Political Ideology and Accounting Regulation in China

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Accounting is recognized as a technical instrument and practice. Accounting policies served the dominant ideology. Specific ideologies had attributed to accounting itself and the accounting profession. This paper examines the affect of political ideology on China accounting regulation that focus on the shift from Maoism to Dengism. Besides, the researchers also investigate for the reason why political ideology brings such impact, and its effect. Under Maoism, the class struggle, central planning, and public ownership were mobilized. Under Dengism, a new ideological principles occurred which are economic development, marketization, and mixed-ownership.

Although our focus is on accounting in general, there are three reasons for us to make some references to conservatism in illustrating our argument. First, the rejection of Mao discourse and the adoption of Deng discourse. Second, the discourses discourage conservatism under Mao and encourage it under Deng. Third, conservatism contradicts to other accounting principles that are consistent with socialism (consistency and objectivity). In both the Western and Chinese literatures, conservatism typically refers to over-optimism in reported profits. Under Maoism, conservatism was prohibited because it was depicted as a means of purposely understating the profits for the purpose of workers exploitation or tax evasion. Under Dengism, conservatism was approved in China because it helps to reduce the uncertainty and increase the reliability of accounting information.

There are two contributions from this paper. First, it focuses on the characteristics of the accounting regulation cause by the changes in political ideology. Second, it determines the effect of political ideology has on accounting regulation in a China.


To expose the term of "ideology", the process of producing ideas and beliefs in social life is needed. Thompson (1984) assumed that the ideology helps to seek for how political and elites in China and released performative ideological discourses that impacted the accounting regulation. Dominant ideologies can seek various strategies in which these strategies are interacted each other. It helps us to be more understood about the notion of "dominant ideology" which is promoted by political and elite. Majority groups tend to promote and legitimate their own interests by sustaining the political form of life in which the ideology is being seen as a discursive field. Besides, their also tend to emerged an integrated social formation by all manner of persuasion. We must be aware of that not every belief/idea preserve necessarily and no dominant ideology can close an ideological debate.

The "Field of Discursivity"

Ideology is about "who is saying what to whom for what purpose". It is a set of complex inside effects to discourse which operates through language and discourse to produce specific effects. Laclau and Mouffe (2001) focus on the different positions and separate into four key concepts : elements, moments, articulation and discourse. If fully discursively articulated all allowable elements, the discursive formation becomes a fully constituted totality and a closure is achieved.

The discourse of authority and its "worldly context"

The exclusion of social and political contexts has been criticized by the traditional discourse analysis. Foucault (1972) stated that the regulations and formations of a discourse have to be published within their non-discursive conditions, such as, political events, economic phenomena, and institutional changes. The relationship between the discursive and non-discursive can't be determined.

Our analysis must focus on two dimensions in order to allow the theoretical framing show the importance of the discourse context, which is, the agents involved in releasing discourse and discourse sites. In discourse analysis, we must select the discourse sites carefully for example locations, debated issues, and media to disseminate discourse.


Accounting and Class Struggle Primacy

The Communist Party of China (CPC) and government primarily focus on the Marxist notion of class struggle between bourgeois and proletariat. Class struggle was gathered as vital component of political communication and display in majority political campaign.

In 1949, private and state-owned enterprises used double-entry bookkeeping. Government and small enterprise used Chinese bookkeeping method which is receipt-payment method. Therefore, question rose whether China should adopt foreign bookkeeping method. Soon, debate shifted to whether accounting is inherently class based. From the debate, conservatism brings up the features of capitalist accounting.

Yan, 1951 commented that conservatism is forming the confidential reserve to cover the excess values and increase the capital accumulation. Therefore, conservatism is tools for protecting capitalists' interests since it develop secret reserves and minimize tax liability. Socialist accounting in China accepted Soviet Accounting, even though it has the parts of capitalist accounting.

Another debate on the features of accounting happened in 1960s prior and during Cultural Revolution. It takes into account the process collection of accounting document and preparation of financial statements which included in capitalist and socialist accounting. Gu, 1982 said that capitalists use accounting to manipulate working classes while socialists safeguard socialist properties and improve socialism.

Accounting and Central Planning

Central planning was used to balance the demand and supply of resources. Government and CPC manipulate the hiring and firing of managers while enterprises having minor autonomy in implementing central plans. The major incentive was granted titles as model workers/ excellent managers. Gu (1982) and Ge(1955) stated that socialist accounting should carry out the planned economy since one of the main purpose in socialist accounting is to help national plans the requirements of national economic development law and basic socialist economic law. The accomplishment of central plans was important for government officials and enterprises. Standardized accounting system was used to assist the implementation of central plan. It was designed to maximize the state revenue to maintain and validate central planning and assist political objective. Conservatism is tool that decreases the government control on firm earnings.

The market mechanism forms parts of capitalism that oppose with central planning. Therefore, capitalist accounting was dishonored. It is because development of socialist economics in planned manner was interpreted as natural law and conservatism presumed diminishing the effects of market uncertainty. Mao (1951, 1954) said that socialism is superior to capitalism; therefore conservatism was same as contradict with superiority of socialism and central planning. Conservatism is redundant since prices are stable and asset valuation is based on historical cost.

Accounting and Public Ownership

At 1955, all private ownership was converted into public ownership to abolish misuse and class differences (Expert Group, 1995). Other than debates to choose between Chinese Receipt-Payment and Western Debit-Credit method, there are further debates to adopt either Chinese Increase-Decrease Method or Western Debit-Credit method.

In public ownership, state ownership enterprises are deemed as factories that pay the excess to the state and expect the fund distribution from the state. Socialist accounting created to indicate public ownership. Gu (1982) stated that capitalist accounting concentrates on capital and dividends while socialist accounting stresses on state fund. Accounting is a tool to deal with matters considered to be contradictory interests of the state, enterprises and individual. The biggest problem facing by public ownership is the life time employment and social welfare.

Extreme public ownership reduced the division of responsibilities between government with CPC, enterprises and owner. This form of responsibilities has gain the acceptance of Chinese accounting and resources are distributed according to government plans.


Class struggle primacy, public ownership & central planning are key belief to Maoism. Therefore, class view based accounting being construed. The belief been naturalize and universalize. The establishment of accounting as class based was attained by constructing discourse obtained from Mao's political ideology. Conservatism is capitalist tool that contradictory with Maoist ideological signifiers. Maoist ideological and accounting discourses were constructed, expressed and distributed through assortment of media. In addition, collective skills were assembled to produce dominant ideological discourses. History of China and seek for defense from external enemies and fight against internal enemies were gaining the ascendency of class view accounting.

The Maoist discourse was supported by the discourse of authority. It was the capability of officials in government, policy makers and CPC to realize the promised future into reality. Disjuncture may happen between discourse as utterances and applications. The differences between socialist and capitalist accounting did not entirely plan onto practice because discursive expression not clear or Maoist political ideology retained the component of Western Accounting. Maoist discourse does not succeed in excluding the likelihood for discourses to appear. However, academics and practitioners remained to express their rebel and uphold alternative discourse.


Under Dengism, economic development primacy replaced class struggle primacy to promote economic reform. Secondly, market economy replaced planned economy and finally, private ownership was encouraged as it developed socialism.

Economic Development Primacy

Following Mao's death, his successor Hua implement a ''two whatevers'' policy which is to implement whatever Mao's decision and to follow whatever Mao's instructions. This policy was criticized heavily and it led to a national debate on the truth-testing criterion. Deng fully supported to use social practice as the truth-testing measure. The debate spread across China and by December 1978, many party such as government and army officials declared their support that social practice as the truth-testing criterion.

Central Party Working Conference in November-December 1978 discussed the likelihood of changing the Party's work to focus on economic development. Deng concluded that liberating the mind is a must to apply Mao Zedong Thought correctly and for economic reform. He also stated that the truth testing criterion debate is necessary because a party or a nation with fixed ideas will not survive.

At last, the 3rd Plenum was able to condemn Maoist class struggle principle and started economic reform to achieve the Four Modernizations (national defense, industry, agriculture, and science & technology). Besides that, the 3rd Plenum also launched open door policy to bring in advanced technologies. This open door policy shown China's desire to make their economy stronger and improve the trade relations with outsiders. The practice criterion allowed China to adopt a strategy of looking at reform outcomes to determine the rightness of reform.

Economic development has become the main task of socialism to meet China's increasing material and cultural demands on cultural and material. Under Dengism, any ways can be used to build up socialist productive forces. Capitalist accounting can be used if it brings a socialist end. This shift had promoted a new debate on the accounting's nature issues.

With the change to economic development primacy and truth criterion debate, the discourse that promotes a class-based accounting view was increasingly confronted by a discourse claiming accounting as a neutral and also technical technology. From 1979 onwards, the debate focused on the need to come out with a tactic to deal with capitalist accounting.

Yang and Yan (1980), suggested a duality view of accounting where accounting as a management function can be used to help grow capitalist countries and also socialist China. Deng argued that science & technology are the most significant productive powers that provide a strong support for the neutral view of accounting.

Ge (1980, 1981), argued that accounting methods applied in capitalist countries could also be used in socialist China because both of them operate a commodity economy. He also suggested that conservatism should be adapted to any uncertain commodity economy. During the transition from the class view to the neutral view, Western accounting methods have began more popular. Adoption of conservatism is unavoidable and it well suited to China.

However, the Maoist class struggle influence still remained significant. Li (1980), argued that conservatism only helps large capitalists to capture over small owners and make big profit from it. Yu (1981) and Zhang (1991), viewed conservatism as only satisfies capitalist interests and hide exploitation of working class.

In the 1980s, conservatism start to be adopted in provision for price cuts in commodity. By the 1990s, the class-based accounting view had lost its position and technical perspective became more popular and important. In 1992, the Ministry of Finance set conservatism as a standard in the ASBE - Accounting Standards for Business Enterprises. It allowed the use of LIFO methods in inventory valuation and accelerated depreciation.

Accounting and Marketization

Market discourse has been started in China in the 1950s with debate on commodity production. The allocation of production materials to products and commodities by the central planning system caused problems on commodity production and exchange. Hence, there was suggestion to permit SOEs to make decision based on the market prices. However, these proposals were rejected because there was still prevention on the use of market mechanism at that time.

In a conference in late 1970s, the term "commodity economy" has been introduced as a different new concept. It referred to the idea that the socialist products should be changed to commodities and the use of market to control the production and exchange process. However, there was disagreement about this term from some economists. Hence, this term was not incorporated in the report of the 12th National Congress of CPC. Nonetheless, the role of market has been recognized too in the report and in the future.

Within the period January to February in 1992, Deng had his south China tour and made speeches about reform to liberate productive forces in China. Deng expressed that any reform should beneficial to the development of productive forces, the strengthening of national power and the raising of living standard. In addition, Deng convinced doubters that his reform consistent with Marxist agenda and focused on action more than words.

Deng's speeches have been circulated throughout the CPC organization and also the public. Deng obtained great support for his speeches to reform. At the same time, central planning has been discredited in both theory and practice. Therefore, the 14th National Congress of CPC in 1992 approved the development of a socialist market economy.

During Deng's era, the scope of state planning was diminished step by step. A formal dual pricing system which included planned prices and market prices was used between 1985 and 1991. From 1992 onwards, the market price became the dominant to replace the dual pricing system. In addition, the number of prices of products set by the central government was gradually decreased. Due to these changes, several problems were occurred which included increasing competition, risks, uncertainty and inflation. Furthermore, the vast development of credit market caused the economy suffering from shortage of cash and also bad debts during the 1990s.

According to The Planned Commodity Economic Theory, commodity economic is very important in socialist economic development and that the reforming of China's planning system is necessary. This motivated people for accounting change. Several academics provided idea that conservatism is needed in accounting for commodity economy to enhance its effectiveness. However, there were still opposing sounds from central planning and some academics because conservatism would reduce the fiscal revenue.

Maoist-based opposition had prolonged the process of accounting change even though they failed to prevent it fully. It took four years time for the development and publish of Accounting Standards for Business Enterprises (ASBE), which allowed part of conservatism (only acceleration depreciation and LIFO inventory valuation method) as accounting principle. Deng's speeches during his South China tour have been considered as the main factor for the success of accounting change and publish of ASBE in China. Deng's speeches were influential because Deng always promoted actions more than words and he had the great power of authority.

In addition, Deng neutralized the role of accounting by stating that accounting standards were accounting standards without debate of capitalist accounting and socialist accounting. The accounting change in China also caused by the complaints from foreign investors and conglomerates managers. The accounting change has been prepared early and only waiting a right time and signal for change.

The important of market role could not be denied even though many problems occurred such as increased risk, corruption and price manipulation. The force against Western accounting gradually decreased and the adoption of Western accounting became broader, especially the conservatism principle.

Accounting and Private Ownership

Under Deng reformation, private ownership was promoted. The issue of private ownership was very sensitive in China. There were four main issues involved in the ownership debate. First, whether state-ownership is better than to other forms of public ownership? Second, whether public ownership is a crucial feature of socialism? Third, whether there is other category of ownership besides public & private? And fourth, what is the nature of shareholding companies?

Early in 1978, the peasants introduced a household contract responsibility system with management specific economic responsibilities and autonomy. However, this system was banned. Later in 1984, the CPC approved the rural contract responsibility system in state-owned enterprises. The Theory of Preliminary Socialism believed that private ownership was essential and beneficial. After Deng's speeches in 1992, the CPC recommended the change of state-owned enterprises to shareholding companies.

Ownership issue was debated under two perspectives, whether a means or an end. The means perspective stated that socialism could use any type of ownership to realize its goal of common wealth. Under the end perspective, public ownership was considered as essence of socialism. Such debate made ownership a sensitive issue and ownership reform process slower.

In 1997, Jiang, Secretary-General of the CPC made a speech and expressed that socialist should use any public ownership forms that are the most suitable to develop the productive forces. Jiang's view was influential because he followed the Deng's view and agreed with the criterion under means perspective on his argument.

The 'three separation' reforms caused the "socialist iron bowl" became more vulnerable and encouraged the ownership reform. These 'three separation' reforms were separating responsibility between CPC and government, between government and the SOEs, and between government as both administrator and property owner. In the mid-1980s, different form of non-state-ownerships emerged. There was a change in ideology and practice where the private ownership has been accepted.

The Accounting System for Chinese-Foreign Joint-Venture was introduced in 1985 for the joint-ventures. This system adopted certain principles of Western accounting, included the accrual basis and historical cost. However, certain principles, such as conservatism and the use of bad debts provision were not adopted. This shown that the Maoist discourses still had influences at that time.

Many academics viewed that the conservatism principle was necessary and important to be adopted in china accounting system to improve foreign investment and prevent managers from deliberately overstating profits to meet their own objectives. However, the conservatism principle was still not fully supported and permitted in the accounting practice even there was increased scope for specific applications.

Before 1992, there were no accounting regulations for joint-stock companies. This was because the shareholding system was unclear, full of uncertainty and had great controversies. In the 1992, after Deng's speeches, the Accounting System for Companies Experimenting with Shareholding Systems was introduced. This system adopted conservatism with limited application.

However, the shareholding system was increasingly accepted and being adopted. Therefore, the application of conservatism has be broaden and increased through the Accounting System for Shareholding companies in 1998 and the Enterprise Accounting system in 2000.


Through the emergence of Deng's new accounting discourse, the uniform accounting system by Mao became less reliable and not suit to the new Chinese context. In Deng's political ideology, science and technology was the most important productive power for accounting's development.

Under Dengism, the discourses were being stressed by explaining accounting as science and it helps people in technical parts. It also represent universal technology that discourage ideological bias and with no boundaries between nations. Accordingly, Mao's criticisms on Western accounting which is class based were blamed by Deng. By forming accounting as a science, application disadvantages was being reduced and reformers clarified that any deemed useful accounting practices should be adopt in China.

Accounting plays important roles in distributing incomes, allocating resources and protects assets and these roles are consistent with Deng's market socialism. Conservatism is the correct technique to be use in situations where extend competition's level, risk, inflation, bank loans and uncertainty by shift in price setting from government to market itself. On the other hand, it was a major improvement in Chinese-foreign joint ventures which use international standards.

Thus, this paper showed the importance of discourse of authority in spreading political ideology into accounting domain. Speeches, regulations, and articles by politicians, regulators, practitioners and academics contained political ideology principles also helps to influence accounting domain.

The Mao's class perspective on accounting was took over by Deng's neutral perspective on accounting but the Mao ideology continued as arguments after Mao's death. Thus, this paper concluded by suggested five implications for the connection between accounting and ideology.

First implication, accounting regulation is important field where Maoist and Dengist discourses were each competed against each other; the dominant ideology will promote the values that only compatible to it and minimize rival's ideas.

Second implication is accounting can be de-legitimized if delivered ideologically based and will lead to capitalist exploitation. On the other hand, it could also help to improve legitimacy where discourses made according to or against changes. The third implication is there will be a gap between inscription and practices attempt in the name of the discourse which Maoist would not agree with conservatism that incompatible to their ideology.

The fourth implication is analysis of discourse is inevitable entwist with articulated context and will change through deductive practices thus Mao and Deng accounting's nature is significant only when connected to the constituted articulated context.

The last implication is dominant political ideology creates circumstance that can be discourage but never end because the alternative accounting practices will continue to be debated due to never fully applied in the moment. Discourse by Maoist or Dengist on nature of accounting can be mass. Due to Maoism disagree with Western accounting concepts that related to Deng's neutral perspective on accounting so Dengism became dominant and the Maoist perspective on accounting was considered politically incorrect. Thus, the results showed that accounting could be change by the discourse of dominant political ideology.