The dominance of foreign employees in the "Big Four" global audit firms in China is set to lessen as only partners with local qualifications will be eligible for audit practices and top positions, under a new regulation announced by the Ministry of Finance on Thursday.

The policy is part of a localization program for the joint ventures in China established by KPMG, Deloitte Touche Tohmatsu, Ernst & Young and PricewaterhouseCoopers, known as the "Big Four", which are about to expire.

The "Big Four" were among the first foreign accounting firms to set up joint ventures in China in 1992. The arrangements signed 20 years ago by KPMG, Deloitte and Ernst & Young expire in August, while PWC's joint venture expires in 2017.

The "Big Four" have 25 branches in China, with business revenues totaling 9.52 billion yuan ($1.51 billion) in 2011, or 25.7 percent of the entire industry.

They also ranked among the most profitable accounting firms, according to the Chinese Institute of Certified Public Accountants, or CICPA, though Chinese firms are catching up quickly.

"The 'Big Four' have made remarkable contributions to the development of China's capital market and overseas listing process of Chinese companies ... but the form of joint ventures is no longer appropriate," said an official from the Accounting Department of the Finance Ministry explaining the program.

"Accounting firms should be co-founded by qualified accountants, not by organizations. That's not the way in other countries, either," said the official, who declined to be identified.

At present, 50 percent of the partners in the joint ventures have overseas qualifications, and most of them are Hong Kong residents. They do not have licenses from the CICPA.

These partners won't be able to remain in their jobs when the firms transform into more localized entities, under the current Law on Certified Public Accountants.

According to the new regulations, the chief partner - the top decision maker of a firm - must be a Chinese citizen with local certified public accountant qualifications. None of the "Big Four" meet this requirement at the moment.

A transition period is allowed for the localization program, as the "Big Four" must keep the proportion of their non-local partners below 40 percent upon the establishment of new joint ventures and reduce that number to 20 percent within five years.

The chief partner's position is also allowed a three-year buffer period to meet the requirement.

"As a result, the 'Big Four' should speed up" raising more local partners, said the official at the ministry.

"This is an excellent compromise. China is providing for a transition for the transfer of power from the expatriate partners to the local partners," Paul Gillis, professor of accounting at Peking University, was quoted by Reuters as saying.

"If the firms handle this responsibly, it allows them a period of time to further develop their local partners for senior management responsibilities," Gillis said.

The transition program is also welcomed by the accounting firms.

"We will ensure a smooth and successful transformation of the firm from the existing joint venture structure to the new form," said Stephen Yiu, chairman of KPMG China, the first international accounting firm to be granted a joint venture license.

According to Yiu, the launch of the program is good news for the "Big Four" accounting firms, from both the market and personnel perspective.

"On the market side, we can now serve our clients like other local firms do. And the launch of the program also helps ease our personnel worries, since our operating license will come due this August," Yiu said.

At the end of 2011, about 96 percent of the employees in KPMG China were local staff, company statistics show. In the past five years, KPMG China hired more than 1,300 local new graduates each year.

"Localization has been one of our major business strategies in China since 1992. We will continue to hire more local talent," he added.

Contact the writers at weitian@chinadaily.com.cn and huyuanyuan@chinadaily.com.cn