Join Hands with China An Analysis of the Development of Chinese Philanthropy

Council on Foundations Lijun He, 2011 Summer Associate, Global Philanthropy Department

Global Philanthropy Department’s Mission The Global Philanthropy Program serves the public good by facilitating responsible and effective grantmaking for international purposes among Council on Foundations members, educating the public and U.S. government about the value of international grantmaking, and supporting philanthropy as an essential part of a strengthened civil society around the world. Strategic Priorities Member service: provide U.S. and international members with high-quality technical assistance and services that meet their international grantmaking needs. Global philanthropy: strengthen the global philanthropic infrastructure, share effective grantmaking practices worldwide, and foster international learning opportunities for U.S. grantmakers. Accountability and effectiveness: promote the highest standards of accountability and effectiveness in international grantmaking among Council members and other organizations, both within and outside the United States. Background Chinese philanthropy has witnessed a significant development since the 2008 Sichuan Earthquake. Total philanthropic donations in 2010 were estimated at RMB 70 billion, up from RMB 30 billion in 2008 (excluding disaster relief donations) and RMB 50 billion in 2009 (BNU1, 2011). “Regulations on Foundation Administration,” enacted in 2004 by the State Council of the People’s Republic of China, categorizes foundations with philanthropic purposes into two types: public foundations (those that can solicit donations from the public) and nonpublic fundraising foundations (those that cannot solicit donations from the public). For each type of foundation, the payout rule is different. The regulations mandate that annual spending on the charitable activities of public fundraising foundations must not be less than 70 percent of the previous year’s income and not less than 8 percent of surplus from the previous year for the annual expenditure of the nonpublic fundraising foundations (Article 29, MoCA, 2004). But to establish a foundation, the regulations require that “the original funds of national public fundraising foundations should be not less than RMB 8 million; the original funds of local public fundraising foundations should be not less than RMB 4 million; the original funds of nonpublic fundraising foundations should be not less than RMB 2 million; and they must retain those funds in their current account” (Article 8, MoCA, 2004). Private foundations are defined as independent, nonpublic fundraising foundations that raise funds only from specific individuals or corporations (MoCA, 2004). Corporate foundations, university foundations, and independent foundations are under this umbrella. As of August 15, 2011, there are 2,329 foundations in China. In 2004, there were 892 registered public foundations and no private foundations. During the five years following the issuing of the “Regulations on Foundation Administration,” the number of Chinese private foundations boomed from 202 in 2005 to 342 in 2006, 443 in 2007, 643 in 2008, and 846 in 2009. As of August 15, 2011, the number of private foundations amounts to 1,188, 2

which exceeds the number of public foundations (1,141). With the support of local government, the number of family foundations is also burgeoning around the country and is expected to increase even more in the next few years. China’s Philanthropy Is Transforming… From individual philanthropy to organized philanthropy: Giving, as a distinct part of Chinese culture, has existed in China for hundreds of years. Because of the paternalistic Chinese ruling system in various dynasties and times, philanthropic giving was mostly developed at the individual and family level. Now, philanthropic giving is gradually taking the form of organized philanthropy, such as associations and foundations. According to the Ministry of Civil Affairs (MoCA), there were 440,000 registered nonprofits in China in 2010. MoCA categorizes nonprofits into three groups that range from state-controlled entities with top-down management and use public funds to grassroots-based organizations that rely on private donations. Popular nonenterprise work units (minban feiqiye danwei) are organizations that carry out social service activities of a nonprofit nature and are run by enterprise and institutional work units, social groups, and individual citizens using private assets. Social organizations (shehui tuanti) are voluntary groups formed by Chinese civil citizens to achieve public good. Foundations (jijinhui) are corporate bodies that are funded by donations from individuals or corporations. From GONGO-led philanthropy to civil-led philanthropy: The fear of social unrest because of civil groups has caused the Chinese government to develop the civil society sector under the duress of tight state control (Saich, 2000). Thus, the big Chinese nonprofit organizations retain strong political and financial ties to their sponsoring government organizations and assist the government in advancing its socioeconomic prerogatives (Estes, 1998). Pressed by both the government funding cutback and peer pressure, some large Chinese nonprofit organizations/public foundations are transforming themselves into more “civil”-oriented nonprofit organizations by increasing their efforts to raise money from the public. Meanwhile, a number of donor-advised funds that used to operate under government-organized public foundations obtained independent legal status with the help of ever-increasing public pressure on the government’s tight grip on civil charitable resources. One Foundation, founded by the martial arts star, Jet Li, is one of the foundations that was separated from Red Cross Foundation and registered in Shenzhen, Guangdong Province in January 2011. It recently received gifts from other foundations, and some of China’s wealthiest and most influential entrepreneurs have joined its board. Its successful transformation is considered a milestone of Chinese philanthropy and civil society. From heavy reliance on international aid to domestic funding: In the last three decades, international nongovernmental organizations (INGOs) have provided substantial support to Chinese grassroots nonprofit organizations to address poverty alleviation, human rights, environmental degradation, and other issues of social, economic, and political development (Ma, 2006). There are around 200 INGOs working in China (China Development Brief, 2011). Although INGOs sustain Chinese civil groups, this dependence on foreign aid has negatively impacted their long-term growth (Ma, 2006). This suggests that sound and sustainable development has to rely on domestic support, especially for homegrown grantmaking foundations. Domestic grantmaking foundations can not only reduce the Chinese government’s suspicion of grassroots’ work in advancing civil society in China, but also provide a 3

sustainable funding source for grassroots nonprofit organizations. With the hyperbolic increase in Chinese affluence, philanthropic giving by wealthy people (especially large-scale giving through their own private foundations) augurs bolstering of support via private initiative. The fast growth of Chinese private foundations can also be interpreted as a result of the growing legitimacy of private foundation as a new organization form that is stabilizing in China. The rapid rise of private foundations provides sources of funding for NGOs. This is a positive trend in a climate in which INGOs are reducing their funding commitments in China. Operating foundations to grantmaking foundations: Deeply influenced by the approach of American grantmaking foundations, Chinese philanthropic organizations, especially the private foundations, began to adopt the notion of “scientific philanthropy”—managing assets and funds by hiring professional staff and achieving their missions by financing like-minded nonprofit organizations. A small group of foundations have begun to promote a new kind of philanthropy that seeks to move away from support for government charity projects and allocate resources toward sectors that have traditionally been neglected, such as independent nonprofits (China Development Brief, 2011). China Foundation for Poverty Alleviation is one of the largest public charities doing this. Development Trends The Philanthropy Research Institute of Beijing Normal University and One Foundation (BNU1, 2011) has identified the following six noteworthy trends to characterize the Chinese philanthropy movement. Trend 1: Increasing awareness of private giving. The Sichuan earthquake of 2008 is the threshold for Chinese civil society. Both individual and corporate donations have risen significantly since 2008. A majority of donations (more than 50 percent) still come from corporate programs, but public charities and provincial governments launched large national campaigns to encourage regular donations and volunteering. The “Philanthropic Month” and “Philanthropic Day” are making headway across the country. Trend 2: Increase in large-scale donations by the wealthy elite. According to China Charity Donation Information Center, there were 36 donations exceeding RMB 100 million in 2010, for a total of RMB 8.3 billion. Trend 3: Official government recognition of and engagement with philanthropic organizations. Chinese government has begun to decentralize part of its services to local nonprofit organizations by procuring social organizations’ services, increasing efforts at coordination, and officially recognizing innovative best practices. More and more often, top provincial government officials are present at influential philanthropic organization activities, such the “All Public Philanthropy Forum.” Because of the perception of mutual benefits, local government is also supportive of nonprofits’ innovative ideas that help alleviate rural poverty, develop the local economy, and attract local investment. Microfinance is one of the noteworthy social innovations that local government highly regards. Trend 4: Changes in regulations for local and foreign organizations. In 2011, the Chinese government has encouraged development of local organizations and restricted international organization interaction 4

and operations in the mainland. Although no philanthropy-related laws are published at the national level, recent news reported that the Ministry of Civil Affairs is poised to lift legal obstacles that prevent millions of independent charities from registering with the government and restrict their ability to raise money (The Chronicle of Philanthropy, 2011). An increasing number of provincial governments are creating their own local laws in promoting philanthropy, such as the Hunan, Guangdong, and Zhejiang provinces. The effectiveness of such laws is yet to be seen, but they indicate local governments’ readiness to favor the development of philanthropic organizations and philanthropic culture. Simultaneously, both local and national law began to tighten regulations for international organizations (BNY1, 2010). For example, foreign nonprofit organizations that run projects in Yunnan Province are required to first register with the provincial Civil Affairs Department; the State Administration of Foreign Exchange introduced a new regulation for foreign exchange donations that requires Chinese nonprofit organizations seeking international funding to first submit an application. Trend 5: Internationalization of Chinese philanthropy. With the growth of the Chinese economy to the second largest in the world, the Chinese philanthropic sector has begun to take more social responsibility in the international community and amplify its impact beyond national borders. Large nonprofit organizations have begun to adopt international standards and interact with a global network of philanthropists. For example, China Foundation for Poverty Alleviation has launched capacity-building projects in Sudan, and the China Youth Development Foundations launched the China-Africa Hope Project in Tanzania, which will build primary school buildings. In response to the Somalia famine and drought, One Foundation also recently announced it would give RMB 1 million to help fight food shortage and malnutrition. This is One Foundation’s first donation overseas, but this willingness to respond to international disasters is expected to continue. Trend 6: Greater transparency. The establishment of the China Foundation Center (CFC) and its website in July 2010 has elevated Chinese foundations’ transparency to a new level. The CFC collects and captures data on all registered foundations in China and releases this information through its online platform for public access. The year 2011 can be regarded as the year of a transparency movement for Chinese public charities. It started with 20-year-oldnamed Guo Meimei, who showed off her lavish lifestyle in the Chinese version of twitter. Her job position appeared on her profile as manager of Chinese Red Cross Business Development Co. The public suspected that her wealth may have come from corruption in the China Red Cross Society, which was besieged by indignant netizens, donors, and critics. Such revelation and public online anger have prompted the China Red Cross Society to issue several statements, declare its intent to self-audit, and launch online donation systems . Because of this scandal, other government-endorsed public charities, such as Soong Ching Ling Foundation, China Charity Federation, and China Youth Development Foundations, are now being closely inspected by the public and media. Other small, civil nonprofits are also taking advantage of the unprecedented public attention on charitable organizations to boost their transparency and public accountability by voluntarily disclosing donation details. Better regulation of donations to charitable organizations and of organizations themselves is already a focus of the highest authorities in China. Included in the latest “Five-Year Plan” (2011–2015), for example, is the importance of strengthening charity organizations (Simon, 2011). 5

Challenges for Chinese Philanthropy Legal barriers: Good news for Chinese civil organizations abounds these days. Guangdong Province is piloting an effort to lax the double-tier registration system. A spokesperson for the Ministry of Civil Affairs said in July that the government is “taking concrete action” to allow grassroots groups to register and raise funds without specific agency affiliation. Vice Minister Dou Yupei said an amendment on the change has been submitted to the government’s Legislative Affairs Office (The Chronicle of Philanthropy, 2011). However, double-tier registration is still in place and continues to constrain Chinese nonprofit organizations’ growth. Tax deductions: In the Chinese regulations of 2004, there is only one sentence stating the general principle of tax deduction policy, and tax incentive policy is still vague for both the regulators and the implementers. Tax relief policies are scattered within several other regulations. With the rapid development of various charitable organizations, philanthropic behaviors and relations tend to be more intricate. Therefore, more feasible tax incentive policies are needed. A systematic and implementable tax relief system can serve as a vehicle to encourage philanthropy, to redistribute social wealth and monitor the fiduciary behaviors along the border of business and politics. However, foundations and government continue to fight over foundations’ tax deductions. In 2009, the Department of Treasury and State Bureau issued a notification on the income tax of nonprofit organizations, mandating that nonprofit organizations be taxed 25 percent of their commercial/ investment-generated income. So far, scholars, foundation professionals, and government tax officers are still debating the proper tax rate. Grantmaking standards and procedures: Chinese private foundations have gradually gained legitimacy and are growing in momentum, but program effectiveness, grantmaking procedures and practices, and internal management remains a challenge for them. Because organized philanthropy is still so new, foundations lack systematic professional or academic training on internal management. The need for professional management is huge. What is more, relationship building between domestic foundations and NGOs presents a challenge for Chinese civil society. NGOs have cultivated close ties with INGOs and are used to international practices and standards, but Chinese foundations have different ideas and approaches to grantmaking. Accountability: Many private foundations have established a board of directors governance model to boost their credibility; however, Chinese private foundation governance is still far from satisfactory. The “2009 China Private Foundation Report—Internal Governance of Private Foundations” found that funders either dominate the boards or they recruit their friends and family members to sit on the board, so the board lacks community representativeness. Further, because of private foundations’ heavy reliance on certain individuals’ or organizations’ financial resources and difficulty generating more resources, these major funders have tremendous influence on the decision making of the organization. The social influences of the board members also bring them power in decision making. Among the 18 cases on board governance that have been examined by researchers, seven foundations have decisions made by funders only, two by funders and a few key members, eight by all-member discussion, and one by non-board members. The researchers concluded that Chinese private foundations’ internal governance is dominated by funders or board members who raise money. 6

Public-philanthropic partnerships: Against the backdrop of the government decentralization, Chinese government at various levels initiates the purchase of social services from nonprofit organizations. The lack of a long tradition of community-based nonprofit organizations may become an obstacle to the effectiveness and innovation of the public-philanthropic partnership. The connectedness and engagement among business, government, and philanthropy is also far from adequate to open up more opportunities for social innovation.

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References Philanthropy Research Institute of Beijing Normal University and One Foundation. (2011). Transitions, reform, and innovation: Excerpt from the 2010 China Philanthropic Sector Development Brief. Beijing: China Academy of Social Science. (2010). Annual Report on China’s Philanthropy Development. Beijing: the author China Academy of Social Sciences. (2010). 2010 China philanthropy bluebook. Beijing: the author. China Development Brief. Retrieved on May 1, 2011, from http://www.chinadevelopmentbrief.com/ Estes, R. (1998). Emerging Chinese Foundations: The role of private philanthropy in the new China. Regional Development Studies. (4), 5-11 the Author. Ma, Q. S. 2006. Globalization, international Non-government organizations and the development of Chinese grassroots nonprofit organizations. Open Times, 2, 35-40. Ministry of Civil Affairs. 2004. Regulation for the Management of Foundations. Beijing: State Council. NPO Research Center at Renmin University. 2010. Report on the governance of Non-public foundations. Beijing: the author. Saich, T. 2000. “Negotiating the State: The Development of Social Organizations in China.” The China Quarterly. (161): 124–141. Simon, K. 2010. “What impact will China’s Five-Year Plan have on philanthropy?” Retrieved on August 3, 2011, from http://philanthropynews.alliancemagazine.org/what-impact-will-china%e2%80%99s-fiveyear-plan-have-on-philanthropy/ The Chronicle of Philanthropy. 2011. China Moving to Lift Legal Hurdles for Independent Charities. Retrieved on August 3, 2011, from http://philanthropy.com/blogs/philanthropytoday/china-moving-tolift-legal-hurdles- for-independent-charities/38126

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