socialist ideology became the nodal points that functioned as a supreme signifier ˇ izˇek, 1989), articulating differential positions (Z through the political discourse that endowed all those actors mobilized by it, whether willingly or unwillingly, with ‘‘a will, a plan, a hope, or quite simply, a future, [that] does what it says in so far as the addressees recognize themselves in it, conferring on it the symbolic and also material powerwhich enables the words to come true’’ (Bourdieu, 1991, p. 191). Such a discourse, as a set of utterances or inscriptions, owes its power to the social and political context in which it was produced and mobilized to make it historically true (Foucault, 1972; Said, 1991). Hence, class struggle primacy became an enacted policy, and Western accounting techniques, e.g., conservatism, were constituted as class-based and prohibited. A disjuncture may emerge between the discourse as utterances or inscriptions and the practices concerning the applications of the discourse. The uniform accounting system was intended to mirror Maoist ideology as much as to legitimize it. It was regarded as socialist although under a class-based view some parts of accounting (e.g., cash accounting as a basis for revenue recognition) could be categorized as capitalist in nature. It was possible to cover up these apparent inconsistencies because the uniform accounting system was imported from the USSR with its ideological similarity to China. In this sense, the differential positions between socialism and capitalism delineated by the nodal points did not fully map onto practice, either because their discursive articulation was not sufficiently clear, or because Maoist political ideology acted, intentionally or unintentionally, as an umbrella that created a myth of differential positions while retaining elements of Western accounting, e.g., slack building by various levels of the administrative hierarchy. This demonstrates just how accounting concepts, such as conservatism, do not have static, fixed meanings as a

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black box (Latour, 1987), but remain pierced by contingency in their translation and adaptation by human agency. While seeking to be exclusive, Maoist discourse concerning the key features of Chinese socialism and the class view of accounting never succeeded in foreclosing the possibility for alternative discourses to emerge. Even at its zenith, the dominant ideology is never totalizing (Foucault, 1972; Laclau & Mouffe, 2001). Some academics and practitioners continued to voice their dissent and promote an alternative discourse in which accounting was viewed as a class-free, neutral technology whose most crucial role related to regulating productive forces (e.g., Huang & Gu, 1963; Tao, 1951). Opposing discourses were part of the field of discursivity (Torfing, 1999), and the marginalized discourse about accounting neutrality under Mao was to gather momentum under Deng, ultimately displacing the class-based view of accounting.

Accounting under Deng Under Dengism, the three Maoist ideological principles were gradually replaced by three discursive moments or signifiers to differentiate Deng’s position. First, class struggle primacy was replaced by economic development primacy following the ‘‘Truth Criterion Debate’’ in 1978, with social practice considered the only truth testing criterion (Deng, 1978a). This shift enabled the 3rd Plenary Session of the 11th Central Committee of the CPC in 1978 (hereafter the 3rd Plenum) to promote economic reform and open door policies. Second, planned economy was replaced by market economy following Deng’s speeches in south China (Deng, 1992). Finally, Under Deng all forms of ownership were viewed as a means for developing socialism and hence private ownership was encouraged (Jiang, 1997). This section charts the transition from Maoism to Dengism and the impact on accounting regulation, by focusing upon the most relevant events, actors, media, debates, and circumstances through which the relevant discourses were produced, disseminated, and debated.

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Accounting and economic development primacy We first examine the discursive shift from class struggle to economic development, followed by the discourse reconstituting accounting as a neutral technology in the image of science. Economic development primacy Following Mao’s death in 1976, his handpicked successor Hua adopted a ‘‘two whatevers’’ policy – to implement whatever decisions made by Mao and to follow whatever instructions given by Mao. Hua’s policy was criticized heavily. In a talk with two CPC Central Committee officers, Deng (1977) argued that the ‘‘two whatevers’’ policy is doomed because it is not suited to the 1970s context. Moreover, this policy led to a nationwide debate on the truth-testing criterion in 1977 and 1978. The People’s Daily, one CPC newspaper, initiated this debate by publishing an article stating that social practice is the appropriate criterion for testing truth. This led to a number of responses arguing that theories such as Maoism could also be used as a criterion, reflecting some measure of support for Hua’s policy. Another article published in Guangmin Daily, another CPC newspaper, in May 1978 suggested that every theory must be tested against social practice. This article turned out to be particularly influential for a number of reasons. First, the editor of Guangmin Daily gave the article maximum visibility by placing it on the front page. Second, the article was published under the name of a Specially Appointed Commentator, which signals a mark of authority in China. Third, it contained a carefully articulated criticism of Hua’s policy. Deng strongly supported social practice as the truth-testing criterion. In a speech at a national military political conference, he argued that seeking truth from facts is a basic principle of Marxism and Mao Zedong Thought (Deng, 1978b). However, Hua’s supporters at the Central CPC Committee ordered the media not to reproduce the Guangmin Daily article, claiming that it incited attacks on Mao. Despite this, the article was circulated to all national and provincial newspapers with the exception of Red Flag, the most influential CPC magazine. An article in Peoples’ Liberation

Army Daily (1978), again attributed to a Specially Appointed Commentator, argued that the process whereby theory (e.g., Mao Zedong Thought) is used to guide social practice is also the process of testing theory by practice. The debate spread beyond Beijing to other cities and provinces.8 Seeing this as a critical ideological issue, by December 1978 many provincial Party, government and army officials declared their support for social practice as the truth criterion. The debate made inroads into the Central Party Working Conference in November–December 1978. Following Deng’s suggestions, the conference discussed the possibility of changing the Party’s work focus to economic development. Hua was criticized for pursuing the ‘‘two whatevers’’ policy and for attempting to suppress the truth testing criterion debate. Deng (1978a) delivered a concluding speech in which he argued that liberating the mind is a pre-requisite for correctly applying Marxism and Mao Zedong Thought and for reforming production relations and superstructures not suited to the development of productive forces. Deng also praised the truth testing criterion debate, stating that it was necessary because a party, a nation and a state with fixed ideas will not survive. As the practice criterion discourse became well established, the 3rd Plenum was able to denounce Maoist class struggle principle, claiming it to have disastrous consequences and setting in motion economic reform to achieve the Four Modernisations in agriculture, industry, national defence and science and technology (CPC, 1978). Because of the severe economic problems reported in the 1960s–1970s, steps were taken to reform the central planning system as reflected in the Communique´ of the 3rd Plenum: ‘‘The realization of the Four Modernisations requires enhancement of productive forces on a large scale, and hence inevitably calls for changing production relations and superstructures that are unsuited to developing productive forces, and changing unsuitable modes of management, activity and thought.’’ 8

The debate was so widespread that in 1978 more than 650 articles were published in newspapers and magazines at and above the provincial level (Ma & Ling, 1998).

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Further, the 3rd Plenum launched the open door policy in order to import advanced technologies and equipment from foreign countries. The international environment discursively constituted as hostile had prompted China to adopt a policy of self-reliance. However, following a sustained effort to reach out to the international community, in the early 1970s China became a member of the UN, a permanent member of the UN Security Council, and it established formal diplomatic relations with capitalist countries, e.g., the USA and UK. Yet, in 1978 import and export was only 6.28% of the total industrial and agricultural output and foreign direct investment in China was almost non-existent (Cannon, 1983). Thus, the open door policy reflected China’s strong desire to strengthen economic and trade relations with foreign countries. The 3rd Plenum was followed by a series of policy revisions. For example, the 6th Plenary Session of the 11th Central Committee of the CPC held in 1981 passed a resolution that reaffirmed Mao Zedong Thought as the guiding ideology of the CPC, but excluded Mao’s theory of prolonged proletarian revolution, claiming that class exploitation had been eliminated and that the main contradiction in China was between an increasing material and cultural demand and a lagging social production (CPC, 1981).9 Not only did these discourses undermine the influence of Mao’s class struggle ideas, they also created a more tolerant political climate with demand for more political liberation. To counter this, Deng (1979b), at a CPC National Theory Conference, espoused Four Cardinal Principles (a commitment to Marxism, Leninism and Mao Zedong Thought, to the leadership of the CPC, to the proletarian dictatorship, and to socialism); however, new ideas and policies continued to be debated throughout the ensuing years (Regulator H; Local Government Official C). The practice criterion enabled China to adopt a strategy of using reform outcomes to demonstrate the correctness of reform, and this debate had no adverse impact on the development of Chi9 This dialectic treatment of Mao and Mao Zedong Thought was seen to be politically correct because it was feared that a complete rejection would be resisted strongly and would also devalue the CPC itself (Deng, 1980).

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nese–foreign joint ventures, Regulator H remarked, because of the ‘‘authority of the CPC’s central Committee’’ and because ‘‘Practice showed that foreign investment led to the development of productive forces’’. Yet, in his emphasis upon the importance of the discourse of authority (Bourdieu, 1991) in promoting new ideologies, this informant emphasized the scope for alternative debate as part of the field of discursivity (Laclau & Mouffe, 2001): ‘‘Even where there was this authority and proofs of practice, ideological differences always existed’’. Justifications for the shift in focus were provided in the Theory of Preliminary Socialism, embraced at the 1987 CPC’s 13th National Congress, whereby economic development became the primary task of socialism in order to meet China’s increasing material and cultural demands (Zhao, 1987).10 As Deng (1979a, p. 231) stated at a meeting with visitors from the United States and Canada: Of course we do not want capitalism, but we do not want backward and poor socialism either; we want developed socialism with high productive forces to make China wealthy and strong. We believe socialism is superior to capitalism. Its superiority should be manifest in it having better conditions for developing productive forces. Therefore, under Dengism, any means, irrespective of its ideological designation, can be used to develop socialist productive forces; hence what may be considered as capitalist accounting could be used as long as it serves a socialist end, so the end justifies the means (CPC, 1984; Deng, 1979c, 1984, 1992). This shift promoted a new debate over the nature of accounting. Constituting Accounting as ‘‘Neutral’’: With the shift to economic development primacy and the

10 The Preliminary Stage Theory was important for the CPC because on the one hand it defends China as a socialist country, and on the other hand it suggests that China is still a poor socialist country where commodity production and exchange are seriously underdeveloped. Therefore, this theory has been heralded as an original invention which could be used not only to attack the ideas of both right and left, but also to provide the theoretical basis for pursuing bold economic reforms.

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more relaxed political climate that followed the truth criterion debate, the discourse promoting a class-based view of accounting was increasingly challenged by a discourse proclaiming accounting as a technical and neutral technology.11 From 1979 onwards, the debate centred on the need to develop a strategy for how to deal with capitalist accounting. Ge (1978, 1980), an eminent academic, called for the reinstatement of ‘‘capitalist’’ debit/ credit double entry in the influential journal Chinese Economic Issues. Wang (1980, p. 3) claimed that: ‘‘Following the Party’s call, accountants were beginning to learn foreign accounting in earnest, and that the class-based nature of accounting was no longer an important issue.’’ Based on Marx’s (1867, p. 313) remark that management functions are common to the organization of any social labour but become tools for working class exploitation only when they are controlled by capital, Yang and Yan (1980), a senior Ministry of Finance official and a leading academic respectively, promoted a duality view of accounting by suggesting that accounting as a management function can be used to help develop not only capitalist countries but also socialist China. Deng’s (1978c, 1988, p. 275) view that science and technology are the most important productive forces provided strong support for the technical view of accounting. Accounting was construed in journal articles as a science and technology (Wang, an academic, 1979), a management science (Liu, an academic, 1986), a branch of technical economics (Liu, a factory accountant, 1981), all deemed to be productive forces. Ge (1980, 1981), an academic

11 Another immediate effect of this shift on accounting was the restoration and enhancement of accounting institutions that were virtually erased during the Cultural Revolution. For example, in 1979 the accounting regulatory department was reestablished in the Ministry of Finance, and in 1980 independent audit firms began to re-emerge as a direct result of the open door policy which brought in Chinese–Foreign joint ventures. The number of ‘qualified’ accountants (those who met the requirements, e.g., passing the qualifying examinations, or had sufficient work experience, as prescribed by the Ministry of Finance, were given the title of ‘Accounting Technician’, and their numbers ‘Assistant Accountant’, ‘Accountant’, or ‘Senior Accountant’) increased significantly, for example, from 498,952 in 1983 to 2,148,151 in 1988 (Xiang, 1999).

and a deputy president of the Accounting Society of China, argued in academic journals that accounting theories and methods adopted in capitalist societies could also be used in socialist countries because they both operate a commodity economy. He suggested that accounting is a science that directly serves production, and thus has no national boundaries, and conservatism should be applied to any commodity economy where uncertainty is a feature. Inspired by Marx’s view that productive forces determine production relations, Liu (1981, p. 33) argued that although accounting relates to both productive forces and production relations, it is mainly concerned with productive forces. During the discursive transition from the class view to the technical view, Western accounting began to receive more favourable press. For example, Jia (1987), an academic, argued that the adoption of conservatism is inevitable in a commodity economy like that of China, and Li (1987), an academic, stated that conservatism is well suited to China. However, the influence of Maoist class struggle remained evident. Li (1980), an academic, argued that the US GAAP was ‘‘an alternative name for protecting capitalist interests’’ and that conservatism helps ‘‘big capitalists take over small owners and earn maximum profit.’’ Li (1980) argued that accounting in China is not only a management tool but also a class struggle tool and should serve the needs of the proletariat. Huang and Mao (1981), both academics, argued that China has its own special accounting principles that reflected socialist production relations, rooted in socialist public ownership, for example legality (i.e., conforming to legal requirements), uniformity and mass participation. Yu (1981) and Zhang (1991), both academics, argued that the nature of accounting is determined by management objectives, citing conservatism as an example of accounting that serves capitalist interests and masks working class exploitation. Even as late as the 1990s, some regulators still considered conservatism as a capitalist tool. Both Academic A and Regulator C said that a leading figure in the Ministry of Finance was not convinced that conservatism should have been adopted in China in the 1980s and 1990s. Aca-

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demic H recalled that in 1992 he had submitted a paper to Accounting Research (a journal published by the Accounting Society of China) advocating conservatism, but that he received a ‘‘cold treatment’’ (i.e., no feedback from the editor) because of the journal’s antagonism towards conservatism. Asked why conservatism was not adopted in the 1985 Accounting System for Chinese–Foreign Joint Ventures, Regulator D said: At that time, people avoided talking about provision for bad debts. Long after the implementation of economic reform and open door policies, people were still fearful to talk about that. How can Socialist countries have bad debts? From that perspective, people thought bad debts were not a good thing to talk about. At that time, people hardly had any idea that bad debts relate to trade and market. In the late 1980s conservatism began to be adopted in a limited way by commercial enterprises in the form of provision for commodity price cuts (Liao, 1989). By the 1990s, the notion that accounting is mainly of a class nature had lost much ground and the productive forces (or technical) perspective became more dominant (Chen & Jing, 1997). Yang (1993, p. 5), a practitioner, in a correspondence with the editor of Accounting Research, remarked: ‘‘With the end of the era of ‘class struggle primacy’, the notion that accounting is of a class nature has retreated from the centre stage of accounting academe.’’ In 1992, the Ministry of Finance stipulated conservatism as a principle in the Accounting Standards for Business Enterprises (ASBE) designed to overhaul the traditional uniform accounting system (Ministry of Finance, 1992b). The ASBE required enterprises to ‘‘appropriately account for potential expenses and losses following the requirements of conservatism’’ and permitted the use of LIFO in inventory valuation and accelerated depreciation if consistent with financial regulations.12 12 Apart from the impact of Maoist ideology, Xia (1992) attributes the limited application of conservatism to enterprises’ lack of autonomy due to strong government intervention and the weak accounting infrastructure.

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Accounting and marketization Deng (1979a) resurrected the view that neither central planning nor market is exclusive to a specific political ideology and hence the market mechanism can be used to develop socialist productive forces. Although Deng’s market ideas relate to theories of market socialism and the experiences of Eastern European countries (Arnold, 1994; Wu, 1998), his objective was to create a market economy rather than to use the market to strengthen central planning (Yu, 1998). The genesis of the market discourse can be traced to the 1950s debate on commodity production in China when debate emerged on commodity production and exchange in light of the reported problems caused by the central planning system that allocated production materials on the assumption that socialism has products rather than commodities. Some (e.g., Gu, 1956, an economist), advocated an enhanced role for market forces in order to allow SOEs to make their own decisions guided by market price changes, but such proposals were not accepted by policymakers because at that time market was associated with capitalism (Yu, 1993, pp. 456–519). Although it initiated China’s economic reforms, the 3rd Plenum (CPC, 1978) did not use the word ‘‘market’’. Subsequent economic reforms allowed enterprises more autonomy (Wu, 1998). In the late 1970s, senior CPC officials visited Eastern European socialist countries to learn from their experiences with economic reform. Yu (1979), a senior economist and government official, visited Hungary where he explored the importance of and reasons for commodity production. In the late 1970s, a conference was held on commodity production and value in China whereby ‘‘commodity economy’’ was coined as a new concept to underscore the idea that socialist products should be turned into commodities whose production and exchange would be regulated by the market. However, a group of economists responsible for drafting official documents for the 12th National Congress of the CPC wrote a letter to CPC leaders expressing disagreement with the term ‘‘commodity economy’’, and the official report of the congress did not incorporate that

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term. As a result, nobody dared write on this topic for more than a year (Yu, 1993). Nevertheless, the 12th CPC National Congress stated that ‘‘planning is primary and market is supplementary’’ (Hu, 1982, p. 243). Moreover, the CPC Central Committee finally adopted the new concept of ‘‘planned commodity economy based on public ownership’’ which encouraged a combined use of both planning and the market in its landmark ‘‘Decision on Economic Structural Reform’’ (CPC, 1984, p. 348). Furthermore, the 13th CPC National Congress pointed out that both planning and market play a society-wide role (Zhao, 1987, p. 462). From 1988 onwards, the Chinese government adopted an austerity programme to control the overheated economy, which caused a decline in the reported annual economic growth from double digits to about 5%. The 1989 Tiananmen Student events, coupled with the fall of the Berlin Wall and the collapse of the Soviet Union, encouraged the conservatives to launch fierce attacks on market-oriented economic reforms: People will not forget how those who promote capitalist freedom, under the guise of ‘‘reform’’, enthusiastically advocate replacing socialist public ownership with private ownership and the planned commodity economy with a pure market economy; substituting a Western multi-party system for the leadership of the CPC, replacing socialist People’s Congress system with a capitalist, divided power structure, replacing people’s democratic dictatorship with capitalist dictatorship, and negating Marxism–Leninism and Mao Zedong Thought by adopting multi-ideology. . .. After experiencing the change in the international political climate of 1989, one can see clearly that this is not only a theory or an argument, but also an act whereby some people treat ‘‘reform’’ as ‘‘a change of direction’’ and ‘‘a change of route’’, and under the name of ‘‘reform’’, step on a capitalist road. This is vivid reality. (Qing, 1991, p. 18). Given this context, Wu (1990, p. 7), an economist, called for continued commitment to central planning on the grounds that a socialist economy

requires development in a planned and balanced manner. In response, Deng embarked on his south China tour (January–February 1992), visiting Wuhan, Shenzhen, Zhuhai and Shanghai, and making speeches that proved to be the catalyst for change. Deng stated that the reform and open door policies stipulated at the 3rd Plenum had been proved right and therefore must be firmly adhered to in order to liberate productive forces. He argued that any reform should be conducive to (i) the development of socialist productive forces; (ii) the strengthening of national power; and (iii) the raising of living standards: ‘‘A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too. The essence of socialism is liberation and development of the productive forces, elimination of exploitation and polarization, and the ultimate achievement of prosperity for all.’’ (Deng, 1992, p. 94) Deng reassured doubters that his call for reform remains firmly within the Marxist agenda that seeks truth from facts, rather than book worship, and stressed the need to promote action at the expense of debate, by ‘‘saying less and doing more.’’ In February 1992, Deng’s speeches were circulated as the No. 2 Party document throughout the CPC organization and elicited strong support. In May, the Central CPC Committee issued a document entitled ‘‘Speeding up Reform, Enhancing Open Policy, and Making Every Effort to Improve the Economy’’. Numerous articles were published and seminars organized to study Deng’s speeches. Many university students wrote to Deng expressing support for his remarks (Ma & Ling, 1998). In May 1992, the newly established Shanghai Stock Exchange relaxed share price control, resulting in a price rise of 570% in three days (Ma & Ling, 1998). Discourses discredited central planning in both theory and practice. Von Mises’ theory (1969), that knowledge of relative valuations (prices) was necessary in order for the state to direct resources rationally towards given ends, was mobilized by those espousing marketization in the 1980s. The absence

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of a market, it was claimed, makes it impossible to obtain prices without significant distortion. In practice, the Expert Group (1995, p. 25), deliberating China’s economic reform, stated that it was impossible for the planning system to obtain all the economic information needed because of the complex and changing nature of many economic parameters. Importantly, Deng’s remarks set the tone for the 14th CPC National Congress held in 1992 which sanctioned the development of a socialist market economy as the tour-de-force that would ‘‘further the liberation and development of productive forces’’ (Jiang, 1992, p. 170). Market-oriented economic reforms and accounting change: The scope for state planning was gradually reduced during the Deng era. Even before 1985, the government began to deregulate small value commodities. Between 1985 and 1991, a formal dual pricing system existed: planned prices and market prices. From 1992 onwards, the market gradually replaced the dual pricing system (Expert Group, 1995). By 1998, the number of products with prices set by central government dropped to 58 compared to 1336 in 1978 (Liu, 1999), and by 2002, the market capitalization on the Shanghai and Shenzhen Stock Exchanges accounted for 45% of China’s GDP (CSRC, 2002). With the gradual shift of price setting from the government to the market, companies began to face increasing competition, risk and uncertainty. Inflation also became a major concern during the 1990s; at times reaching over 20% (Expert Group, 1995; Liu, 1999). The change in 1985 from free state allocation of basic construction funds to interest-based bank loans further diminished firms’ reliance on the state, encouraging the development of the credit market (Xiang, 1999) with the economy suffering heavily from cash shortage and bad debts during the 1990s (Shang, 1999). The Planned Commodity Economic Theory espoused by the CPC’s (1984) Decision on Economic Structural Reform provided an ideological motivation for accounting change. This theory argues that a commodity economy is an essential phase in socialist economic development and that China must focus on reforming its planning system. Jia (1987) and Li (1987), both academics, argued that conservatism underpins market com-

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petition as a tool commonly adopted in any commodity economy where the laws of value and competition are important. Ge, Lin, and Wei (1988, pp. 20–21), academics, argued for the adoption of limited conservatism in accounting ‘‘in order to deal with uncertainty or to protect the application of basic accounting postulates and principles.’’ Following Deng’s South China tour, several weaknesses were attributed to the uniform accounting system: . . .our accounting systems are not suited to the development of a commodity economy and economic reform. The existing systems were established under the planned economy to serve the needs of unified income and spending. . .. We must change the accounting systems and develop accounting standards based on the experiences of foreign countries and international conventions. (Zhang, Deputy Minister of Finance, 1992, p. 2) Maoist discourse rejecting Western accounting was rehearsed by those opposed to change. Zhang (1991), an academic, argued that Western accounting such as conservatism was not applicable to China because it would reduce fiscal revenue. He suggested that there was no need to provide for doubtful debts but that bank credit control should be strengthened in order to protect state revenue. The influence of central planning on the adoption of conservatism was also felt in the development of the Accounting Standards for Business Enterprises (ASBE): We should adopt conservatism accounting, whether from a theoretical perspective or from the perspective of learning from Western practice. However, at that time (in the 1980s), China’s circumstances did not allow that. After all, people were afraid of affecting state revenues. For example, provision for bad debts is a good thing for enterprises. But in the past, we did not do that. Rather we wrote off bad debts if there were any. It would be a good thing if we encountered risks and have already provided for bad debts. But that will affect firm profit and then state revenues. (Regulator D)

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However, Maoist-based opposition failed to arrest fully the momentum of Dengist discourse. The ASBE eventually treated conservatism as an accounting principle although it only allowed firms to adopt accelerated depreciation and LIFO for inventory valuation only if these were permitted by other tax and public finance regulations (Ministry of Finance, 1992b, 2001). However, Maoist ideological influences were largely responsible for the prolonged process of the development of the ASBE. The Ministry of Finance established an Accounting Standard Project Group in 1988 which produced a tentative proposal on setting accounting standards. Yet, it was not until 1992 that the ASBE was formally adopted, followed by the stipulation of several industry-specific uniform accounting systems based on the ASBE and accounting standards.13 Regulator B recalled the processes that the ASBE went through: These were stages of hard struggle because people had not accepted the idea that accounting standards should be set. At that time, the prevailing notion was still ‘‘planned commodity economy’’ and the idea of developing a ‘‘socialist market economy’’ had not existed yet. . .. There were heated debates on the nature of accounting principles and standards, who should make the standards, and the relationship between accounting standards and uniform accounting systems, between accounting standards and public finance and between accounting standards and taxation. . . It took over four years [to

13

The accounting standards on cash flow statements (03/98, 02/2001), debt restructuring (06/98; 02/2001), non-monetary transactions (08/1999, 02/2001), contingencies (05/2000), borrowing costs (02/2001), leasing (02/2001), and changes in accounting policies, accounting estimates, and correction of accounting errors (06/98, 02/2001) are mandatory for all enterprises (Ministry of Finance, 2001). Accounting Standards on disclosure of related parties and their transactions (05/97), post-balance sheet date events (05/98), revenue (06/98), construction contracts (06/98), intangible assets (02/2001), and investment (06/98, 02/2001) are applicable only to listed companies. All these standards parallel International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) except for the standards on debt restructuring and non-monetary transactions (Ministry of Finance, 2001).

publish the ASBE]. Many people did not think accounting standards were possible. If it was not for Deng Xiaoping’s speeches during his South China tour, it [the ASBE] would never have seen the light of day. That the ASBE saw the light of day as a result of Deng’s speeches was part of a widely perceived view that these speeches heralded a new era of change. Practitioner J stated ‘‘If he [Deng] hadn’t made the tour he would probably not have made the speeches and the pace of market economy reform would have been slower. Deng led China into a new era – not just to feed the population, but also to raise the standards of living and to get people richer.’’ Regulator C suggested that Deng’s (1992) speeches were particularly influential because Deng emphasized the importance of experimentation and action rather than debate. Regulator A provided additional explanations of the significance of Deng’s speeches that resonate strongly with the power attributed to the discourse of authority (Bourdieu, 1991): First, there were still [at that time] two sides: reformers and conservatives, and they fought over whether reform was capitalist or socialist in nature. Reform was at a crossroad. Deng’s speeches strengthened the reformers camp. Second, personal authority is always an important force in Chinese history, and Deng had that authority. Other senior leaders, such as Jiang Zeming, even if they had the same ideas, did not have the authority. If the speeches had been made by them, the impact would have been much less. Third, authority is established on objective basis. Historical development reached a critical point as development was met with ideological barriers. Deng went with the historical trend. It was this drive for emptying concepts (such as planning, markets, etc.) of Maoist ideological signifiers, and promoting action through experimentation and practice in place of endless debate, that paved the way for accounting changes to be introduced. According to Regulator C:

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Mr. Deng. . . changed the thinking of the Chinese people, especially government officials’ minds. Actually, before 1993 we had been considering making [accounting] reform following international conventions for several years. The only obstacle was do we really necessarily need to make a big bang by changing from the traditional system to a new one? Is it really worth our effort? What Mr. Deng did with regard to the change in accounting was to tell people that you should, you can, do anything if it can benefit the economic system. The implications for accounting were far reaching. For if experimentation and reform through change in all aspects of the economy have become the order of the day, and if the means of improving the economy were to be dressed up as being ideologically neutral, this would render change in accounting more feasible. As Regulator C argued, Deng’s speeches were taken to indicate that ‘‘As far as how to do things, just do not debate the differences between capitalism and socialism – so accounting standards are accounting standards without debate about capitalist accounting and socialist accounting.’’ This ‘‘neutralizing’’ of the role of accounting was echoed by other senior officials: Vice Premier Zhu Rongji said ‘‘Accounting is an international language. If the language is not common, you cannot make business’’ (Regulator C). The drive for accounting change was also strengthened by complaints about the Chinese system from foreign investors and conglomerates managers and World Bank officials. According to Regulator C, he and his colleagues had been preparing the ASBE for four years prior to Deng’s (1992) speeches, but its publication had to await the signal for change: ‘‘Everything was ready; the only thing needed was the OK from my boss. We were waiting for the wind from the East.’’14

14

In the war during the Three Kingdoms’ era in China (220– 280), one of the fighting sides prepared themselves to launch a fire attack on the enemy, but needed the unlikely wind to come from the East in the winter in order to direct the fire towards the enemy. Like a miracle, the wind did eventually come.

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As the role played by the market in the economy became significant, it began to be held responsible for generating increased risks, uncertainty, corruption, false reporting, price manipulation and earnings management (Li, 2001). Yet, ideologically, resistance against Western accounting began to weaken considerably (Lin & Chen, 1999). For example, by the end of the 1990s, the debate on the adoption of conservatism centered on its impact on the quality of accounting information (Huang, 1997). The Ministry of Finance (2000) issued an Enterprise Accounting System by the end of 2000, to replace the industry-specific and ownership-oriented accounting systems,15 where for the first time conservatism was permitted on a scale comparable to that in Western countries, except that building secret reserves was prohibited. Firms were encouraged to provide for impairments in inventory, short-term investments, long term investments and fixed assets, and to use the lower of cost or recoverable value rule (Ministry of Finance, 2001). Accounting and private ownership With the promotion of private ownership under Deng (1978a, 1992), accounting began to be presented as a tool for income distribution, resource allocation and property protection. Market socialism theories allow for various ownership forms such as social ownership and equity ownership (Arnold, 1994).16 The reform proponents argued 15

There were 13 industry-based accounting systems, effective from 1 July 1993 and applicable to unincorporated enterprises: systems for manufacturing, merchandising, transportation, transportation (railways), transportation (aviation), agriculture, postage and telecommunication, real estate development, construction, financial institution, insurance, tourism and catering, and foreign economic co-operation (Ministry of Finance, 1993). There were two ownership-based accounting systems: one for shareholding enterprises (1992c, revised 1998) (Ministry of Finance, 1992c) and the other for enterprises with foreign investment (1985, revised 1992a). 16 Social ownership means properties are owned by a specific constituency such as a company. Yugoslavia’s experiments with social ownership showed that it suffered from the absence of a clearly identifiable owner and led to short-termism (Wu, 1998). This is probably why China did not adopt the concept of social ownership.

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that both private and public ownership could be used to develop socialist productive forces. From public ownership to private ownership: The debate on private ownership was politically sensitive (Deng, 1985); hence initially the CPC literature did not describe economic reform as privatization. The transition of ownership debate involved several issues. First, is state-ownership superior to other forms of public ownership? Second, is public ownership an essential feature of socialism? Third, is there a category of ownership beyond private and public ownership? Fourth, what is the nature of shareholding companies? In 1978, a household contract responsibility system, initiated by peasants with the aim of redistributing land to individual families in rural areas, was banned by the 3rd Plenum because it was viewed as a capitalist tendency. This system preserved state-ownership but accorded management specific economic responsibilities and corresponding autonomy. In 1984, the CPC sanctioned the introduction of the rural contract responsibility system to state-owned enterprises (CPC, 1984). The Theory of Preliminary Socialism stipulated in 1987 considered private ownership a necessary and beneficial supplement to public ownership (Zhao, 1987), and in 1988 private ownership became protected constitutionally for the first time (Deng, 1985). In the climate of the post-1989 Tiananmen Student Movement, private ownership was denounced as a capitalist restoration. However, following Deng’s (1992) speeches, the CPC (1993) proposed the transformation of state-owned enterprises into shareholding companies, stating that public ownership primacy means that a majority of social assets should be under state and collective ownership, and permitted the sale or lease of small SOEs (Expert Group, 1995). Although Deng’s (1992) speeches seemingly settled the market versus planning debate, they ignited a new debate over whether ownership is a means or an end. Under the means perspective, socialism could use any type of ownership to achieve its goal of common prosperity (Zhou, 1995, pp. 61–62). Many called for the use of productive forces development as the criterion for choosing ownership forms. Li Youwei, Deputy Secretary-General of Shenzhen’s CPC, argued at

a seminar held by the CPC Central Committee School that the correct ownership forms are those that best suit the development of social productive forces (Ma & Ling, 1998). Dong, a leading economist and CPC official, and Wu, a leading economist, argued that socialism and capitalism can only be distinguished by considering which of them better achieves both fairness and efficiency, rather than on the basis of their use of public or private ownership (Li, 1997). The end perspective views public ownership as the essence of socialism. Wang (1995) criticized the ownership irrelevance view as an excuse for privatization. In 1995, a widely circulated report by an anonymous author highlighted the increasing proportion of private ownership as the biggest threat to China’s national security, and criticized the adoption of the shareholding system by SOEs as being in essence privatization (see Ma & Ling, 1998). The remarks made by Li Youwei (above) were severely attacked by a group of over 20 leading academics from the CPC Central Committee School and many leading universities in Beijing who claimed that Li was more a representative of private owners than of the CPC (Ma & Ling, 1998). Perhaps such clashes were inevitable because public ownership was considered the essence of socialism, and hence it was a highly sensitive issue. Also, ownership reform encountered serious problems, including substantial bankruptcies, unemployment and loss of market to foreign firms. It was felt that this ideological debate had to be resolved before ownership reform could move forward. A speech by Jiang, Secretary-General of the CPC, on 29 May 1997 called for the adoption of any public ownership forms that are best suited to developing productive forces (Li, 1997), and this view was echoed later in his (1997) report to the CPC’s 15th National Congress stating that preliminary socialism is a multi-ownership economy with public ownership primacy, and that shareholding can be used under both socialism and capitalism. Jiang’s intervention was influential because he drew on Deng’s by then widely accepted means criterion to support his argument, and because, as Deng was then dead, Jiang dominated the Chinese political landscape.

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Ownership reforms and accounting change: The ‘‘socialist iron bowl’’ became increasingly vulnerable even in state-owned firms consequent upon the ‘‘three separations’’ reforms: separating responsibilities between CPC and government, between government and SOEs, and between government as both the property owner and the administrator (CPC, 1984). Forms of non-state-ownership emerged such as Chinese–foreign joint ventures which mushroomed in the mid-1980s, township and village enterprises which contributed greatly to China’s economic growth in the late 1980s and the early 1990s, and joint-stock companies which first emerged in the mid-1980s (Expert Group, 1995). By the end of 1999, there were over 1.28 million private firms employing 17 million people and 31 million sole traders (Liu, 1999, p. 350). There are now more than 1300 listed companies with an average of one-third private ownership. Such a shift in ideology and practice to the means perspective created the context within which the debate on the adoption of Western accounting concepts was conducted. In response to increased pressure for international harmonization caused by the rapid expansion in joint-ventures, the Accounting System for Chinese–Foreign Joint-Ventures was promulgated in 1985 (Ministry of Finance, 1985) which adopted the accrual basis, the matching principle and historical cost. However, conservatism, the use of the lower of cost and market price and provision for bad debts were not adopted. In explaining these exclusions, Yang (1986), a senior official at the Ministry of Finance, stressed the importance of keeping Chinese accounting different from Western accounting. Similarly, Lou (1986, p. 21), a leading academic, stated that, as different societies have different social and economic systems, ‘‘there is no universal approach to accounting and auditing standards.’’ These remarks suggest that Maoist discourse still had some influence, although the above ownership reforms created the space for producing and circulating discourses that promoted the adoption of Western accounting concepts. Ge et al. (1988), academics, argued that it was necessary to adopt conservatism in Chinese-foreign joint-ventures in order to improve the investment

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environment by harmonizing international accounting practice. Liao (1989), an academic, pointed out that conservatism was needed in order to address the problem of short-termism in stateowned enterprises whereby managers deliberately overstated profits in order to meet targets and receive bonuses. He cited a survey showing that in 1986, 100 sampled state-owned industrial enterprises overstated profits by 58,360,000 Renminbi (RMB) Yuan (4.27% of the total assets of these enterprises), by understating/delaying recognition of costs. Experiments with the shareholding system that began in the mid-1980s also raised concern over maintaining shareholders’ capital. Yet, even in the early 1990s, conservatism still had not gained full support. For example, Zhang (1991, p. 21) argued: Under capitalism, it [conservatism] is used by capital owners to increase costs, reduce taxable profit and dividends, create secret reserves, deceive workers and protect the interests of the capitalist class. In China, the objective of the enterprise and the nature of ownership dictate that China cannot adopt this principle in accounting practice at present. Even the revised accounting system for Chinese–foreign joint-ventures and other foreign invested firms issued in March 1992 (Ministry of Finance, 1992a) still did not adopt conservatism as a general principle, although it permitted an increased scope for specific applications (e.g., the use of accelerated depreciation and LIFO). No accounting regulations existed for jointstock companies in China before 1992 and thus these firms had to design their own accounting systems to accommodate the new types of economic events (Practitioner B). The main reason cited for the late promulgation of accounting regulation was that the future of the shareholding system was unclear (also Practitioners A&B; Ma & Ling, 1998): The objective of economic reform was unclear and there were great controversies. Many rejected the idea of adopting the shareholding system. . .. It was unclear whether the

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shareholding system was appropriate and compatible with socialism. (Regulator D) In 1992, following Deng’s speeches, the Accounting System for Companies Experimenting with Shareholding Systems was issued (Ministry of Finance, 1992c), permitting limited application of conservatism, consistent with the ASBE. However, with shareholding increasingly gaining acceptance as a means for developing socialist productive forces, and with more SOEs transformed into shareholding companies, the 1998 Accounting System for Shareholding Companies (Ministry of Finance, 1998) allowed them to provide for four types of asset impairment (i.e., bad debts, stocks, short-term investments, and long term investments). Moreover, when eight types of provisions were permitted in the 2000 Enterprise Accounting System, shareholding companies were required to pioneer them.

Discussion and conclusions: ideology and accounting change under Deng Our concern in the above section was to account for the rise to dominance of the discourse on the neutral role of accounting under Deng. We suggested that discourses on changes in Chinese international relations, and the internal problems attributed to class struggle primacy, central planning, and state-ownership created the space for the emergence of a radically new ideology underpinned by a different socio-political and economic context. The ideological and accounting discourses that emerged under Deng could only be made sense of by appealing to this new discursively constituted context within which they were deployed (Foucault, 1972). This context was rooted in a number of signifiers: economic development primacy, marketization, private ownership, open door policy, the practice criterion, and China’s relationship with the international community. As under Mao, the discursive context under Deng involved the use of media (e.g., official, academic and practitioner publications), prestigious venues (e.g., the CPC and academic conferences) and important geographical locations (Beijing, Shang-

hai, Shenzhen) to maximize the impact of the new discourses. With the abandonment of Mao’s class struggle primacy under Deng, the discourse on the classbased view of accounting lost much of its legitimizing ideological underpinnings. Through the writings and speeches of these key individuals, alternative discourses sought to discredit the uniform accounting system, projecting it as defective and unsuitable to the new discursively articulated Chinese context. The alternative view of accounting as a neutral technology was underpinned by Deng’s new political ideology. Science and technology were re-presented as the most important productive forces, and the emerging discourse on accounting conceptualized it as a science and technology, thereby rendering it essential to the development of productive forces. As Bourdieu (1991, p. 133) has noted, ‘‘science is destined to exert a theory effect. . .by expressing in a coherent and empirically valid discourse what was previously ignored, i.e., what was (according to the case in question) implicit or repressed, it transforms the representation of the social world as well as simultaneously transforming the social world itself, at least to the extent it renders possible practices that conform to this transformed representation.’’ As a science, the scientification of accounting was immediately rendered relevant to the transformed representation of the Chinese context under Deng as one that would progress only via the intervention of science. It is not that accounting was deemed irrelevant under the Mao regime, with its relevance to the new economic order under Deng being asserted by these discourses. Although its status under Mao was reduced at times to mere bookkeeping, accounting was explicitly recognized as a crucial tool for underpinning central planning and promoting production relations. What was critical in the discourses during the Deng era was that by construing accounting as a science, interested actors were able to draw on their technical expertise and political clout to re-present accounting as a technical and a neutral shell, a universal technology devoid of ideological bias and with no national boundaries. Thus, Maoist-based criticisms of Western accounting as class-based, were

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under Deng blamed on the social system in which accounting is used rather than considered inherent in accounting. By constructing accounting as a science, and with application problems being decoupled from the nature of accounting, reformers were able to proclaim that China should adopt any accounting practice that is deemed useful for its new context. The differential positions opened up and cultivated so carefully by Maoist political ideology discourse between ‘‘capitalist’’ and ‘‘socialist’’ accounting were now being erased by Dengist discourse that side-stepped the need to use super signifiers such as ‘‘capitalism’’ or ‘‘socialism’’ to adjudicate the relevance of accounting concepts (Laclau & Mouffe, 2001; Zˇizˇek, 1989). The discourse promoting the neutral view of accounting made a strong case for adopting international accounting, by constructing claims that rendered it central to Deng’s ideology. Interested actors sought to legitimize further this view of accounting by taking ‘‘a leaf’’ out of Marx’s book; for if Marx is correct in stating that enterprise management can be used in both capitalist and socialist economies, so surely the same applies to accounting. New roles for accounting began to be claimed and articulated. Accounting was recast as a crucial tool with roles to play in income distribution, resource allocation, and property protection; these roles were discursively constituted to be consistent with Deng’s market socialism. With the shift in price setting from the government to the market, discourses were produced that indicated increased levels of competition, risk, uncertainty, inflation and bank loans. Conservatism was claimed to be the correct technique to use in such circumstances. These discourses were boosted by statistics showing a major expansion in Chinese–foreign joint-ventures, which adopted international accounting standards with the aim of promoting international harmonization. The basic ideas incorporated in this accounting discourse had been part of the field of discursivity during the Mao era. The discourse was not entirely new, although the various rationalities advanced in its support may have assumed new forms of articulation, enunciation and elaboration. Neither was Deng’s discourse independent of Mao’s discourse; for the former was articulated as a correc-

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tion of the latter. It is instructive to reflect upon the conditions that made it possible for Deng’s discourse to gather momentum and ultimately displace Maoist discourse. Just as under Mao, the accounting discourse under Deng was a discourse of authority, of individuals occupying high positions socially and professionally, a discourse invested in the technical knowledge of key ideologists, academics and practitioners, and sanctioned by the might of the highest political authority in China, where ‘‘saying’’ is taken to mean ‘‘doing’’ and where utterances could be rendered historically true (Bourdieu, 1991; Said, 1978). This was the symbolic power of ‘‘making people see and believe, of confirming or transforming the vision of the world itself’’ (Bourdieu, 1991, p. 170). Thus, words or utterances alone are not capable of producing such important effects of power, this power can only be enacted and exercized through the active interests of human agency (Foucault, 1972; Said, 1991). The wider political ideology terrain, in which the discourse on the neutrality of accounting was produced and mobilized, paved the way for the debate on accounting neutrality to re-emerge from the field of discursivity as a more powerful discourse. Contributing to the ideological transformation under Deng were discourses proclaiming disaffections with Maoist class struggle primacy, central planning and state-ownership, the consequences of the Cultural Revolution, and the performance of the Chinese economy. Further, the international developments involving China, e.g., China’s bid to re-enter the WTO, its membership of the International Federation of Accountants and the Asia Federation of Accountants, and increasing bilateral international trade and investments, were discursively constituted as rendering possible a radical shift in political ideology, and consequently in accounting discourse. Because no single dominant political ideology can ever convert all the elements into discursive moments, nor fully articulate the moments, suture is not possible (Laclau & Mouffe, 2001). This lack of suture is the key condition of possibility for alternative discourses to emerge and develop as part of the field of discursivity. In this space other signifiers open up new differential positions that

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are opposed to, or radically different from, the dominant discourse; hence the continuing influence of Maoist discourse long after it was formally usurped by Dengism. Even though in Laclau and Mouffe’s (2001) terms they are master signifiers, constructs such as production relations, public ownership and central planning under Mao, and productive forces, mixed-ownership and market economy under Deng were inherently open to continuous political articulation. When established as ‘‘truth’’, these master signifiers are taken to be indeterminate, fragile, and partial; a politically constituted outcome of a hegemonic process, and are thus inevitably prone to being re-constituted or displaced. This paper thus shows how the discourse of authority (Bourdieu, 1991) was so instrumental in disseminating political ideology into the accounting domain. Political ideology tenets were infused into speeches, regulations and articles by prominent politicians, regulators, academics and practitioners who collectively articulated powerful worldly discourses (Said, 1991) of authority and expertise. Such authority and power also derived from China’s discursively articulated historical and international context, from the personal authority of Mao and Deng, and from the dominance of the CPC in China, supported by other state apparatus. The paper demonstrates that the field of discursivity is always contested: Maoist class perspective on accounting was challenged and usurped by a neutral view of accounting under Deng, but the contested nature of the ideological terrain meant that Maoist ideology continued to influence the debate long after Mao’s death. In conclusion, our analysis suggests a number of implications for the relationship between ideology and accounting. First, accounting regulation is an important arena where contested political ideologies are played out. In the case of this paper, accounting regulation was an arena where Maoist and Dengist discourses were each contested against alternative political ideologies. The scenarios of dominant ideologies that Eagleton (1991) has alluded to were all present: each dominant ideology sought to promote only those values congenial to it, naturalize and universalize such values as to endow them

with seeming inevitability, denigrate ideas that are deemed to challenge it, exclude rival ideas, and construct social reality in a manner convenient to it. These scenarios are central to the quest by those promoting a dominant ideology, such as class-based or neutral accounting, to reproduce particular configurations of social power that are advantageous to them. Second, accounting can be de-legitimized if rendered ideologically-based, and hence non-neutral, being categorized as a signifier of an unwanted ideology (e.g., capitalism) and a catalyst for undesirable consequences (e.g., capitalist exploitation). Conversely, ideological rendering of accounting can help enhance its legitimacy (e.g., social accounting under Mao). This categorization could become the basis on which discourses are produced, articulated and circulated to construct a case for or against change. Alternatively, accountˇ izˇek, ing can be rendered an empty signifier (Z 1989), a ‘‘mere’’ technology that is supposedly ideologically neutral, and hence capable of serving any political system. Third, a gap could emerge between discourse as inscriptions or utterances and practices undertaken in the name of that discourse. Commentators in the Maoist era either failed to realize, or did not wish to acknowledge, elements of ‘‘capitalist’’ accounting, e.g., conservatism, in the uniform accounting system that could be construed as incompatible with Maoist ideology. Such ‘‘discrepancies’’ are to be expected in any act of translation (Latour, 1987), so that constructs such as ‘‘conservatism’’ are the subject of differential interpretation and adaptation. Under the dominant ideology thesis, the hope is that such a gap is obscured from view (Eagleton, 1991). Fourth, analysis of the production, articulation and dissemination of accounting discourse, like any discourse, is inescapably intertwined with context; but context is continuously articulated, reproduced and transformed through discursive practices (Hardy, Palmer, & Phillips, 2001). As Foucault (1972) has noted, discourse is indexical: discourse on the nature of accounting under or Mao or Deng is rendered meaningful only when connected to the discursively constituted context of its articulation.

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Fifth, dominant political ideology creates a context that can discourage, but never forecloses, the scope for debate on alternative accounting practices because elements are never fully transformed into moments with fixed meanings (Laclau & Mouffe, 2001). Rather than being totalizing, discourse, such as that produced under Mao or Deng on the nature of accounting, can at the most be pervasive or hegemonic within discursively articulated contexts. This thinking invites us to identify what Foucault (1972, p. 46) calls the ‘‘grid of intelligibility’’ or the ‘‘group of rules’’ that are deployed to produce the ‘‘truth effects’’ of identifying and ordering things in particular ways. Thus, the signs that may be deemed to comprise accounting should not be taken to reflect accurate images of a concrete external reality; rather such signs constitute accounting in a politically-driven way as they come to produce truth effects. Ideological transition opens up a space that facilitates greater debates of regimes of truth. Because Maoism labeled advocates of Western accounting concepts as class enemies, it was difficult to initiate serious dialogues on the need for, and the conditions that render relevant, these concepts. Under Mao, the neutral view of accounting was marginalized. Once Dengism became dominant, the Maoist classbased view of accounting was considered politically incorrect. Our analysis thus shows that accounting has the capacity to become malleable and molded by the discourse of dominant political ideology; be it the class-based view under Mao or the science and technology view under Deng. References Primary sources CPC Central Committee (1966a). May 16 announcement. Beijing: CPC Central Committee. CPC Central Committee (1966b). Resolution on The Great proletarian cultural revolution. Beijing: CPC Central Committee. CPC Central Committee (1978). Communique´ of the third plenary session of the 11th central committee of the CPC. Beijing: CPC Central Committee. CPC Central Committee (1981). A resolution on several historical issues of the party since the foundation of the PR of China. Beijing: CPC Central Committee.

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