Philanthropy and Nonprofit Organizations in China by swissnex China

This research paper is available as print version and as e-paper via SwissFoundations und swissnex China Basel / Shanghai / Zürich – 2014

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IMPACT – GOOD GOVERNANCE – TRANSPARENCY Established in 2001, SwissFoundations is the leading association of Swiss grant-making foundations. An active network dedicated to innovation, it promotes and supports the exchange of experiences, transparency and professionalism amongst the country’s foundations. SwissFoundations therefore contributes to the effective and sustainable application of foundation resources. swissfoundations.ch

RMB, RMB bill y’all Philanthropie and Nonprofit-Organisations in China

PROMOTING – CONNECTING – FACILITATING As an initiative of Switzerland’s State Secretariat for Education, Research and Innovation (SERI), swissnex China’s goal is to promote the awareness of Swiss excellence in science, technology, innovation, higher education and culture in China, to connect scholars of both countries to establish a long-lasting network of collaboration, to facilitate Sino-Swiss cooperation through tailored events and workshops. swissnexchina.org

RMB, RMB bill y’all Philanthropy and Nonprofit-Organisations in China

Lennart Bolliger

SwissFoundations – swissnex 2014 ENGLISH

Philanthropy and Nonprofit Organizations in China

Lennart Bolliger

RMB, RMB bill y'all Philanthropy and Nonprofit Organizations in China SwissFoundations – swissnex 2014

Philanthropy and Nonprofit Organizations in China

Publishing details

swissnex meets SwissFoundations This study was produced in collaboration between swissnex China in Shanghai and SwissFoundations, the association of Swiss grant-‐making foundations. It is available in English and German: — swissnexchina.org — swissfoundations.ch

Basel/Shanghai/Zurich, March 2014 Explanation of the title

RMB, RMB bill y'all: Modified version of the line “Dollar, dollar bill y’all” from the rap song “C.R.E.A.M.” (Cash Rules Everything Around Me) by New York hip hop group Wu-‐Tang Clan (Diggs et al., 1994). RMB is the abbreviation used for the Renminbi, the currency of the People's Republic of China.

Philanthropy and Nonprofit Organizations in China

Foreword by the editor

Learning from China Switzerland needs a publicly accessible foundation register with high information content swissnex: show and learn Under the name swissnex, Switzerland's innovation society maintains a net-‐ work of outposts at a number of the world's hotspots. Their stated mission is to raise awareness of Swiss excellence. These swissnex hubs are not simply there to satisfy diplomatic protocol, they are mandated to establish a presence that specifically showcases innovative content. The swissnex model has two action vectors: the push methodology, which con-‐ vincingly and effectively presents Switzerland as a centre of learning and sci-‐ ence ranking among the forerunners of the Champions League of knowledge nations, and the somewhat underutilised pull methodology, which enables Switzerland to learn from others. swissnex's prime areas of activity are data searches, information processing and brokering, networking and communica-‐ tion. Exemplifying this, over the past 15 years, the two North American swiss-‐ nex offices have been instrumental in building up an entirely new spin-‐off, start-‐up and entrepreneurship cluster in Switzerland. And today, the successful innovation biotope Switzerland is itself the subject of numerous studies. Transparency in the Chinese foundation sector Philanthropy lessons from China? What can Switzerland – internationally feted as a “paradise for foundations” with its liberal legislation, long foundation tra-‐ dition and dependable financial services industry – learn from China, where institutions resembling independent nonprofit organisations have been around for hardly 20 years? One of the main initial aims of the present study was to explore potential areas of cooperation between Chinese and Swiss foundations and to bring together different players from the philanthropic sector. In terms of foundation prac-‐ tice, the most interesting finding was that in China – in complete contrast with Switzerland – there are successful government and private initiatives in place aimed at building large-‐volume foundation databases in the public domain. The online database Foundation Transparency Index was set up in 2010 by the China Foundation Center, a private NGO. As the name indicates, all the founda-‐ tions in the index are classified according to transparency. Foundations are ranked in terms of their governance record, i.e. exemplary, satisfactory or un-‐ satisfactory. The private initiative was driven by the following motives: — to create transparency for all stakeholder groups; — to adopt a system of self-‐regulation to pre-‐empt over-‐regulation by the state — to use transparency to enable public oversight. 3

swissnex presence to showcase inno-‐ vative content (push).

Pull (learn) com-‐ plements push (show).

Switzerland: a paradise for foun-‐ dations?

Foundation new-‐ comer China shows the way.

A publicly accessi-‐ ble foundation index to drive the sector's sustaina-‐ ble development.

Philanthropy and Nonprofit Organizations in China

Foreword by the editor

Publicly accessible foundation register In August 2013, the Chinese Ministry of Civil Affairs launched an interactive Internet database serving as a form of public register of nonprofit organisa-‐ tions which contains extensive information on more than 1,500 foundations and other nonprofit organisations (NPOs). This registration model is evidently a veiled attempt by the governing Communist Party to gain control of a growth sector that is barely state-‐regulated. Non-‐transparent Swiss foundation sector In China, a country with a fledgling foundation sector, statistical data are col-‐ lated and foundations are subjected to public scrutiny, which ensures that they optimise grant-‐making activities. It's quite a different story in Switzerland: Since foundation data are not statistically collected and processed, Switzerland has no reliable figures on the sector – even NPO researchers have to operate with estimates. Previous attempts to introduce a comprehensive foundation register with an information base largely accessible to the public have all been thwarted. Here too Switzerland could learn from other countries: For as long as there is no statutory obligation to disclose data, private foundation registers are all doomed to fail sooner or later.1 Paradoxically, Switzerland's legislator has no problem with the Swiss founda-‐ tion sector's lack of transparency. Given the tax exemptions enjoyed by non-‐ profit foundations, this situation is thoroughly unacceptable. Considering that each of its members sits on or chairs one foundation board of trustees on aver-‐ age, the Swiss parliamenta ought to be well acquainted with the pros and cons of good governance in the foundation sector. Foundations make up almost 20% of parliamentary members' vested interests. Since its inception in 2001, SwissFoundations, the association of Swiss grant-‐ making foundations, has been advocating greater transparency, making not only friends in the discretion-‐driven foundation sector. The association is, how-‐ ever, not calling for “glass foundations”, but a functional transparency which factors in the specific needs of the foundation community. This style of trans-‐ parency propagates a fair deal between tax exemption and nonprofit engage-‐ ment, while promoting self-‐regulation within the context of market control. Transparency is what drives good governance in the foundation sector. It sur-‐ passes all forms of state regulation, none of which could ever adequately ad-‐ dress the complexity of the productive foundation biotope that is Switzerland with its constantly changing models. Inefficient bureaucratisation can be po-‐ tentially damaging.

A foundation register provides data and makes the sector tangible.

Without statutory disclosure no public foundation register.

Members of Swiss parliament using lack of transpar-‐ ency to protect themselves.

Transparency drives good gov-‐ ernance in the foundation sector.

Von Schnurbein, Georg et al.: Handlungsempfehlungen zur Gestaltung eines nationalen Stiftungsregisters in der Schweiz

(Recommendations for structuring a foundation register in Switzerland), CEPS Centre for Philanthropy Studies, University of Basel, 2012

Philanthropy and Nonprofit Organizations in China

Foreword by the editor

Missed opportunity In the wake of a motion launched on 20 March 2009 by Swiss Council of States member Werner Luginbühl aimed at enhancing Switzerland's appeal as a loca-‐ tion for foundations,2 it really looked as though the call for transparency would be heeded.3 The National Council's Committee on Economic Affairs and Taxes submitted a motion to create a national register and improve the statistical ba-‐ sis.4 Although passed by the National Council, the motion was rejected by the Federal Council and the Council of States, both quick to capsize them with flim-‐ sy arguments:5 The motion's detractors claimed it would entail too much time and effort since extensive legislation would be needed. The Federal Council also envisaged difficulties collecting data on foundations not entered in the commercial regis-‐ ter, overlooking the fact that the motion clearly only related to nonprofit foun-‐ dations, i.e. organisations which are required per se to be entered in the com-‐ mercial register. And ultimately, so the opponents argued, the proposal was too risky because it was impossible to estimate the cost-‐benefit ratio. Bern prefers to place its faith in the familiar cost-‐benefit ratio of a burgeoning administrative apparatus: The Luginbühl motion was written off in 2013. There is to be no publicly accessible foundation register that would have subjected tax-‐privileged nonprofit foundations to an efficient system of public scrutiny. On the other hand, the Swiss Supervision Board for Foundations has increased its headcount by 6.5 FTEs to 13. Whether there are 6.5 or 13 people casting a quick glance over foundation annual reports does nothing to make Switzerland a better and more attractive location for foundations. Of all the arguments they could have brought forward, Switzerland's parlia-‐ mentarians, who are foundation trustees at the same time, choose to cite pri-‐ vacy rights and data protection as grounds for killing the transparency motion. Rather than take firm measures to help foundations serve society more effec-‐ tively, parliament opts to protect the principle of non-‐transparency and, by ex-‐ tension, themselves. A foundation hub that espouses secretiveness instead of following current practice and embracing the requirements of good govern-‐ ance will soon bring itself into international disrepute. Quite apart from the negative image, which directly impedes any motivation to set up a foundation, the prevailing lack of transparency allows trustees to rigidly adhere to the same old grant-‐making patterns that have little in common with present-‐day Switzerland as a centre of innovation and knowledge.

From sector de-‐ mand to political motion ...

... that is quickly quashed.

More personnel does not mean more progress.

Lack of transpar-‐ ency increasingly damaging Switzer-‐ land's reputation as a foundation hub.

Motion 09.3344 swissfoundations.ch/de/motionen-‐vorstösse 4 Motion 09.3971; the motion was submitted on 6 October 2009 as a response to a position paper by SwissFoundations on 3

the Luginbühl motion. The paper emphatically called for the creation of a national foundation register and the regular collection of data on the sector. 5 Position paper by the Federal Council dated 27 November 2009. 5

Philanthropy and Nonprofit Organizations in China

Foreword by the editor

Call for a renewed attempt to create transparency in the foundation sector As civic engagement plays a significant role in Swiss society, the potential is considerable: With over 13,000 nonprofit foundations controlling an estimated CHF 80 billion in capital, Switzerland numbers among Europe's foremost foun-‐ dation nations and ranks first globally on a per capita basis. Self-‐proprietary en-‐ tities enjoying tax-‐privileges, foundations can intervene in social processes, which makes them quasi-‐public institutions.

Positioned be-‐ tween state and business, the foundation sector is gaining in signifi-‐ cance.

The bottom line of making Switzerland's foundation sector transparent would be market control and a more effective nonprofit public service. The nonprofit sector is also inherently competitive. Learning from China? And how! Philipp Egger

Philanthropy and Nonprofit Organizations in China

Foreword by the author

From Economic to Philanthropic Miracle? Before the start of the economic reforms in the late 1970s, nonprofit organizations were vir-‐‑ tually non-‐‑existent in China. In the context of the rapid economic growth, the Chinese phi-‐‑ lanthropy sector has also grown rapidly – in terms of the yearly donation and endowment volume, as well as the number of nonprofit organizations and their importance in the Chi-‐‑ nese society. Today the young sector and the vast majority of nonprofit organizations face financial difficulties, problems of good governance and transparency, and a strong govern-‐‑ ment influence. Due to its young existence and despite numerous obstacles, the philanthropy sector has enormous potential for development. Thus, future collaboration projects between Chinese and Swiss foundations – amongst others in the areas of foundation governance, mission-‐‑ related investing, and transparency – present interesting opportunities for both countries. Interesting opportunities for collaboration exist in particular regarding transparency. In China there are private as well as governmental initiatives to increase transparency in the foundation sector through publicly available foundation registers. For example, the Beijing-‐‑ based nonprofit organization China Foundation Center and the governmental China Charity Donation Information Center both maintain relatively extensive and comprehensive online foundation databases.

Philanthropy and Nonprofit Organizations in China

Acknowledgments I would like to express my sincere gratitude to: -‐

Gebert Rüf Stiftung for its support, in particular Dr. Philipp Egger, Director/CEO, for his supervision, and constructive feedback;

-‐

Pascal Marmier, Executive Director of swissnex China, for his trust, support and contacts to numerous people and organizations;

-‐

Zhu Xin and Xiao Lan of swissnex China for their research assistance and translation help;

-‐

Jennifer Bebié, Isabel Götz, Ariel Litke, Daniel Nerlich and Joanna Wheaton for their pa-‐‑ tient proof-‐‑reading and critical remarks.

Very special thanks go to all my conversation and interview partners for their cooperation, openness and valuable input (in alphabetical order): Agersnap, Jakob, HanWang Forum; Chen, Yutong, China Foundation Center; Fazan, Jean-‐‑Luc, Three Valleys Foundation; Fan, Xiaowen, Save The Children, Chengdu; Gao, Ruili, Chinese Red Cross Foundation; Gu,Wei, Venture Avenue; Lai, Chao, Beijing Western Sunshine Rural Development Foundation; Lin, Hong, Narada Foundation; Liu, Xuanguo, Chinese Red Cross Foundation; Qian, Zheng, Shanghai United Foundation; Russell, Leigh-‐‑Anne, Non-‐‑Profit Incubator; Sheng, Xin, Kai Feng Foundation; Tao, Ze, China Foundation Center; Yang, Guoqiong, Beijing Western Sun-‐‑ shine Rural Development Foundation; Ying, Yile, iJoin; Ye, Xiawei, iJoin; Zhang, Hongyen, Venture Avenue; Zhang, Jinxuan, Doing Business With China; Zhu, Yunjiao, Shanghai Unit-‐‑ ed Foundation.

Philanthropy and Nonprofit Organizations in China

Contents Introduction .........................................................................................................................................10 Key Concepts, Objectives and Approach ........................................................................................11 Key Concepts .................................................................................................................................................. 11 Objectives ........................................................................................................................................................ 13 Methodology ................................................................................................................................................... 14 Historical Basis and Development ................................................................................................... 15 Philanthropy in Chinese Thought ............................................................................................................... 15 Late Ming Dynasty until End of Qing Dynasty (ca. 1550-1911) .............................................................. 16 Republic of China (1912-1949) ...................................................................................................................... 17 People’s Republic of China (1949-1980) ...................................................................................................... 17 Chinas Nonprofit Sector: 1980 Through Today ......................................................................................... 18

Giving in China ...................................................................................................................................21 Donation Volume ........................................................................................................................................... 21 Donation Beneficiaries ................................................................................................................................... 26 Areas of Donations ......................................................................................................................................... 27

Founding in China ..............................................................................................................................29 Importance of Foundations and NPOs in China ....................................................................................... 29 Transparency in the Foundation Sector ...................................................................................................... 36 Legal Basis of Foundations ........................................................................................................................... 37

Challenges and Trends in the Chinese Nonprofit Sector ..............................................................42 Access to Funding .......................................................................................................................................... 42 Access to Human Resources ......................................................................................................................... 43 Governance, Accountability and Transparency ........................................................................................ 44 Legal Framework ........................................................................................................................................... 45

Case Studies .........................................................................................................................................47 China’s Biggest Philanthropists ................................................................................................................... 47 Nonprofit Organizations ............................................................................................................................... 48 Foundations .................................................................................................................................................... 52

Areas of Collaboration between Foundations ................................................................................57 Foundation Governance and Self-Regulation ............................................................................................ 57 Mission-Related Investing ............................................................................................................................ 59 Foundation Register and Transparency ...................................................................................................... 60

Conclusion and Outlook ....................................................................................................................63 Figures and Tables ..............................................................................................................................65 Bibliography ........................................................................................................................................66 Afterword: About this study .............................................................................................................71

Philanthropy and Nonprofit Organizations in China

Introduction For years China has been among the world’s fastest growing economies, ultimately becom-‐‑ ing the second largest economy behind the USA in 2012. In the context of this economic growth one of the largest creations of wealth in the history of mankind is currently taking place. At the end of 2011 there were more than 1.05 million Chinese millionaires (whose as-‐‑ sets were more than RMB 10m) and more than 64,000 ‘super rich’ individuals (whose assets are more than RMB 100m).6 China’s hundred biggest philanthropists of 2012/2013 donated a total amount of USD 898m.7 Like China’s economy, the number of millionaires and the annual donation volume, the Chi-‐‑ nese nonprofit sector has also experienced rapid growth. Despite numerous social and polit-‐‑ ical challenges, increasing numbers of independent nonprofit organizations (NPOs) and pri-‐‑ vate foundations have established themselves in the philanthropy sector, which had been dominated by government organizations for many years, and still finds itself under strong government control despite various reforms. Over the past decade the number of NPOs has almost doubled and the number of foundations has more than tripled. How has the Chinese government reacted to the growth of the nonprofit sector? What is the history of philanthropy in China and how has it developed over the past centuries? Who donates what to whom and how? Who are China’s NPOs and what is their importance in the Chinese society? Which challenges do NPOs face and how do they tackle them? Who are China’s philanthropists and what people are behind foundations and NPOs? This study aims to, at least partially, answer these questions and provide its readers with a first insight into philanthropy and nonprofit organizations in China. This study finds origin in the fourth “Art Science Society BBQ Lectures” by swissnex China on 30 August 2012 in the Minsheng Art Museum in Shanghai. The swissnex China BBQ lec-‐‑ tures provided a discussion platform within which a Swiss and a Chinese each held a presentation on a particular topic. In August 2012 Dr. Philipp Egger, Director/CEO of the Gebert Rüf Stiftung, and Prof. Lu Xiaowen, deputy director of the Institute of Sociology at the Shanghai Academy of Social Sciences, held a presentation about the philanthropy sectors in Switzerland and in China.8 After the event, Flavia Schlegel, former Executive Director of swissnex China, and Dr. Philipp Egger decided to continue their collaboration and to jointly realize a study of philanthropy in China. The aim of the study was not only to give an over-‐‑ view of Chinese philanthropy but also to locate possible areas of collaboration between Chi-‐‑ na and Switzerland, and to further connect both countries.

GroupM Knowledge & Hurun Report (2013) Hurun Report (2013) 8 Egger (2012) 6 7

Philanthropy and Nonprofit Organizations in China

Key Concepts, Objectives and Approach Key Concepts Philanthropy and Philanthropic Action As in German or English, Chinese terms related to the concept of “philanthropy” have vari-‐‑ ous definitions, uses, and associations. In English the word philanthropy finds its roots in Ancient Greek and means “love of humanity” (philia = love; anthropos = human being). In the current vernacular, philanthropy is often defined as humanitarian thinking and acting, be-‐‑ nevolence, charity and/or goodwill. In Chinese there are different words that are similar to but not entirely congruent with the English words of benevolence and philanthropy: haoshi (= good deed), shanju (= charitable act), shiji (= giving aid), cishan (= charitable), and bo’ai (= universal love).9 The last two words are probably closest to the English word of philanthropy. Bo’ai is closer to philanthropy as a way of thinking while cishan is closer to philanthropy as an act.10 This study largely follows the conceptualization and definition of philanthropy and philan-‐‑ thropic acts given by von Schnurbein & Bethmann (2010): “Philanthropy includes all private and voluntary acts for a charitable objective.”11 From an activity-‐‑oriented view, philanthropic activity is always considered as some form of donation, although there is a distinction made between financial donations (single donation, permanent donation, bequest, social investment, creation of a foundation), in-‐‑time donations (informal and formal voluntary work) and in-‐‑kind donations.12 Nonprofit Sector The concept of the nonprofit sector – also referred to as the third, social, civil-‐‑society, inter-‐‑ mediary or voluntary sector – as the third dimension of society between the market and the state established itself in the 1970s. While the state as the first sector consists of the admin-‐‑ istration and the market as the second sector is made up of companies and private house-‐‑ holds, the nonprofit sector includes all organizations that cannot be clearly assigned to one of the first two sectors. In ‘Western’ literature, these organizations are usually called non-‐‑ profit organizations (NPOs) or non-‐‑governmental organizations (NGOs).13 Examples of or-‐‑ ganizations in the nonprofit sector are foundations, associations and collectives.

Handlin Smith (1998), p. 419 The Chinese word for philanthropist is cishanjia. 11 von Schnurbein & Bethmann (2010), p. 4 12 von Schnurbein & Bethmann (2010), p. 8 13 For the sake of clarity and uniformity this report uses, almost exclusively, the term nonprofit organization (NPO). 9

Philanthropy and Nonprofit Organizations in China

Since there are numerous links and overlaps between the three sectors of society, a clear de-‐‑ lineation between is neither possible nor valid. For-‐‑profit organizations, for example, can also undertake philanthropic activities and NPOs can pursue self-‐‑interested and earnings-‐‑ oriented objectives.14 For this reason a uniform definition of the nonprofit sector is very diffi-‐‑ cult. Salamon & Anheier (1992) define NPOs according the following criteria: Nonprofit organizations: -‐

are private organizations;

-‐

have a minimum of formal organization;

-‐

are largely independent organization;

-‐

are not allowed to distribute profits to members and other groups;

-‐

have volunteers.15

For various reasons such ‘Western’ definitions of NPOs can only be applied in China to a certain extent. First, the regulatory framework for the nonprofit sector and the definitions of various NPOs are different. Second, the organizational structures and strategic orientation of Chinese NPOs are closely connected to the political system and the current political agenda of the government. Third, the vast majority of today’s NPOs were established by the state and all registered organizations are supervised by the government. Hence, many Chinese NPOs don’t meet the first and third of the above five criteria. Altogether there are six different types of organization that can be assigned to the nonprofit sector:16 -‐

Public institutions (shiye danwei): quasi-‐‑state public service institutions such as public hospitals, universities and research institutes. Since individuals and companies cannot es-‐‑ tablish public institutions, this NPO-‐‑type is not discussed in this study.

-‐

Social organizations (shehui tuanti): voluntarily established organizations that pursue the common objectives of their members; mostly government-‐‑organized non-‐‑governmental organizations (GONGOs); examples of social organizations include charitable organiza-‐‑ tions, chambers of commerce, inter-‐‑trade organizations and research institutes.

-‐

Public fundraising foundations (gongmu jijinhui): mostly GONGOs and foundations close to the government, which have the right to publicly fundraise. This type of foundation is further divided into nationwide and regional public fundraising foundations.

-‐

Non-‐‑public fundraising foundations (feigongmu jijinhui): mostly private organizations, which do not have the right to publicly fundraise.

-‐

Civil Non-‐‑Enterprise Institutions (CNIs, minban feiqiye danwei): organizations that were founded with non-‐‑governmental funds and provide non-‐‑profit-‐‑oriented, public services

von Schnurbein & Bethmann (2010), pp. 6-‐‑7 von Schnurbein & Bethmann (2010), p. 6 16 China Development Brief (2011); Schrader & Zhang (2012) 14 15

Philanthropy and Nonprofit Organizations in China

such as hospitals, schools and museums.17 It is unclear why this type of NPO was intro-‐‑ duced in 1998 in addition to social organizations and foundations. It is possible that the prohibition of foundations operating an enterprise in the 1988 “Regulations on the Man-‐‑ agement of Foundations” was so understood to mean that foundations were also prohib-‐‑ ited from operating a non-‐‑profit-‐‑oriented business. CNIs thus filled a certain gap in the nonprofit sector since the introduction of “Regulations on the Management of Founda-‐‑ tions” (jijinhui guanli tiaoli)18 (hereafter “Foundation Regulations”), under which foun-‐‑ dations may operate any form of business, no longer exists.19 -‐

Unregistered and business-‐‑registered NPOs: mostly grassroots-‐‑NPOs that are either not registered at all or registered as a commercial business.

Literal translations of NPO (fei yingli zuzhi) and NGO (fei zhengfu zuzhi) are seldom used in Chinese and there is no uniform term for NPOs. Other terms such as minjian zuzhi (= “popu-‐‑ lar organization”), shehui zuzhi (= “social organization”) and gongyi zuzhi (= “public welfare organization”) are the most common and often used interchangeably. In order to distinguish themselves from GONGOs, many independent NPOs identify themselves as minjian (= “popular”), caogen (= “grassroots”), and gongmin shehui (= “citizen society”).20 In this report the term NPOs refers to social organizations, CNIs, and foundations as well as unregistered or business-‐‑registered NPOs. Public institutions are thus not included.

Objectives The objective of this study is to summarize and analyze existing studies and surveys on spe-‐‑ cific parts of the philanthropy and nonprofit sector in order to provide a numerical and structural overview.21 From the outset this study has aimed to answer the following ques-‐‑ tions: -‐

What is the overall size and scale of philanthropy in China?

-‐

How is the social, regulatory and economic environment for philanthropy?

-‐

What are the main sources of philanthropy (individuals, foundations, etc.)?

-‐

For which causes is the spending is taking place?

-‐

What are potential areas of collaboration with Swiss experts?

While the analysis covers the whole nonprofit sector, i.e. foundations, social organizations and CNIs, there is a particular focus on foundations, for two reasons. Firstly, foundations are

Pissler & von Hippel (2006), p. 128; Simon (2005), p. 27 Jijinhui guanli tiaoli [Regulation on Foundation Administration] (issued on 8 March 2004 and took effect on 1 June 2004), Chinese-‐‑English available on < http://www.lawinfochina.com/display.aspx?lib=law&id=3463&CGid=> [Retrieved 16 July 2013] 19 von Hippel & Pissler (2010), pp. 24-‐‑25 20 China Development Brief (2011) 21 Cf. von Schnurbein & Bethmann (2010), p. 13 17 18

Philanthropy and Nonprofit Organizations in China

better documented and statistically covered. Secondly, this study aims to examine opportu-‐‑ nities for collaboration specifically between Chinese and Swiss foundations.

Methodology To pursue these objectives this report will take a methodological approach based in particu-‐‑ lar on the secondary analysis of existing studies and data. These empirically-‐‑based studies and data come from official statistics and databases (e.g. labor statistics, administrative doc-‐‑ uments, etc.) about donations, foundations, NPOs, etc. as well as from other studies and surveys conducted by research institutes, foundations and other NPOs. It should be noted that that all studies – also those based on official governmental data – contain statistical in-‐‑ accuracies and partially contradictory information and must therefore be subject to cautious analysis. In addition to the secondary analysis of existing studies this report is based on exploratory discussions and guided interviews conducted with local NPO employees, NPO leaders, rep-‐‑ resentatives of youth organizations, experts of the nonprofit sector, and representatives of companies that work with NPOs.

Philanthropy and Nonprofit Organizations in China

Historical Basis and Development Philanthropy is by no means a new phenomenon in China. Traditionally Confucianism and Buddhism, in their emphasis on the role of the family and the state, have had a strong influ-‐‑ ence on philanthropy in Chinese thought. In particular the close relationship between phi-‐‑ lanthropy and the family helps explain the Chinese population’s reluctance, to this day, to-‐‑ ward helping strangers. New forms of philanthropy not focused on the family or the state had their origin in the late Ming and early Qing dynasty when newly rich merchants estab-‐‑ lished numerous charitable organizations, orphanages and widows’ houses. The first Repub-‐‑ lic of China temporarily saw the temporary establishment of China’s first NPOs, all of which were co-‐‑opted or abolished with the victory of the Communist Party of China, which saw NPOs as a risk to state security. Today, China’s nonprofit sector, which was “resurrected” with Deng Xiaoping’s economic reform and open-‐‑door policies in the late 1970s, faces strong and seemingly arbitrary government control and an often ambiguous legal framework.

Philanthropy in Chinese Thought Confucianism considers humans as inherently charitable. In response to a question about the meaning of philanthropy, Confucius said “it is to love all men”. Mencius, the most promi-‐‑ nent Confucian philosopher after Confucius himself, taught that all humans were born with “feelings of commiseration”. Both Confucius and Mencius considered charity as an essential part of a noble character and philanthropy as a virtue as well as a fundamental hallmark of humanity.22 Chinese charity traditionally attached great importance to mutual help and personal rela-‐‑ tionships. Confucian and Buddhist beliefs in benevolence, virtue, ritual, order, loyalty and rigid social hierarchies were the reason why philanthropy was often limited to family, rela-‐‑ tives and personal relations. Donations to strangers were rarely made and charitable contri-‐‑ butions to intermediary organizations which managed and transferred donations were even rarer.23 Widespread family charities during the Ming Dynasty were limited to lineage and kinship. These family organizations, for example, donated land in order to secure prestig-‐‑ ious government posts, contributed financially to weddings and funerals, and provided family members in need with food and financial support.24 According to Confucianism, ethics and politics are closely connected. The state exists in or-‐‑ der to advance the well-‐‑being of its population and the best government is the one that is truly benevolent in its provision of public welfare. For this reason the concept of the “benev-‐‑ olent government” often appears in the classic texts of Chinese philosophy. The most im-‐‑

Tsu (1912), p. 16; Wong (1998), p. 24 Wong (1998), p. 25; Xin & Zhang (1999), p. 91 24 Handlin Smith (1987), p. 310 22 23

Philanthropy and Nonprofit Organizations in China

portant duty and ultimate goal of state philanthropy are the elimination of material needs and the achievement of economic self-‐‑reliance, which are considered fundamental for the spiritual progress of mankind.25 As the personification of the government and the ultimate father figure, the Chinese emperor was morally obliged to personally look after the well-‐‑ being of his subjects, which were part of his extended family.26 However, in reality state wel-‐‑ fare was more a question of good governance than philanthropy. The close link between philanthropy and the state and the family, respectively, and the asso-‐‑ ciated reluctance to give to strangers help explain the philanthropic attitude of the Chinese population today.27

Late Ming Dynasty until End of Qing Dynasty (ca. 1550-‐‑1911) State and family philanthropy remained the two most important forms of philanthropy until the late Ming Dynasty. With the increasing commercialization and the growing social wealth during the late Ming Dynasty and the early Qing Dynasty, rich merchants gradually took over the financing and organization of philanthropy in China’s society.28 On the one hand, philanthropy by the merchant class was motived by ethical reasons and the belief in a higher good. On the other hand, charitable engagement allowed merchants, who historically had a very low status in the Confucian social hierarchy, to gain more social prestige. 29 From the mid-‐‑19th century larger cities had extensive charitable organizations such as orphanages and widow homes. Each of these institutions owned big buildings, received significant amounts of donations and even had the authority to collect donations from wealthy neighbors. Alt-‐‑ hough these charitable organizations were approved of and supported by the imperial gov-‐‑ ernment, they were almost exclusively financed by merchants.30 While the philanthropic engagement of the merchant class may have been based more on the desire for social ascen-‐‑ sion than “feelings of commiseration”, an important evolution away from state and toward private philanthropy became apparent during this time period. This very general overview of Chinese philanthropy until the early 20th century clearly does not do justice to the long and complex history of philanthropy in China. However, in order to understand the current status and general trends of philanthropy and the foundation sec-‐‑ tor in present-‐‑day China, the following historical overview limits itself to the time from the first Republic of China beginning in 1912. Tsu (1912), pp. 19-‐‑20 Handlin Smith (1987), p. 321 27 Xin & Zhang (1999), p. 91 28 Handlin Smith (1998), p. 420 ff. 29 Rawski (1991), p. 93 30 Handlin Smith (1987), p. 420 25 26

Philanthropy and Nonprofit Organizations in China

Republic of China (1912-‐‑1949) After the abdication of China’s last emperor and the end of the Qing Dynasty in 1912, legal experts of the newly ruling Nationalist Party – known as Guomindang – who were trained in European law drafted China’s first constitution and civil legal system: the Six Codes of the Guomindang. The interim constitution of the Republic of China guaranteed the rights of association, assembly, speech and publication, and created the necessary legal and political framework for the organization of charitable institutions.31 The new legal system was strong-‐‑ ly inspired by Western constitutional models that came to China via Japan in the late 19th and early 20th centuries.32 Particularly influential were the Swiss Civil Code and the 1900 German Civil Code, the latter of which provided an analysis and definition of various legal terms such as “legal person” and “obligations.” In addition, the civil code of the Guomin-‐‑ dang adopted the legal term “juristic act”, which comprises contracts, wills and deeds, and was aimed at regulating business relations and transactions with foreigners.33 Although the new civil legal system had only limited influence on the general population, it nonetheless created the legal framework for the first charitable nonprofit organizations (NPOs) in China.34 The constitution guaranteed the rights of association, assembly, speech and publication and thus built the legal foundation for the formation of the first Chinese NPOs. During this time, NPOs of all kinds were created: charitable organizations, academic institutions, chambers of commerce, arts and literature societies, and foreign aid organiza-‐‑ tions.35 Interestingly, during the Second Sino-‐‑Japanese War (1936-‐‑1945) and the Chinese Civil War (1946-‐‑1949), the Communist Party of China (CPC) also supported the organization and de-‐‑ velopment of NPOs. During this time, Mao Zedong decided that the CPC should form a united front together with other “revolutionary” organizations against Japan and the Guomindang. However, with the victory of the CPC over the Guomindang and the end of the Republic of China in 1949, the developments in the nonprofit sector came to an abrupt halt.

People’s Republic of China (1949-‐‑1980) As one of its first official acts in power, the CPC abolished the Six Codes of the Guomindang and the existing legal and judiciary system.36 In the new communist China, the CPC saw no need for private charity and began to either co-‐‑opt or, if deemed counter-‐‑revolutionary, to suppress all NPOs. Xin & Zhang (1999), p. 86 Luney (1988) 33 Luney (1988), p. 131 34 Xin & Zhang (1999), p. 86 35 Zhang (2003), p. 5 36 Luney (1988), p. 132 31 32

Philanthropy and Nonprofit Organizations in China

Under Mao’s leadership, the CPC wrote the first Common Program of the Chinese People’s Political Consultative Conference in September 1949. The program was the de facto constitu-‐‑ tion from 1949 until 1954 and served as the model document for the subsequent Interim Provision on the Registration of Social Organizations. The de facto constitution guaranteed the “freedom of association” (art. 5), yet at the same time, threatened to “suppress all coun-‐‑ ter-‐‑revolutionary activities” (art. 7), which remained undefined.37 In October 1950, the Interim Provision on the Registration of Social Organizations, which aimed at regulating all existing NPOs and setting them on a socialist course, was intro-‐‑ duced.38 The Interim Provision explicitly prohibited the co-‐‑option of “all counterrevolution-‐‑ ary organizations that threaten the state security and the interests of the people”, and stipu-‐‑ lated the suppression and dissolution of all already co-‐‑opted organizations. NPOs which were found to be “reactionary” or “feudalistic” were abolished altogether.39 Although the new regulations still recognized the legal existence of NPOs, they contained new legal crite-‐‑ ria establishing which nonprofit activities were permitted or prohibited, respectively. The new government exercised clear control over the nonprofit sector and had the discre-‐‑ tionary power to deny the establishment of new NPOs and to suppress already existing ones. The CPC considered the state to be the preferred vehicle for social services, and any activity outside of the party system was seen as a potential threat to the communist state. As a result, NPOs were eventually replaced with organizations close to the government, which proved to be nothing more than extended arms of the CPC. In the 1950s and 1960s, the government temporarily allowed the establishment of a few NPOs but almost all of them were abolished shortly after during the Cultural Revolution.40 The non-‐‑state philanthropy that had tenta-‐‑ tively taken root in the first Republic of China consequently vanished for the next 30 years.

Chinas Nonprofit Sector: 1980 Through Today With the economic reform and open-‐‑door policy launched by Deng Xiaoping in 1978, the CPC’s control over the nonprofit sector loosened as well. During the following years, nu-‐‑ merous social organizations, including many student associations, were formed.41 The in-‐‑ creasing number of student organizations constituted the driving force behind the Chinese pro-‐‑democracy movement of the 1980s, which culminated in the Tiananmen Square Massa-‐‑ cre in 1989.42 The Chinese government, busy drafting new business-‐‑friendly laws, paid little attention to the increasingly bold student associations. Through the dramatic events of the pro-‐‑democracy movement in the late 1980s, the CPC again realized the potential threat of

Xin & Zhang (1999), p. 86 Xin & Zhang (1999), p. 86 39 Zhang (2003), p. 7 40 Xin & Zhang (1999), p. 88 41 Ma (2002), p. 309 42 Gold (1990) 37 38

Philanthropy and Nonprofit Organizations in China

independent social organizations and began to establish a stricter regulatory system for NPOs.43 Before 1988, there were no legal provisions for charitable organizations and the term “NGO” was virtually nonexistent in China. Organizations that described themselves as NPOs were exclusively government-‐‑organized non-‐‑governmental organizations (GONGOs). China’s present-‐‑day nonprofit sector started to emerge with the 1988 “Rules on Management of Foundations” and the “Regulation on the Registration and Administration of Social Organi-‐‑ zations” introduced one year later. The large majority of charitable organizations that reg-‐‑ istered under the new regulations were GONGOs.44 The provisions of 1988 and 1989 further established the current “dual management system” for all NPOs.45 This system requires that each NGO register with the Ministry for Civil Af-‐‑ fairs (MoCA) and gain the consent of a government agency or a branch of the CPC, so-‐‑called “sponsor organizations”.46 These sponsor organizations are responsible for the oversight of the day-‐‑to-‐‑day business of NPOs and NGO leaders refer to them as “step-‐‑mothers”. Smaller independent NPOs often register as for-‐‑profit businesses because they cannot find a step-‐‑ mother.47 Moreover, NPOs have to reregister on a regular basis and the reregistration of many organizations is rejected. For example, during the reregistration of 1991-‐‑1992, a total of 118,691 organizations applied for reregistration but only 89,969 applications were ap-‐‑ proved.48 In contrast to the strict legal provisions for the registration of NPOs, the official NGO-‐‑policy of the government often shifts, reflecting changes in the political agenda of the CPC or changes of China’s political situation. Many regulations for NPOs are often based on docu-‐‑ ments of the executive branch without the approval of the National People’s Congress, on speeches of party officials, or on unpublished party documents that NPOs are not aware of.49 In short, the official NGO-‐‑policy in China varies from time to time, from place to place and from one NGO-‐‑type to another. According to the provisions in effect, the current Chinese notion of NGO refers to all public social institutions (shehui zuzhi) registered with the MoCA. There are three types of public social institutions: 50 -‐

Social organizations: voluntarily established organizations that pursue the common objectives of their members; all the organization’s activities have to be pursued in ac-‐‑

Ma (2002), p. 309 China Development Brief (2011a) 45 Ma (2002), p. 309 46 Pissler & von Hippel (2006), p. 107 47 Ma (2002), p. 309 48 Zhang (1996), p. 99 49 Ma (2002), P. 310 50 China Development Brief (2011a) 43 44

Philanthropy and Nonprofit Organizations in China

cordance with its statutes; examples of social organizations include charitable organ-‐‑ izations, chambers of commerce, inter-‐‑trade organizations, research institutes, etc.51 -‐

Civil Non-‐‑Enterprise Institutions (CNIs, minban feiqiye danwei): organizations found-‐‑ ed with non-‐‑governmental funds and that provide non-‐‑profit-‐‑oriented, public ser-‐‑ vices such as hospitals, schools and museums. 52

-‐

Foundations (jijinhui): NPOs that are founded with funds donated by domestic or foreign organizations or individuals. Since the introduction of “Regulations on the Management of Foundations” in 2004, Chinese law distinguishes between founda-‐‑ tions that have the right to publicly fundraise (hereafter “public fundraising founda-‐‑ tions”) and those that do not (hereafter “non-‐‑public fundraising foundations”).53 This type of foundation is further divided into nationwide and regional public fundrais-‐‑ ing foundations.

In general, most public fundraising foundations and organizations are GONGOs while most non-‐‑public foundations and CNIs are independent, privately-‐‑founded NPOs.54

von Hippel & Pissler (2010), p. 21; Simon (2005), p. 27 Pissler & von Hippel (2006), p. 128; Simon (2005), p. 27 53 Pissler & von Hippel (2006), p. 128; Simon (2005), p. 28 54 China Development Brief (2011a) 51 52

Philanthropy and Nonprofit Organizations in China

Giving in China Philanthropic activity can be carried out not only by different actors, but also in different shapes and forms. For a differentiated discussion on the various forms of donation behavior in China, a distinction between financial, in-‐‑time and in-‐‑kind donations is appropriate.55 In light of the current statistical coverage of the Chinese philanthropy sector, such a discussion is practically impossible. Publicly available data from governmental authorities and research institutes are very limited and often unclear and contradictory. In the following sections, this report therefore discusses the donation volume, donation areas, and donation beneficiaries. The World Giving Index (WGI), which is published annually by the British Charities Aid Foundation, provides a first general, if inaccurate, picture of the current state of philan-‐‑ thropy in China. For the WGI 2012, over 155,000 people in 146 countries were interviewed regarding their charitable behavior. The participants were asked if, in the previous month before the interview, they had (a) donated money to a charity, (b) volunteered their time to an organization, and (c) helped a stranger, or someone they didn’t know who needed help. According to the survey results for 2012, 4 percent of the interviewees had volunteered their time to an organization, 10 percent had donated money to a charity and 26 percent had helped a stranger in need. China placed 141st out of a total of 146 and thus ranked behind some of the world’s poorest countries such as Afghanistan, the Democratic Republic of the Congo, and Haiti.56

Donation Volume Charitable donations have increased strongly, albeit from a relatively low level, over the past few years. From 2006 until 2011, the total donation volume has increased from RMB 13bn to RMB 84.5bn. The donation volume includes the monetary value of all financial and in-‐‑kind donations from individuals, companies, governmental organizations, NPOs and foundations in China as well as abroad. Figure A shows the annual donation volume, di-‐‑ vided into financial and in-‐‑kind donations, for the period 2007-‐‑2011. In 2011 the monetary value of the in-‐‑kind donations was RMB 15.9bn, accounting for ap-‐‑ proximately 20 percent of the total annual donation volume. The majority of in-‐‑kind dona-‐‑ tions (more than 80 percent) were clothes and food for disaster relief, computers and soft-‐‑ ware for schools, and medicine for poor regions. The monetary value of in-‐‑kind donations has remained relatively constant at around RMB 16bn since 2009, and their share of the total donation volume varied between 15.6 percent in 2009 and 16.1 percent in 2010.

55 56

Cf. von Schnurbein & Bethmann (2010) Charities Aid Foundation (2012)

Philanthropy and Nonprofit Organizations in China

20.9

16.1 15.9 In-‐‑kind donations 15.6

Financial donations 87.1

86.2

68.6

5.4

47.4

25.5 2007

2008

2009

2010

2011

Figure A: Annual financial and in-‐‑kind donation volume 2007-‐‑2011 – Source: own figure based on numbers in China Charity Donation Information Center (2009), (2010), (2012), and (2013)

25 5.2 75

Disaster relief donations 16

Other donations 78

2010

2011

47 31

2007

2008

2009

Figure B: Annual disaster relief and other donations 2007-‐‑2011 – Source: own figure based on numbers in China Charity Donation Information Center (2009), (2010), (2012), and (2013), and Schrader & Zhang (2012), p. 12

Philanthropy and Nonprofit Organizations in China

Figure B shows yearly donation volumes, divided into donations for disaster relief and other donations, for the period 2007-‐‑2011. The figure illustrates the irregularity and inconsistency of charitable donation behavior in China. On the one hand, the level of the annual donation volume is influenced strongly by natural disasters such as the earthquakes in Sichuan in 2008 and in Yushu in 2010, which led to spikes in charitable donations. On the other hand, individual charitable behavior is influenced strongly by public opinion. According to cur-‐‑ rent estimates by the state-‐‑run China Charity Donation Information Center (CCDIC), the donation volume in 2012 decreased by more than 80 percent to RMB 10.5bn in comparison with 2011.57 This dramatic decrease is the result of slowing economic growth as well as a series of scandals involving donation misappropriations among several large, domestic NPOs close to the government. In particular, the so-‐‑called “Guo Meimei”-‐‑scandal of the government-‐‑vested Chinese Red Cross (CRC) had far-‐‑reaching impacts on the entire non-‐‑ profit sector: in mid-‐‑2011 an alleged employee of the CRC with the nickname “Guo Meimei baby” posted numerous pictures of herself posing in front of a big villa, with expensive sports cars and designer-‐‑handbags on the Chinese micro-‐‑blogging website Sina Weibo. Pub-‐‑ lic outrage was enormous and for many Chinese the scandal confirmed their mistrust and allegations of corruption of the government and organizations close to the government. Even though the CRC and Guo both denied any association, the CRC and the entire philan-‐‑ thropy sector experienced a loss of confidence from which they have not yet recovered. Due to nontransparent and contradictory statistics, a differentiation between the volumes of donations made by individuals, companies, governmental organizations, NPOs and founda-‐‑ tion in China as well as abroad is possible only to a very limited extent.58 Nonetheless, gen-‐‑ eral statements can be made about the origin of donations. Figure C shows the donation vol-‐‑ ume coming from individuals in China for the period 2007-‐‑2011. Individual financial and in-‐‑kind donations increased from RMB 3.29bn in 2007 to RMB 24.95bn in 2011, which corresponds to a seven-‐‑fold increase of the donation volume. In addi-‐‑ tion, during the same period of time the share of financial and in-‐‑kind donations made by individuals of the cumulative donation volume increased from 10.6 percent to 29.5 percent. Despite this impressive increase of the individual donation volume, the Chinese still donate relatively little by international comparison. In 2011, the total volume of the annual individ-‐‑ ual, financial donations amounted to RMB 20.25bn.59 Given China’s population of roughly 1.3bn, the annual pro-‐‑capita-‐‑donation made by individuals was about RMB 15.6. In compari-‐‑ son, the average individual donation in Switzerland is approximately RMB 2900 per year.60 There are several reasons for this discrepancy. One is the difference in pro-‐‑capita income, which is much lower in China than in Switzerland; China also has much fewer rich citizens

China Charity Donation Information Center (2013) For example until 2009 foreign donations were not distinguished between individual and corporate donations. 59 This calculation assumes that the share of financial donations of the individual donation volume corresponds to the share of financial donations of the total Chinese donation volume, namely 81.15 percent. 60 von Schnurbein & Bethmann (2010), p. 18 57 58

Philanthropy and Nonprofit Organizations in China

percentage-‐‑wise. Other social and political reasons are limited knowledge and awareness of philanthropy as well as the infancy of the nonprofit sector.

45.8

28.9 24.95 Individual donations

6.8 3.29

2007

2008

2009

2010

2011

Figure C: Annual individual donation volume 2007-‐‑2011 – Source: own figure based on num-‐‑ bers in China Charity Donation Information Center (2009), (2010), (2012), and (2013)

Similarly to Switzerland but more pronounced, the vast majority of Chinese donors give less than the average donation and a few individuals donate significantly more.61 According to the “2012 Philanthropy List”, which is published by the magazine Hurun Report each year, China’s 100 biggest philanthropists in 2011 together donated almost RMB 12bn or 14 percent of the cumulative donation volume. Of these RMB 12bn, the “top 10” philanthropists do-‐‑ nated altogether more than half, i.e. RMB 6.4bn. Since 2004 the donation volume of the “top 100” has increased more than ten-‐‑fold.62 Due to the rising standard of living in China, the share of individual donations increased while the share of foreign donations decreased at almost exactly the opposite rate between 2007 and 2011. The share of foreign donations declined significantly from 28 percent in 2007 to 10.9 percent in 2011.63 In addition, China receives less technical and personal assistance in the context of the Organisation for Economic Co-‐‑operation and Development (OECD) Offi-‐‑ cial Development Assistance (ODA) program each year. Official assistance to China has de-‐‑

von Schnurbein & Bethmann (2010), p. 18 Hurun Report (2012); Hurun Report (2013) 63 China Charity Donation Information Center (2009); China Charity Donation Information Center (2010); China Charity Dona-‐‑ tion Information Center (2012) 61 62

Philanthropy and Nonprofit Organizations in China

creased from almost USD 2.2bn in 2001 to USD 646m in 2010. In 2011, China was a net donor of USD 769m.64 Unlike in Switzerland or the USA, corporate donations account for the greatest share of the total donation volume. In 2011, corporate donations in and to China totaled RMB 55.3bn – a share of 65 percent. The statistics of corporate donations differentiate between donations from international companies, domestic state enterprises, domestic private companies, and domestic foreign-‐‑invested enterprises, i.e. enterprises with full or partial foreign ownership operating in China. Figure D shows corporate donations divided by type of enterprise for the years 2010 and 2010.

38.6

International companies

28.1

Domestic state enterprises Domestic private companies 13.1 8.1

11.6 7.13

2010

8.9

6.7

Domestic foreign-‐‑invested enterprises

2011

Figure D: Annual corporate donation volume 2010-‐‑2011 – Source: own figure based on num-‐‑ bers in China Charity Donation Information Center (2009), (2010), and (2012), and Schrader & Zhang (2012), p. 19

Foreign companies contribute a significant share to the total volume of corporate donations. Donations from foreign enterprises operating in China (including Hong Kong, Taiwan and Macao) added up to RMB 8.9bn in 2011 and those from international companies totaled RMB 8.1bn 2010. Together they account for approximately 28 percent of all corporate dona-‐‑ tions. However, the biggest contribution came from domestic private companies whose share of the cumulative volume of corporate donations accounted for 51 percent. The share of domestic state enterprises was 21 percent.

The World Bank (2013)

Philanthropy and Nonprofit Organizations in China

Relatively little is known about in-‐‑time donations and volunteering in China. According to the MoCA, 9.5m Chinese volunteered for a total of 92.7m hours in 2011.65 The MoCA esti-‐‑ mates the value of these voluntary activities at RMB 1bn and the value of all domestic and foreign donations (financial, in-‐‑kind and in-‐‑time) in and to China for the year 2011 at RMB 154.37 or 0.33 percent of China’s gross domestic product (GDP).66

Donation Beneficiaries The dominant role of the Chinese government in the philanthropy sector becomes apparent when looking at the biggest donation beneficiaries. Figure E shows the total annual donation volume according to beneficiaries for the years 2010 and 2011. Government agencies and large GONGOs are by far the biggest donation beneficiaries in China. In 2008, the so-‐‑called ‘trinity’ formed by the Chinese government and the two biggest Chinese GONGOs, the CRC and the China Charity Federation (CCF), received almost 90 percent of all donations.67 NPOs did not have permission to publicly fundraise for the earthquake relief.68 Two years later, while the MoCA and other ministries received almost one third of donations in 2010, 31 per-‐‑ cent went to the CRC and CCF, and another third went to foundations, many of which, as already mentioned, are also GONGOs. Data for 2011 show a further significant decrease of the donation share of the trinity to a total of 48 percent. In the same year, foundations re-‐‑ ceived 40 percent of all donations – 7 percent more than in 2010. The distribution of foreign donations to China shows a similar pattern. According to a study on U.S.-‐‑to-‐‑China cross-‐‑border grants between 2003 and 2009, more than 40 percent of all grants went to the Chinese government or GONGOs. The Chinese Ministry of Health, for example, received USD 55m during this period – more than all independent NPOs to-‐‑ gether.69 This is because foreign donors are able to have easier and less obstacle-‐‑laden rela-‐‑ tionships with government agencies and GONGOs. First, only a select few NPOs, many of which are GONGOs, are able to provide official receipts for tax deductions to donors. Se-‐‑ cond, due to the erratic and unpredictable legal framework faced by independent NPOs the collaboration with government agencies and established GONGOs is comparatively more secure and stable. Third, GONGOs often have significantly more resources at their disposal, such as qualified employees or better access to funds. 70

Ministry for Civil Affairs (2012a) Ministry for Civil Affairs (2012b) 67 China Charity Donation Information Center (2009) 68 Wang (2010) 69 Schrader & Zhang (2012), p. 29 70 Schrader & Zhang (2012), p. 29 65 66

Philanthropy and Nonprofit Organizations in China

2010

10 7

Ministry for Civil Aﬀairs Other ministries Chinese Red Cross China Charity Federation Foundations

2011

8 3

Other organizations

Figure E: Annual distribution of donations by beneficiary 2010-‐‑2011 – Source: own figure based on numbers in Schrader & Zhang (2012), p. 29

Areas of Donations Figure F shows donations by field for the period 2008-‐‑2011. Over the last years, education and poverty alleviation/development were the biggest donation areas in which donations were made. These areas represented 63 percent of the cumulative donation volume, fol-‐‑ lowed by social services (e.g. elderly care and mother-‐‑child-‐‑services) with 10 percent and health care with 9 percent. In years of big natural disasters such as the Sichuan earthquake in 2008 or the earthquake in Yushu two years later, most donations went to disaster relief. The share of disaster relief of the total annual donation volume was 72 percent in 2008, 26 percent in 2009 and 24 percent in 2010. But ordinarily the majority of donations go to broad development fields such as education, health care and poverty reduction, which are part of the CPC’s development agenda. Due to governmental influence on and control over the philanthropy sector, the reduction of social inequality, for example through increased access to education, will con-‐‑ tinue to remain a main donation area. In view of China’s worsening environmental prob-‐‑ lems, the prudent growth of the donation share given to environmental issues displayed in the data is an encouraging development, even though its share accounted for only 5 percent in 2011.

Philanthropy and Nonprofit Organizations in China

2008

1 2 1 2 10

Education Disaster relief

2009

9 2 2 8

Poverty Health Environment

2010

9 3 3

Art and culture Social Services

2011

9 5 10

Other

Figure F: Annual distribution of donations by beneficiary 2010-‐‑2011 – Source: own figure based on numbers in China Charity Donation Information Center (2009), (2010) and (2012), and Schrader & Zhang (2012), p. 29

Philanthropy and Nonprofit Organizations in China

Founding in China Similarly to the donation, founding means to voluntarily, definitely and gratuitously (i.e. without any expectation for anything in return from the beneficiary) part with assets for a “good cause”.71 Donations and endowments can be both unconditional, e.g. they can be of-‐‑ fered for unrestricted use by a charitable organization, or earmarked for a special cause or a specific project.72 A donation is generally a one-‐‑time payment to a charitable organization for the immediate realization of its objectives.73 The donor’s influence on the use of the donation is often limited. In contrast the foundation is usually more long-‐‑term and sustainable, and offers the founder greater influence. Through its charter, the foundation’s mission, areas of operation and charitable activities can be clearly specified. 74 Available facts and numbers on China’s foundations and NPOs are often incomplete and differ from source to source. Nonetheless, a few general statements can be made about the importance of foundations and NPOs in China. The number of social organizations, CNIs and foundations has increased steadily of the past years. In particular the number of non-‐‑ public fundraising foundations – mostly privately initiated – has increased greatly since 2004. The assets of the foundation sector have also increased but the distribution of capital is unequal and favors a small number of foundations. Moreover, Chinese NPOs tend to con-‐‑ centrate on are fields of activities that the Chinese government has set as a priority, such as education or social development. The influence the government holds over foundations manifests itself directly in the Chinese foundation law, which specifies the influence of the government and its agencies.

Importance of Foundations and NPOs in China Official statistics on NPOs in China are available on the homepage of the NPO Affairs Bu-‐‑ reau of the Ministry of Civil Affairs.75 However, relatively detailed statistics on NPOs only go back to 2002 and the categorization of the different types of NPOs is not always entirely clear.76 This leads to partially contradictory statistics, even on the official homepage of the NPO Affairs Bureau.77

Hörtnagel & Graf Nesselrode (2010), p. 2; Kuhlemann (2010), p. 12 Kuhlemann (2010), p. 12 73 Kuhlemann (2010), pp. 12-‐‑16 74 Kuhlemann (2010), p. 25 75 See chinanpo.gov.cn 76 von Hippel & Pissler (2010), p. 8: Until 2002,foundations were a subcategory of social organizations. In 2003, foundations were classified as a separate group but at the same time were included in statistics on social organizations. Since 2004, the statistics on foundations are not included in statistics related to social organizations but listed separately. 77 von Hippel & Pissler (2010), p. 8-‐‑9: Until 2010 there were statistics for the year 2008. The statistical data for 2009 was already published in October 2009 and thus did not include the total number of NPOs at the end of the year. Furthermore, there are contradictions between statistics on social organizations in a table of all NPOs for the period 1988-‐‑2004 and statistics exclusive-‐‑ ly on social organizations for the years 2002 and 2003. 71 72

Philanthropy and Nonprofit Organizations in China

Getting accurate statistics on NPOs is further complicated by the fact that many organiza-‐‑ tions register as commercial businesses or don’t register at all because they either don’t want to pass the registration process or cannot find a sponsor organization. According to esti-‐‑ mates by the MoCA, only one fifth of all NPOs are officially registered.78 In addition, lacking or out of date statistics, among others on the number of employees and the assets in the Chi-‐‑ nese nonprofit sector, make a differentiated analysis of the importance of NPOs in China difficult. With the little reliable data that is available, the importance of NPOs in China can be measured by four criteria:79 -‐

Economic criteria such as employment numbers, number of NPOs created, etc., can help assess the economic importance of the nonprofit sector. The goal is to show the role that NPOs play in the Chinese economy as a whole.

-‐

The fiscal importance measures the monetary relevance of NPOs on the basis of assets and disbursements.

-‐

By analyzing the foundations’ objectives or the number of projects they supported, and thus measuring their social importance, information can be provided on how and to what extent foundations are ingrained in society.

-‐

The political importance measures the influence of NPOs in setting the political agenda as well as the NPOs’ position within the political system.

Economic Importance Figure G shows the number of social organizations, CNIs and foundations for the period 1988-‐‑2012. The statistics reveal an almost steady growth of social organizations and CNIs, but a relatively steep decline in the number of foundations between the years 2002 and 2004. The decrease in the number of social organizations between 1998 and 2001 can be attributed to restructuring and reorganization reforms of NPOs in 1998.80 Since the revision of the foundations law and the introduction of the Foundation Regulations in 2004, the number of foundations has more than tripled. However, in comparison to social organizations and CNIs, which together account for 99.4 percent of all NPOs, foundations still play a minor role in China’s philanthropy sector. In October 2012, the Narada Foundation, based on government data, published its own sta-‐‑ tistics on the number of public and non-‐‑public fundraising foundations, shown in Figure H. Since 2005, the number of public fundraising foundations has increased by around 10 per-‐‑ cent while the rate of growth of non-‐‑public fundraising foundations was approximately 20

Kang & Feng (2004) von Schnurbein (2009) 80 von Hippel & Pissler (2010), p. 9 78 79

Philanthropy and Nonprofit Organizations in China

300'ʹ000

3000

250'ʹ000

2500

200'ʹ000

2000

Social organizations

150'ʹ000

1500

Civil Non-‐‑Enterprise Institutions

100'ʹ000

1000

Foundations

50'ʹ000

500

0 1988

1992

1996

2000

2004

2008

Figure G: Number of NPOs 1988-‐‑2012 – Source: own figure based on numbers from the China Charity Donation Information Center (2009), (2010) and (2012), and Schrader & Zhang (2012), p. 29

3000

2500

2000

Public fundraising foundations

1500

Non-‐‑public fundraising foundations

1000

Total foundations

500

2005 2006 2007 2008 2009 2010 2011 2012

Figure H: Number of foundations 2005-‐‑2012 – Source: own figure based on numbers in Narada Foundation (2012)

Philanthropy and Nonprofit Organizations in China

percent for the same period of time. Since the end of 2010, there are more non-‐‑public than public fundraising foundations in China.81 The “Chinese Foundation Developing Trends 2011” report by the China Foundation Center (CFC) includes a geographical distribution of all Chinese foundations according to adminis-‐‑ trative region as well as the types of foundation by administrative region for the year 2011.82 The distribution is shown in Table A.83 Table A shows that the vast majority of foundations are registered in the economically stronger regions on China’s East coast. Seven of the ten regions with the highest number of registered foundations are also among China’s ten most prosperous regions (as measured by GDP per capita).84 Not only are there more individuals in those regions who have the financial means to found a foundation, but regional public fundraising foundations are also only allowed to raise funds in their respective regions of registration, despite being able to carry out their activities nationwide. According to information by the NPO Affairs Bureau, 4.76m people, just under 0.58 percent of the entire working population was employed in the nonprofit sector in 2009 (compared to 4.25m, or 0.53 percent, in 2006). Social organizations had 2.85m employees (2.69m in 2006), 1.89m of which worked in CNIs (1.54m in 2006); foundations only employed 10,414 people (compared to 15,391 in 2006 and 18,269 in 2008).85 At the end of 2010, 6.2m people – still less than 1 percent of all employees – worked in legally registered NPOs.86 It is currently not possible to estimate the number of people employed in China’s informal or unregistered nonprofit sector. 81 82

Narada Foundation (2012) China Foundation Center (2011), p. 10

The numbers show the regions in which the foundations are registered and not in which they carry out their activities. National Bureau of Statistics of China (2013): Chinas ten most prosperous regions (as measured by GDP per capita) are in descending order: Tianjin, Shanghai, Beijing, Jiangsu, Zhejiang, Inner Mongolia, Liaoning, Guangdong, Shandong and Fujian. 85 NPO Affairs Bureau (2013) 86 National Bureau of Statistics of China (2011); National Bureau of Statistics of China (2012) 83 84

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Region Jiangsu Beijing Guangdong Zhejiang Hunan Shanghai Fujian Sichuan Inner Mongolia Henan Shaanxi Shandong Liaoning Hubei Jilin Heilong Yunnan Tianjin Anhui Hebei Chongqing Jiangxi Hainan Ningxia Xinjiang Shanxi Gansu Guangxi Huizhou Qinghai Tibet Total

No. of foundations Absolut In % 375 14.5 316 12.2 273 10.5 227 8.8 136 5.2 128 4.9 124 4.8 83 3.2 81 3.1 69 2.7 66 2.5 66 2.5 56 2.2 53 2.0 50 1.9 48 1.9 43 1.7 43 1.7 42 1.6 33 1.3 33 1.3 30 1.2 30 1.2 30 1.2 30 1.2 29 1.1 28 1.1 23 0.9 19 0.7 15 0.6 11 0.4 2591 100

No. of PFFa Absolut In % 169 120 101 123 91 49 21 54 41 34 29 33 35 18 25 30 33 19 15 11 20 14 11 21 21 12 12 12 18 8 9 1218

45 38 37 54 67 38 17 65 51 49 44 50 63 34 50 63 77 44 36 33 61 45 37 70 70 41 41 52 95 53 82 47

No. of NPFFb Absolut In % 206 196 172 104 45 79 103 29 40 35 37 33 21 35 25 18 10 24 27 22 13 17 19 9 9 17 17 11 1 7 2 1373

No. of MRFc Absolut 55 62 63 46 33 62 83 35 49 51 56 50 38 66 50 38 23 56 64 67 39 55 63 30 30 59 59 48 5 47 18 53

3 133 8 3 1 3 1 1 0 2 1 1 1 1 0 0 0 0 0 1 0 0 0 0 1 0 0 0 0 0 1 163

Table A: Number of registered foundations – Source: own table based on numbers in China Foundation Center (2011), p. 10 : number of public fundraising foundations : number of non-‐‑public fundraising foundations c : number of foundations registered with the Ministry of Civil Affairs a

Fiscal Importance Due to the lack of statistics, NPOs’ assets and disbursements can only be assessed to a lim-‐‑ ited extent. According to data by the NPO Affairs Bureau, total assets of all NPOs amounted to RMB 80.6bn in 2009. The total assets of social organizations added up to RMB 19.4bn, those of CNIs to RMB 59.7bn and those of foundations to RMB 1.4bn. In the same year, the yearly disbursement volume (as measured by financial and in-‐‑kind donations) amounted to RMB 10.3bn. Despite their comparatively small number, foundations donated a total of RMB 7.1bn – more than double the amount donated by social organizations and CNIs combined.87

NPO Affairs Bureau (2013)

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However, the amounts reported by the NPO Affairs Bureau seem to be significantly too low88 and don’t correspond with data given in the “Chinese Foundation Developing Trends 2011” report. According to the report, the total assets of Chinese foundations added up to RMB 38.7bn in 2009 and RMB 50.9bn in 2010, which corresponds to an increase of 32 percent. Information by the CFC for the year 2012 estimates the foundations’ total assets at RMB 60.4bn (an increase of approximately 18 percent from 2010), the annual donation volume of all foundations at RMB 33.7bn, and the total expenditures at RMB 25.6bn.89 As is the case in the USA90 and Switzerland,91 there is also an unequal distribution of assets in the Chinese foundation sector. In 2010, the 50 wealthiest foundations (less than 2.5 percent of all foundations) gathered 45.8 percent of all total assets held by foundations. A similar concentration exists in the income foundations received from donations. Of the total dona-‐‑ tion income (RMB 24.5bn), 48.6 percent went to only 50 foundations. Amongst these two “Top 50”, there are many relatively old foundations that have close ties to the government and are registered in Beijing.92 Social Importance China’s NPOs are active in all areas of society. Table B shows a classification of the fields of activity of all three NPO types in 2009. The numbers show that social services, education, science and research, health care and culture are the most important fields of activity of NPOs. For social organizations, rural development as well as industry and trade are central areas of activity.

SOs CNIs Found.

Science and Research 8.4 5.2 4.2

Environment

Education

Health

2.9 0.5 1.8

5.8 48.7 28.2

5.0 15.2 3.3

Social Services 12.9 14.2 20.0

Culture and Sport 13.2 6.9 7.8

Industry and Commerce 9.1 3.3 0.3

Rural Development

Other

18.3 1.1 2.3

20.9 7.7 31.6

Table B: Fields of activities of NPOs – Source: own table based on numbers from the NPO Af-‐‑ fairs Bureau (2013)

There is more detailed information about the areas of activities in which foundation projects are carried out for the year 2010. Of a total of 2267 projects, 58 percent were engaged in edu-‐‑ cational issues. Further important issues tackled by projects were disaster relief, medical care, social services and poverty reduction. These projects targeted school children, students, teacher and economically disadvantaged groups in particular, in the form of fellowships,

The total assets of the Amity Foundation, one of China’s oldest and biggest foundations, alone amounted to RMB 228m in 2009 (Amity Foundation (2013)). 89 China Foundation Center (2013a) 90 Lawrence (2012) 91 von Schnurbein (2009) 92 China Foundation Center (2011), pp. 26-‐‑27 88

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training and infrastructure renovations.93 The reason that the vast majority of Chinese NPOs are active in education and social development has to do with the way that the Public Wel-‐‑ fare Donation Law defines charitable activities.94 The Law defines the following activities as charitable: 1. Disaster relief, poverty alleviation, and assistance to the disabled, etc. 2. Education, scientific, cultural, public health, and athletic activities 3. Environmental protection and construction of public facilities 4. Other public welfare undertakings promoting social development and progress Accordingly, NPOs that would like to get involved in activities not included in (1) and (3) , e.g. public advocacy, defense of marginalized groups, human rights, legal or religious affairs, etc., will have great difficulties becoming registered.95 In 2011, foundations supported on average between one and two projects per year with av-‐‑ erage project expenditures of RMB 7.76m. Since the “Top 50”-‐‑projects accounted for 50.9 percent of the total project expenditures in 2010, the expenditures of the vast majority of projects were well below the average. Additionally, the fact that only 50 foundations in-‐‑ curred 53.4 percent of the annual project expenditures further exemplifies the unequal dis-‐‑ tribution in China’s foundation sector.96 Political Importance Despite the notable increase in the number of Chinese NPOs over the past few years, their influence on defining the issues that make up the political agenda remains small. In today’s China, the political discourse influences the development of the nonprofit sector, rather than the other way around.97 Any political activity of NPOs is strictly controlled and the largest organizations are often very close to the government and its numerous agencies. Informal, independent NPOs are not registered and thus have an even slighter possibility of actively exerting political influence. The development of the nonprofit sector makes NPOs an important political issue. Since the last reforms in 2004, a reform of the charity law is under discussion. In 2011, the eleventh National People’s Congress approved a first draft of the charity law by the MoCA and asked the Legislative Affairs Bureau of the State Council (the chief administrative authority in China) to review the draft and to submit it to the National People’s Congress for final ap-‐‑

China Foundation Center (2011) Gongyi shiye juanzengfa [Law of the People'ʹs Republic of China on Donations for Public Welfare] (issued 28 June 1999; entered into force 1 September 1999). Available in both Chinese and English at <http://www.lawinfochina.com/display.aspx?lib=law&id=6238&CGid=> [Accessed 16 July 2013] 95 Schrader & Zhang (2012), p. 16 96 China Foundation Center (2011) 97 Kang & Feng (2004) 93 94

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proval. The draft has been with the Legislative Affairs Bureau for the past year and a half, and because of the legislative standstill in the State Council it is difficult to predict when the charity law will be reviewed and submitted to the People’s Congress for approval.98

Transparency in the Foundation Sector Since the introduction of the Foundation Regulations in 2004, a very high degree of transpar-‐‑ ency is – at least legally – imperative in the Chinese foundation sector. The regulations spec-‐‑ ify that all foundations must publish their annual working report in a public medium, i.e. print media, radio, television or the Internet, and confront the inquiry and control by the public.99 However, neither the Foundation Regulations nor any other legal provisions spec-‐‑ ify how exactly and through which channels foundations must confront public inquiry and control. The annual working reports have to include the following information: accounting report, audit report by a certified auditing firm, activities such as fundraising, received do-‐‑ nations and funding as well as changes of staff and the internal structure.100 Public fundrais-‐‑ ing foundations also must publicly publish the charitable activities carried out and detailed information about the use of donated funds.101 Donors in turn have the right to inquire about the use and management of donations by foundations, and to offer opinions and suggestions, to which foundations must reply immediately and truthfully.102 Yet no actual discussion concerning “transparency vs. privacy” is taking place in the Chi-‐‑ nese foundation sector, for two reasons. Firstly, legal regulations on the transparency of foundation are clearly and unambiguously defined and the government has a lot of power over foundations. Already existing foundations as well as companies or private individuals wishing to create a foundation simply have to adhere to these regulations. The second rea-‐‑ son is that for many Chinese, non-‐‑transparent foundations almost automatically arouse sus-‐‑ picion of embezzlement of funds, especially since a series of scandals have broken out among Chinese foundations in the past years. Privacy is no longer considered an argument for non-‐‑transparency in the Chinese foundation sector. Thus, with this public image of the foundation sector and the legal provision requiring the disclosure of an extensive annual working report, two central requirements for a transparent foundation sector and a Chinese foundation register.103 Moreover, since 2011, the China Charity Donation Information Center has been working on a national foundation register and in August 2013 launched the online NPO database China Charity Information Platform (CCIP).104

China Development Brief (2012a) §38 Foundation Regulations 100 §36 Sentence 2 Foundation Regulations 101 §25 Sentence 2 Foundation Regulations 102 §39 Foundation Regulations 103 Cf. von Schnurbein et al. (2012) 104 See npo.charity.gov.cn and “Foundation Register and Transparency in Chapter “Areas of Collaboration between Chinese and Swiss Foundations for more detailed information. 98 99

Philanthropy and Nonprofit Organizations in China

Since 2010, the Beijing-‐‑based NPO China Foundation Center (CFC) has maintained an online foundation database.105 This database, the “Foundation Transparency Index”, contains infor-‐‑ mation from the annual working reports as well as additional publicly available information about foundations. On the basis of 60 indicators divided into four categories – basic, finan-‐‑ cial, project and donor information – the CFC calculates a so-‐‑called “transparency index”. On the homepage of the Foundation Transparency Index, foundations are listed and ranked according to their transparency index.106

Legal Basis of Foundations Increased regulation of foundations since 2004 is a sign that the Chinese government, on the one hand, recognizes the increasing importance of the nonprofit sector, and, on the other hand, still generally distrusts privately initiated NPOs. Although current regulations allow the use of private funds and personal resources for charitable activities, the state continues to exert strong influence on the nonprofit sector. The influence of the sponsor organization during the registration process and on the ongoing operations of foundations prevent any political activities and all activities, which, according to the CPC, pose a risk to its own pow-‐‑ er or to the unity of the People’s Republic.107 Development of the Foundation Law The legal bases for NPOs are the 1986 “General Principles of the Civil Law of the PRC” as well as individual laws and regulations that have been passed over the last 25 years: the “Rules on Management of Foundations” in 1988, the “Regulation on the Registration and Administration of Social Organizations” and “Interim Regulation on the Registration and Administration of Civil Non-‐‑Enterprise Institutions” in 1998, the “Public Welfare (Benefit) Donations Law” in 1999 and the “Trust Laws of the PRC” in 2001.108 In 2004 the foundation law was reformed, making way for the “Regulations on the Management of Foundations” (hereafter “Foundation Regulations”), which is currently in effect. The Foundation Regulations of 2004 replace the Rules on Management of Foundations, a series of very short and vague provisions from 1988. According to Article 1 of the Founda-‐‑ tion Regulations, the objective of the regulations is “to standardize the organization and ac-‐‑ tivities of foundations, to protect the legitimate rights and interests of foundations, donors and beneficiaries, and to promote social forces’ participation in public benefit enterprises”.109

See “China Foundation Center” in chapter “Case Examples” for more detailed information. See en.fti.org.cn 107 von Hippel & Pissler (2010), p. 84 108 Pissler & von Hippel (2006), p. 94 109 §1 Foundation Regulations 105 106

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Definition of Foundations The new Foundation Regulations define foundations as “a non-‐‑profit legal entity established in accordance with these regulations that employs assets donated by actual persons, legal entities or other organizations for the purpose of engaging in some public benefit enter-‐‑ prise”.110 Establishment and Registration of Foundations Neither the Chinese constitution nor the Foundation Regulations guarantee a positive right to establish a foundation. The competent authorities can reject the application to establish a foundation even when all the necessary legal requirements are met.111 In addition, the Foundation Regulations specify a “dual management system”, whereby a “professional leading unit” or a “sponsor organization” (hereafter “sponsor organization”), alongside the MoCA, chaperones the establishment of a foundation.112 In effect, the sponsor organization must first give its approval before an application can be filed with the MoCA, which is in charge of the foundation’s registration. Examples of sponsor organizations are central or local government agencies, departments of the State Council, divisions of the CPC, or mass organizations such as the Communist Youth League of China.113 The main difficulty within the registration process is the necessary approval from a sponsor organization. This difficulty stems from the fact that, for a long time, Chinese foundations were mainly established directly by government agencies or with the support of the govern-‐‑ ment and thus in a sense already had a sponsor organization. In addition, there is to date no effective system to find a sponsor organization.114 If a foundation finds a sponsor organization, a further problem is that the sponsor organiza-‐‑ tion can use its key position to exert influence on the foundation’s structure, board composi-‐‑ tion, or activities. Indeed, because the sponsor organization can threaten to deny its ap-‐‑ proval at any time, it finds itself in a very influential position. The power of the sponsor or-‐‑ ganizations is further strengthened by the fact that it is not bound by legal regulations.115 Foundation Types The Foundation Regulations introduce two types of foundations: those that that have the right to fundraise from the general public (hereafter “public fundraising foundations”) and

§1 Foundation Regulations Pissler & von Hippel (2006), pp. 103 ff. 112 §6-‐‑7 Foundation Regulations 113 Pissler & von Hippel (2006), p. 108 114 Pissler & von Hippel (2006), p. 109 115 von Hippel & Pissler (2010), p. 15 110 111

Philanthropy and Nonprofit Organizations in China

those that don’t have the right (hereafter “non-‐‑public fundraising foundations”).116 Public fundraising foundations have the right to publicly raise funds, while non-‐‑public fundraising foundations have to fall back on their initial assets or miscellaneous individual donations. Public fundraising foundations are further divided by the geographic scope of their fund-‐‑ raising activities, into national and local public fundraising foundations.117 It should be not-‐‑ ed that the geographic fundraising area does not have to coincide with the region in which the foundation is active. Hence, the regulations explicitly allow the first foundation type to publicly fundraise without any further specifications. Foundation Structure118 The Regulations further stipulate the way foundations should be structured. The board of the foundation must consist of between 5 and 25 members and their term must not exceed 5 years, although there are no restrictions on the number of terms. A maximum of one third of the board members may receive financial remuneration, and in non-‐‑public fundraising foundations established with the endowment of funds by an individual, no more than a third of board members may have close family relations of that individual. The board of directors must meet at least twice a year, to which at least two thirds of the board members must be present. Decisions by the board generally need a simple majority in order to take effect. The following decisions need the approval of two thirds of the present board members: revisions to the charter; election or dismissal of the chair, deputy chair or general secretary; major fundraising or investment activities as stipulated in the charter; and the division or amalgamation of the foundation. Further, foundations must appoint a supervisory official. The members of the supervisory board are appointed and dismissed by “important donors,” the sponsor organization, and registration and administrative authorities.119 The term of the supervisor corresponds to the term of the members of the board. Financial or accounting staff, board members or their close relatives may not serve as the supervisory official. The supervisory official has the au-‐‑ thority to address questions and suggestions to the board, and reports on relevant issues to the competent government agencies in charge of registration, to the sponsor organization and to the tax and auditing authorities. According to official commentaries, the supervisory board thus has the function to oversee the foundation’s work in the interests of the donors and the public.120

§3 Sentence 1 Foundation Regulations §3 Sentence 2 Foundation Regulations 118 §20 Sentence 1-‐‑3, §21 Sentence 2-‐‑3, §22 Sentence 1-‐‑3 Foundation Regulations 119 von Hippel & Pissler (2010), p. 62 120 von Hippel & Pissler (2010), p. 62 116 117

Philanthropy and Nonprofit Organizations in China

The above requirements apply only to Chinese foundations and not to the representative offices of foreign foundations in China.121 Capital Requirements Under the 1988 “Rules on Management of Foundations”, initial foundation assets had to be at least RMB 100,000 and all foundations had the right to fundraise.122 The new Foundation Regulations are more restrictive in that respect, and they link the required amount of the initial foundation capital with the permission to fundraise. The mandatory asset requirements are RMB 8m for national public fundraising foundations, RMB 4m for local public fundraising foundations, and RMB 2m for non-‐‑public fundraising foundations.123 The Official Commentary on the Foundation Regulations justifies the reforms with their desire to prevent the establishment of a large number of foundations and to limit the number of public fundraising foundations.124 While there are no minimum initial capital requirements for representative offices of foreign foundations,125 Article 25 states that foundations may not engage in fundraising or accept donations within China. 126 In addition to provisions on the required initial endowment, the Foundation Regulations stipulate minimum spending requirements for foundations. Public fundraising foundations must spend at least 70 percent of their previous year’s total income on the public benefit activities stipulated in their charter.127 Non-‐‑public fundraising foundations must spend at least 8 percent of their assets from the previous year.128 Further, staff wages and benefits, administrative costs and overheads may not exceed 10 percent of total expenditure.129 This last requirement does not apply to representative bureaus of foreign foundations. 130 Disclosure Requirements A particular feature of the new Foundation Regulations is that foundations must adhere to different disclosure requirements regarding their public benefit activities and annual reports. Fundraising foundations must disclose the charitable activities carried out and detailed in-‐‑ formation about the use of financial donations in a public medium, i.e. print media, radio,

Minzner (2004), p. 113 Minzner (2004), p. 113 123 §8 Sentence 2 Foundation Regulations 124 von Hippel & Pissler (2010), p. 19 125 Minzner (2004), p. 113 126 §25 Sentence 1 Foundation Regulations 127 §29 Sentence 1 Foundation Regulations 128 §29 Sentence 1 Foundation Regulations 129 §29 Sentence 2 Foundation Regulations 130 Minzner (2004), p. 114 121 122

Philanthropy and Nonprofit Organizations in China

television or the Internet.131 In addition, foundations must publish their annual working re-‐‑ port once the government agency in charge of registration has reviewed and approved the report.132 Donor Rights The new Foundation Regulations provide donors with relatively strong supervisory rights. Donors have an explicit right to information about the use and management of donations. 133 Foundations and donors can enter into an agreement about the specific use of donations.134 In case of a violation of the agreement, donors have the right to demand compliance with the agreement and to ask courts to revoke the donation and annul the agreement.135 Tax Benefits The Foundation Regulations grant foundations, donors and beneficiaries tax benefits in ac-‐‑ cordance with the provisions of other laws and administrative law norms. The Official Commentary adds that state subsidies, donation income and interest from bank deposits of foundations are exempt from the corporate income tax.136 However, other revenue, such as investment income on the capital market, is subject to the corporate income tax.137 According to MoCA representatives, tax benefits for foundations also include exemptions from taxes on the rental of offices and from interest earned on foundation principal, as well as tax deduc-‐‑ tions for corporate or individual donations.138

§25 Sentence 2 Foundation Regulations §38 Foundation Regulations 133 §39 Sentence 1 Foundation Regulations 134 §27 Sentence 2 Foundation Regulations 135 §39 Sentence 2 Foundation Regulations 136 Pissler & von Hippel (2006), p. 122 137 Pissler & von Hippel (2006), p. 122 138 Minzner (2004), p. 114 131 132

Philanthropy and Nonprofit Organizations in China

Challenges and Trends in the Chinese Nonprofit Sector Today’s nonprofit sector in China faces four great challenges: access to funding; access to human resources; governance, accountability and transparency; and a weak legal frame-‐‑ work. These challenges are closely linked on different levels and partially reinforce each other. The effective legal regulations, for example, stipulate a salary cap for NPO employees, preventing them from offering the competitive salaries found in the commercial sector. This helps explain why many organizations have difficulties recruiting skilled and experienced employees. Without such qualified employees, it is also difficult to have an accountable and transparent foundation governance system on which public trust is based. NPOs that enjoy little public confidence have greater difficulty finding access to funding.

Access to Funding The sustainable financing of their activities is a major challenge for many NPOs. In particu-‐‑ lar small organizations and non-‐‑public fundraising foundations experience difficulties find-‐‑ ing access to sufficient funding. There are several reasons for this. First, the total donation volume in comparison to size of the economy is still small in China. In 2011, the total donation volume accounted for 0.18 percent of the Chinese GDP. If foreign donations, which made up more than 10 percent of the total donation income in 2011, are not included, the share of donations relative to the GDP falls to approximately 0.16 per-‐‑ cent.139 In comparison, the share was 0.71 percent in Switzerland140 and 2 percent in the USA in 2010.141 Second, the public knowledge of the nonprofit sector is still very limited and marked by mistrust, in particular of organizations and public fundraising foundations close to the gov-‐‑ ernment. A series of embezzlement scandals in 2011 damaged the reputation of the entire nonprofit sector, contributing to the drastic decrease in that year’s total donation volume, which was 18 percent lower than 2010 levels.142 Third, the nonprofit and donation sector is dominated by the government, large GONGOs and a small number of wealthy foundations. In 2011, 48 percent of all donations went to on-‐‑ ly three institutions: the Chinese government, the CRC and the China Charity Federation.143 There is a similar concentration of assets and income in the foundation sector. In 2010, the 50 wealthiest foundations owned 45.8 percent of the total capital owned by foundations and 48.6 percent of the total yearly income acquired from donations went to a number of founda-‐‑

China Charity Donation Information Center (2012) Own calculation based on statistics from the Swiss Federal Statistical Office (2013), von Schnurbein (2009), von Schnurbein & Bethmann (2010) and ZEWO Statistik (2010). 141 The Center of Philanthropy at Indiana University (2011) 142 China Charity Donation Information Center (2013) 143 Schrader & Zhang (2012), p. 29 139 140

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tions that made up less than 2.5 percent of the industry. In the “Top 50” of foundations that received government subsidies in 2010, the top-‐‑ranked China Education Development re-‐‑ ceived RMB 628m, the third-‐‑ranked Shanghai Entrepreneurship Foundation for Graduates RMB 78m, the fiftieth-‐‑ranked Shenzhen Foundation for Justice and Courage received RMB 3m.144 Fourth, mandatory minimum spending requirements and corporate income tax pose finan-‐‑ cial problems for many foundations and NPOs. The Foundation Regulations state that pub-‐‑ lic fundraising foundations must spend at least 70 percent of their previous year’s total in-‐‑ come on the public benefit activities stipulated in their charter and that non-‐‑public fundrais-‐‑ ing foundations must spend at least 8 percent of their assets from the previous year.145 These minimum spending requirements are particularly problematic for non-‐‑public fundraising foundations. On the one hand, they finance all their activities, almost exclusively, with their initial basic assets. On the other hand, they are legally required to sustain the level of these initial basic assets, which is only possible if foundations can generate proceeds of at least 85 percent. Even in China’s current economy, this seems realistic only under highly favorable economic conditions.146 The situation for non-‐‑public fundraising foundations is even more precarious due the fact that, while state subsidies, income from donations and interest from bank deposits are tax-‐‑exempt, other revenue, such as investment income, are subject to cor-‐‑ porate income tax returns of between 18 percent and 33 percent.147 Income of NPOs regis-‐‑ tered as commercial businesses is also subject to corporate income tax.

Access to Human Resources In the USA148 and in Switzerland149 approximately 8 percent and 4.5 percent of the working population, respectively, is employed in the nonprofit sector, while that percentage in China is less than 1 percent.150 Many foundations and NPOs experience difficulties in recruiting qualified and experienced employees. Many young professionals do not know what it means to work in the nonprofit sector or associate employment in an NPO with volunteer work. Those young professionals who work in a Chinese NPO often experience significantly lower salaries and fewer career opportunities compared to those working in the business sector.151 According to a survey among 451 NPOs conducted by a group of foundations in 2010, less than 20 percent of NPO employees earned more than RMB 5000 per month. Most employees

China Foundation Center (2011), p. 29 §29 Foundation Regulations 146 Pissler & von Hippel (2006), p. 120 147 Pissler & von Hippel (2006), p. 122; Irish et al. (2004), p. 8 148 Salamon et al. (2012) 149 Helmig et al. (2011), p. 11 150 National Bureau of Statistics of China (2011); National Bureau of Statistics of China (2012) 151 Schrader & Zhang (2012), p. 12 144 145

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(26 percent) earned a monthly salary between RMB 2000 and RMB 3000 despite the fact that the vast majority of employees has a high level of education (almost 90 percent of the work-‐‑ ers aged between 25 and 40 years had graduated from college or had a higher degree).152 In comparison, the average monthly salary in Chinese cities in 2010 was RMB 3045, and only 20 percent of employees in cities had a university degree, according to statistics from the Na-‐‑ tional Bureau of Statistics of China.153 The survey results also showed that almost 40 percent of NPO employees were not covered by social insurance schemes such as health care, work injury protection, or unemployment benefits.154 In order to be tax exempt, NPOs have to adhere to certain salary caps for their staff. The av-‐‑ erage salary in an NPO must not exceed twice the average salary of the region in which the organization is registered. Non-‐‑wage benefits for NPO employees have to be paid in accord-‐‑ ance with state regulations without any further specification.155 The Foundation Regulations further stipulate that staff wages and benefits, administrative costs and overheads cannot exceed 10 percent of total expenditure.156 These regulations make it difficult for NPOs to recruit talented young professionals, and qualified and experienced employees.157

Governance, Accountability and Transparency Good governance, accountability and transparency are great challenges for Chinese NPOs. While Chinese law contains relatively detailed provisions for foundations regarding their organization, structure, management, use of funds, control, and information disclosure, this is not the case for social organizations and CNIs. For example, all effective laws contain reg-‐‑ ulations for all NPOs regarding the submission of the annual working report to the compe-‐‑ tent administrative authorities but only the Foundation Regulations oblige foundations to publish their report in a public medium, i.e. print media, radio, television or the Internet.158 In 2011, the MoCA introduced the “Information Disclosure Guidelines for Public-‐‑Welfare and Charitable Donations” with the aim of promoting transparency, credibility and sustain-‐‑ able development in the philanthropy sector.159 Similarly to the Foundation Regulations, these guidelines, for example, guarantee donors the right to request information about the use and management of donations made to NPOs.160 However, the guidelines’ legal effect Tencent Foundation et al. (2010) National Bureau of Statistics of China (2012), tables 1-‐‑38 and 3-‐‑2 154 Schrader & Zhang (2012), p. 12 155 Caizheng bu, guojia shuiwu zongju guanyu fei yingli zuzhi mianshui zige rending guanli youguan wentide tongzhi [Notice of the Ministry of Finance and State Administration of Taxation on Issues Concerning the Determination of Tax-‐‑free Eligibility of Non-‐‑profit Organizations] (issued 11 November 2009; entered into force 1 January 2008). Available in both Chinese and English at <http://www.lawinfochina.com/display.aspx?lib=law&id=8199&CGid=> [Accessed 16 July 2013] 156 §29 Sentence 2 Foundation Regulations 157 Schrader & Zhang (2012), p. 13 158 Lee (2009), p. 367 159 Gongyi cishan juanzhu xinxi gongkai zhiyin [Information Disclosure Guidelines for Public-‐‑Welfare and Charitable Donations] (issued; entered into force 16 December 2011) Chinese-‐‑English available on <http://www.lawinfochina.com/display.aspx?lib=law&id=9142> [Accessed 16 July 2013] 160 § 39 Foundation Regulations and § 21 Public Welfare Donation Law 152 153

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and impact on the governance and the transparency of NPOs have been limited and difficult to assess. In view of several scandals in the Chinese nonprofit sector in the past years many founda-‐‑ tions and NPOs have realized the importance of governance, accountability and transpar-‐‑ ency. Organizations that are managed in a responsible and transparent way enjoy greater public confidence, which is particularly crucial for public fundraising foundations. Good and effective governance is made difficult by the fact that founders and employees often have very different ways of thinking and working. Founders and board members are often successful entrepreneurs without any experience in the nonprofit sector, while many em-‐‑ ployees are highly motivated but still young and without much professional experience. For foundation governance to be successful, it is essential to bridge these differences through training and capacity building and to recognize that successful work in the philanthropy sector requires, not only capital, but specific knowledge and experience as well as a lot of patience.161

Legal Framework Current legal regulations of NPOs, in particular the dual management system, create a num-‐‑ ber of problems. Since each NPO has to register with the MoCA and their application re-‐‑ quires prior approval by a sponsor organization to be considered, the establishment of an NPO is a complicated and time-‐‑consuming process. The effective provisions thus limit com-‐‑ petition in and a healthy development of the philanthropy sector. In addition, the sponsor organization’s oversight often prevents new creative and potentially valuable initiatives by NPOs. In order to avoid the rejection of their application or reregistration, they tend to stay clear of controversial or sensitive missions and activities.162 At the local level, attempts to reform the register and management system of NPOs have been taking place since 2012, pioneered by the South-‐‑Chinese province of Guangdong. In 2012, the government of Guangdong decided to allow NPOs to register directly with the MoCA without prior approval by a sponsor organization. Guangzhou, the provincial capital of Guangdong, further decided to abolish restrictions on public fundraising. Prior to that, only the Chinese Red Cross and public fundraising foundations had the right to fundraise.163 By the end of 2012, a total of 19 provinces had carried out tests to abolish, at least partially, the dual management system.164 After these first experiments at the provincial level, the twelfth Peoples’ Congress of March 2013 also decided to enact reforms of the dual management system: in the future, NPOs will

Schrader & Zhang (2012), p. 17 Lee (2009), p. 356 163 China Development Brief (2012b) 164 Chen (2013) 161 162

Philanthropy and Nonprofit Organizations in China

no longer need the approval of a sponsor organization in order to register with the MoCA. Organizations that are active in the fields of politics and law will not benefit from these pro-‐‑ posed reforms.165 If, when, and how these reforms will be implemented in the bureaus of the MoCA remains unclear. The greatest obstacle to the reforms’ implementation is that many officials at the local level have little incentive to register NPOs without the approval of a sponsor organization.166 First, the reform generates more work for the agencies in charge of registration. According to official statistics, the number of registration applications has dou-‐‑ bled since the announced reforms in March 2013. 167 Second, many officials are still skeptical of NPOs since they are liable for the activities of registered organizations and their first pri-‐‑ ority is political stability. The Chinese government has recognized that there is a strong need for reforms of the legal regulations for the nonprofit sector and for some time different attempts have been dis-‐‑ cussed and implemented at the local and national level. The revision of the charity law, which has been on the ropes since 2004, shows that reform requires a lot of time and pa-‐‑ tience.

Liu (2013) Lee (2009), p. 356 167 Chen (2013) 165 166

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Case Studies The following examples of philanthropists, nonprofit organizations and foundations aim to present different actors in the field of philanthropy and illustrate the development of the nonprofit sector, the differences between donating and founding, and the ways challenges faced by the nonprofit sector are being tackled.

China’s Biggest Philanthropists Who are China’s greatest philanthropists? Cao Dewang and Chen Guangbiao are two highly successful businessmen and are among China’s most prominent philanthropists. However, their approaches to philanthropy could not be more different and illustrate the differences between donating and founding. Chen Guangbiao Chen, who grew up in a poor family in Anhui and became the CEO of Jiangsu Huangpu Renewable Resources Utilization, has become infamous for his large-‐‑scale and controversial charity events. After the devastating 2008 Sichuan Earthquake, “Brother Biao” organized for 63 trucks and cranes to be sent for rescue operations to the sites affected by the earthquake, personally participated in the rescue of survivors and distributed cash to the homeless. In total, Chen spent 54 days in the earthquake area and donated more than RMB 100m.168 Chen’s actions have been strongly criticized as shameless self-‐‑promotion, especially because he had journalists take pictures of him and earthquake victims were asked to hold up the money donated by him. Chen was the first Chinese billionaire to respond to Bill Gates’ and Warren Buffett’s philan-‐‑ thropic “The Giving Pledge” campaign in 2010. In an open letter, Chen pledged to donate his entire fortune of about RMB 5bn to charity after his death. By his own account, Chen wanted to put other wealthy Chinese under pressure and motivate them to rethink the pur-‐‑ pose of their wealth.169 In January 2013, Chen sold cans of “fresh air” (for RMB 5 per can) in Beijing in order to raise awareness about Beijing’s extreme air pollution and more generally about China’s massive environmental problems. This event is emblematic of Chen’s public and controversial ap-‐‑ proach to philanthropy. In an interview about the event, he stated that: “My individual

168 169

Wang (2010) China Television Network (2010)

Philanthropy and Nonprofit Organizations in China

power is limited. I want to use my high-‐‑profile way to wake people up to take action to-‐‑ gether to do good things. I can only awake them with my performance art and creativity.”170 Cao Dewang Cao is the chairman and CEO of Fuyao Glass Industry Group, the world’s second largest supplier of automotive glass. Over the past ten years, Cao has donated a total of RMB 6.5bn to charity, making him one of the biggest philanthropists in China. While Cao is clearly among those who give the most money to charitable ventures, he ranks “only” 206th on the Hurun Rich List 2012, with total assets of RMB 8.12bn.171 In 2010, Cao founded the first Chinese foundation whose assets are invested in stocks. With a total of 300m stocks worth RMB 4.58bn, the Heren Charity Foundation, named after Cao’s father, became the wealthiest foundation in China. The foundation’s mission is to provide financial support for education and health care projects in China’s most impoverished re-‐‑ gions.172 During the drought in China’s southeast in 2010, Cao donated RMB 200m to the China Foundation for Poverty Alleviation (CFPA). However, the donation was subject to two con-‐‑ ditions. First, the CFPA had to distribute the donation in amounts of RMB 2000 to a total of 100,000 households. Second, Cao led an independent supervisory committee that traced the donation of a random sample of 1000 households. If more than 1 percent of all the surveyed households had not received the full amount of RMB 2000, the CFPA would have been obli-‐‑ gated to donate 30 times the missing amount from its own funds.173

Nonprofit Organizations Gongyi – China’s First Online Donation Platform Sina Weibo, a hybrid between Twitter and Facebook, is China’s biggest micro blogging ser-‐‑ vice with more than 500m registered users and hundreds of thousands of verified organiza-‐‑ tions. With almost 50m visitors per day, Sina Weibo has great influence on how and what Chinese Internet users discuss. In 2011, Sina Weibo founded the first Chinese online dona-‐‑ tion platform, “Gongyi” (literally “public welfare”), which aims to connect individuals in need with individual donors and charity organizations. In effect, individuals in need can put charity projects or donation requests online, either with the support of a charitable organization or, with the proper permission, on Sina Weibo’s Branigan (2013) Hurun Report (2012) 172 Simon (2011) 170 171

173

Columbia University (2011)

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official account. Gongyi’s content is divided into five categories: education, help for children, medical care, animal protection and environmental protection. Charity projects and dona-‐‑ tion requests have to give a description, the name of the applicant, the objective of the pro-‐‑ ject/target of the donations, the target sum and the duration of the project or donation cam-‐‑ paign. Applicants have to submit personal background information. Internet users can sort search results according to location, type of donation sought (finan-‐‑ cial, in-‐‑kind, or in-‐‑time) as well as status of the project (awaiting approval, in progress, or completed). Users who wish to donate to a particular project or campaign have to disclose how much they wish to donate, their true name, and mobile phone number as well as a per-‐‑ sonal comment. The significant role of Gongyi in China’s donation sector became apparent shortly after the Lushan Earthquake, which took place in Sichuan province on 20 April 2013 at 8:02am (Bei-‐‑ jing Time). At 6:05pm, Sina Weibo and the China Foundation for Poverty Alleviation started a joint fundraising campaign for the victims of the earthquake. At 6:13pm, Sina Weibo launched a donation request to Internet users and other companies with a donation target of RMB 2m. Two hours after the start of the fundraising campaign approximately RMB 10m had been collected. At 9pm, 2,600 donation campaigns had been launched, and users and companies had donated a total of RMB 30m. iJoin iJoin is a business-‐‑registered youth volunteer organization with two bases in Beijing and Shanghai that brings together and connects NPOs in need of practical support with business consultants and students looking to get involved in non-‐‑profit work. The active core of the organization is made up of roughly 30 students and young professionals who are all volun-‐‑ teers. Each summer, both iJoin bases each accompany about 20 students and 15 business consultants in three to four NPO projects. The beneficiaries of iJoin’s services are smaller, relatively young NPOs that have attained a certain size and stability but are in need of practical knowledge and business know-‐‑how to grow further. In order to work with iJoin, a NPO has to be between two and four years old and must have full-‐‑time employees, a stable cash flow, and potential future leaders. Busi-‐‑ ness consultants from well-‐‑known consulting firms such as Boston Consulting Group and Bain & Company work pro bono together with students over several weeks to advise NPOs on management, marketing and strategy. Such collaboration enables all participants to profit: the consultants get to be involved in a good cause, the NPOs receive a business consultancy virtually for free, paying only for the students’ accommodation and transportation costs, and the students gain valuable practical experience in business consultancy and NPO man-‐‑

Philanthropy and Nonprofit Organizations in China

agement. In addition, iJoin hopes that some of the students are going to work as leaders in the nonprofit sectors after their studies. An example of one of iJoin’s “customers” was a small NPO active in the field of elderly care that wanted to focus its work on the psychological care of older terminally ill and dying peo-‐‑ ple. However, terminal care of old people is not a priority in the Chinese government’s cur-‐‑ rent policy for the elderly and the government demanded that the NPO continue its activi-‐‑ ties in the general care of the elderly. Since the organization received its entire financial means exclusively from the government, it had to meet the government’s demands. The NPO worked together with iJoin to locate new sources of funds and to develop a new long-‐‑ term strategy. The mission of iJoin is to supply NPOs with professional expertise and assistance adapted to their specific needs and context, encourage the exchange of information within the nonprofit sector, and strengthen the links between NPOs and foundations. The organization views its social role as complementary to and supportive of the official welfare policy, and hopes that the state can someday take over its role. China Foundation Center The China Foundation Center (CFC) was founded as a public information service by 35 Chi-‐‑ nese foundations in July 2010. The CFC is registered with the MoCA as a civil non-‐‑enterprise institution and is supervised by the Chinese Social Sciences Association, which grants the CFC complete independence. Since its establishment, the CFC has been committed to increasing transparency in the Chi-‐‑ nese foundation sector in order to strengthen philanthropy in China as a whole. Today the center is among the most important sources of information on Chinese foundations. It works closely with several international organizations such as the American Foundation center, and is supported financially by, among others, the Bill & Melinda Gates Foundation and the Ford Foundation. On its homepage, the CFC regularly publishes research reports and statis-‐‑ tical data. It also maintains an online foundation database, the so-‐‑called “Foundation Trans-‐‑ parency Index” (FTI).174 The FTI was developed in collaboration with Chinese foundations and with the technical support of leading experts in the fields of political science, anti-‐‑corruption studies, law and the nonprofit sector. The index is based on the annual working reports that the foundations have to submit to the Chinese government. In total, 60 indicators, which are divided into four categories – basic, financial, project and donor information – are measured. 174

See en.fti.org.cn

Philanthropy and Nonprofit Organizations in China

The four categories contain the following indicators: -‐

Basic information: registration (12 indicators), contact (5 indicators), board structure and composition (5 indicators), web infrastructure (3 indicators), charter and regula-‐‑ tion (5 indicators), annual reports (1 indicator)

-‐

Financial information: reports (3 indicators), financial data (14 indicators)

-‐

Project information: project data (7 indicators), web infrastructure (3 indicators)

-‐

Donor information: donor data (1 indicator), web infrastructure (1 indicator)

An algorithm calculates a weighted total score and assigns each foundation a score, with a maximum of 129.4 points and the following maximums per category: 58.2 points for basic information, 28.8 for financial information, 38 for project information, and 4.4 for donor in-‐‑ formation. The rank of a foundation’s FTI is adjusted every week and relies on the infor-‐‑ mation it publishes. In addition, similarly to music chart rankings, the index shows the pre-‐‑ vious ranking of the foundation, indicates its movement in the chart relative to the previous week, and gives its point range of the last three months. The FTI is calculated using to the following formula:175 FTIn = Σ (Ti × Wi × Si × Ci) Where -‐

FTIn : the transparency score of foundation n

-‐

n :

-‐

i : the number of the indicator (i = 1, 2, …, 60)

-‐

Ti :

the number of the foundation (n = 1, 2, …, 2215) equal to 1 if the foundation publicly discloses indicator i, and equal to 0 other-‐‑

wise -‐

Wi :

weight of the indicator, the value of which ranges from 1 to 6 and depends on

the indicator -‐

Si :

“source of information”, equal to 1.2 if the information is published on the

homepage of the website and 0.8 if the information is publicly accessible through an-‐‑ other channel. -‐

Ci : “coverage”, only calculated for the seven project indicators, and automatically equal to 1 for all other indicators: (number of publicly listed projects / total number of projects) × (total sum of project expenses / total public expenses)

The average number of points received by the 2215 listed foundations was 51.47, with 31 foundations receiving the maximum number of points of 129.4. The average number of points received by public fundraising foundations (a total of 1094 foundations) was 50.87

175

China Foundation Center (2013b)

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and the average for non-‐‑public fundraising foundations (a total of 1121 foundations) was 52.04.176 The total average for the year 2012 was 48.5 points, indicating a slight evolution towards greater transparency. However, cautious optimism must be adopted when looking at this result, which is dampened by the fact that in 2012, 60 percent of all foundations did not pub-‐‑ lish their annual working report.177 This means that more than 1380 foundations passed the annual foundation examination despite clear legal violations of the Foundation Regulations. Whenever legal violations are discovered, the government agencies in charge of registration can apply legal sanctions, such as warnings, termination of the foundation’s activities or even the revocation of registration. However, due to the legal grey area in which founda-‐‑ tions find themselves, these sanctions are hardly ever imposed. In the face of such legal and administrative deficiencies, the FTI plays an important role in the Chinese foundation sector. According to Li Chengyan, Professor at the School of Govern-‐‑ ment at Beijing University, the Internet is the most influential method of supervision of foundations.178 Through the FTI and the Internet foundations are put into “public space” where they are subject to public scrutiny, and can prove their credibility through transpar-‐‑ ency.

Foundations Chinese Red Cross Foundation The Chinese Red Cross Foundation (CRCF) was founded in 1994 and is one of China’s big-‐‑ gest and best-‐‑known foundations. This public fundraising foundation is registered with the MoCA and is under the administration of the Chinese Red Cross (CRC). According to the “Law of the People'ʹs Republic of China on the Red Cross Society”, the CRCF is under the indirect supervision of the government and it must support the governmental activities car-‐‑ ried out that are within the scope of the Red-‐‑Cross. The foundation’s 50 full-‐‑time employees and long-‐‑term volunteers work in three main fields: -‐

Medical assistance (Red Cross Angel Program): (a) building of medical clinics and hospi-‐‑ tals in rural areas; (b) training and capacity building of rural doctors; (c) treatment of diseases and disabilities of children from poor families.

-‐

Education aid in rural areas: (a) building of primary and high schools including com-‐‑ puter and music rooms: (b) book donations to schools, community libraries, and

As of 22 July 2013 China Foundation Center (2013a) 178 China Foundation Center (2013a) 176 177

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hospitals; (c) teacher training and capacity building; (d) granting university scholar-‐‑ ships for students from poor backgrounds. -‐

Disaster relief: (a) provision of temporary shelter, emergency rations of drinking wa-‐‑ ter and food, and other emergency supplies; (b) reconstruction aid and financing of schools, hospitals, and houses.

In 2012, the CRCF’s income amounted to RMB 230m and its expenses to RMB 320m. In 2008, the year of the devastating earthquake in Sichuan province, the foundation fundraised more than RMB1.5bn in donations. In 2011, by contrast, the CRCF received roughly RMB 166m in donations. This dramatic decrease is partly explained by the fact that the 2008 earthquake enabled the CRCF to raise significantly more money and by the fact the Guo Meimei scandal of the CRC tainted the CRCF’s public reputation. As public mistrust toward the CRC re-‐‑ mains high, the CRCF finds itself in a difficult situation. Since the foundation is under the direct administration of the CRC, it cannot claim itself to be “independent” from the CRC. Hence the CRCF continues its commitment in a pragmatic and transparent manner: since the foundation’s listing on the Foundation Transparency Index in 2012, it has consistently re-‐‑ ceived the maximum number of points of 129.4 and is among the most transparent founda-‐‑ tions in China. Beijing Western Sunshine Rural Development Foundation The Beijing Western Sunshine Rural Development Foundation (BWSRDF) was founded in 2006 and is registered as a non-‐‑public fundraising foundation with the MoCA, which also acts as its sponsor organization. The BWSRDF originated as a grassroots organization. Between 1998 and 2002, Shang Lifu travelled across 22 provinces, cities, municipalities and autonomous regions by bicycle and on foot to research and document the education infrastructure in China’s rural West. To-‐‑ gether with Yang Dongping, professor of education at the Beijing Institute of Technology, Shang set up the volunteer program “Samsung-‐‑Western Sunshine Action” in 2004. Since then, over 100 students get involved in various education, health care, and social and eco-‐‑ nomic development initiatives in the rural areas in China’s West each year. In 2006, the BWSRDF was founded by Yang with an initial foundation endowment of RMB 2m donated by the Shanghai New Lian Kang Investment and Consultation Company. Since its creation, the BWSRDF has been involved in various educational promotion projects in China’s rural West: -‐

The foundation leads preschool education programs in 56 kindergartens in Gansu province. The BWSRDF supports the kindergartens through curriculum develop-‐‑ ment and infrastructure building, it trains and coaches teachers, and it assists parents by conveying new educational concepts to them.

Philanthropy and Nonprofit Organizations in China

-‐

The foundation provides an information and resource platform for educational grassroots-‐‑NPOs. It supports grassroots-‐‑NPOs in human resources, administration, finances and IT, while also helping them with financial management, administration of volunteer work, project management and fundraising.

-‐

The foundation furthers organizes a mentoring program, which includes online learning groups and regular practical training courses between one teacher from the east and several rural teachers from the west.

On 7-‐‑8 November 2013, the BWSRDF will organize, in collaboration with other foundations, the third “China Biannual Conference for Educational NPOs” in Xi’an.179 The objectives of the conference are to give a comprehensive overview of Chinese educational NPOs, to dis-‐‑ cuss important topics in the education sector, and to provide educational NPOs with a plat-‐‑ form for mutual exchange and collaboration. After the conference, a published report re-‐‑ views the general situation and current developments of educational NPOs and the Chinese education sector as well as a register of educational NPOs. Narada Foundation The Narada Foundation is one of the most famous Chinese foundations and is generally considered to be a model for new Chinese foundations. The foundation was founded in 2007 by the Shanghai Narada Group Co., a conglomerate in Shanghai, with an initial foundation capital of RMB 100m. The Narada Foundation, a grant-‐‑making and operative foundation, is registered as a non-‐‑public foundation with the MoCA, which also acts as its ‘stepmother’. The foundation’s focus is the social problems experienced in China as a result of the coun-‐‑ try’s social and economic development. The foundation provides financial support to prom-‐‑ ising philanthropic projects and organizations in order to enhance social innovation and foster “grassroots philanthropy” in China. On the ground, the Narada Foundation is involved in three main fields of activity: -‐

Sector-‐‑wide programs, such as conferences about capacity building, that support the development of the Chinese philanthropy sector. In 2012, the Narada Foundation, for example, organized a conference on the theme “Foundation-‐‑NGO Innovative Coop-‐‑ eration” which involved more than 100 participants from numerous foundations and NPOs. The conference presented an opportunity for foundations and NPOs to im-‐‑ prove the dialogue, mutual understanding, and collaboration between them.

-‐

Strategic programs: (1) the “Gingko Fellow Program” provides financial support to founders of grassroots organizations, researchers, journalists and media profession-‐‑ als, individual activists, and future NPO leaders. Gingko Fellows receive RMB

179

See edungo.net for more information.

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100,000 per year for three years and participate twice a year in different group activi-‐‑ ties with other members of the Gingko Fellow Program. Since the start of the pro-‐‑ gram in 2010, the Narada Foundation has supported a total of 37 Gingko Fellows. (2) The “Bright Way Program” provides grassroots NPOs with financial and technical support through, for example, training and coaching employees, improving organi-‐‑ zational management, strategic planning, searching for sustainable financing op-‐‑ portunities, and developing financial transparency. The Beijing Western Sunshine Rural Development Foundation (BWSRDF) is one of six organizations that have thus far been supported by the Bright Way Program. -‐

Specific philanthropic projects: (1) the “New Citizen Program” provides the children of migrant workers with a high-‐‑quality education through the development of new education programs, help of social workers, support of teachers, and various com-‐‑ munity programs. (2) Disaster relief and reconstruction: the Narada Foundation sup-‐‑ ports NPOs involved in disaster relief and reconstruction aid.

In addition, the Narada Foundation supports various research projects that examine the nonprofit sector. Such projects include studies on grassroots organizations, the nonprofit sector or the quality of management in philanthropic organizations in China, should aim “to social innovation and help build a harmonious society”.180 Shanghai United Foundation The Shanghai United Foundation is the first non-‐‑governmental, public fundraising founda-‐‑ tion in China. It was founded in 2009 by Non-‐‑Profit Incubator in Shanghai. It is registered with the Shanghai Civil Affairs Bureau, which is also responsible for the foundation’s su-‐‑ pervision. This grant-‐‑making and operational foundation is involved in the development and support of grassroots-‐‑NPOs, and provides a communication platform for donors, founders and NPOs. In addition, the Shanghai United Foundation develops philanthropic programs for companies and philanthropic organizations, and supports them in their operation. Since many grassroots-‐‑NPOs experience difficulties in securing sufficient funds, which signifi-‐‑ cantly constrains their growth and their projects’ impact, the Shanghai United Foundation focuses specifically on fundraising for grassroots-‐‑NPOs. The foundation is active in seven areas in particular: -‐

Support and education of disabled people

-‐

Community development and programs on critical issues like prevention of gender-‐‑ based violence

180

Narada Foundation (2013)

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-‐

Youth programs and support of at-‐‑risk youth

-‐

Aid to poor people through micro-‐‑credits and skills training, among others

-‐

Environmental and animal protection

-‐

Psychological and financial support of people with rare or life-‐‑threatening diseases

-‐

Improvement of the education situation in poor areas

The most important fundraising event of the Shanghai United Foundation is a charity run for the “One Egg Project” which has taken place once every year since 2011. In the context of the One Egg Project and in collaboration with several NPOs, the foundation distributes eggs to mal-‐‑nourished school children in order to provide them with protein and energy for the day, important for the health and growth of children. With RMB 200 the foundation can pur-‐‑ chase 365 eggs for one student – one egg for each day of the year. The Foundation organizes a ‘race’ to gather funds, and participants are sponsored by family members and friends. The number of participants and donation volume of the charity run has increased each year: in 2011 roughly 1000 participants collected more than RMB 675,000, and in 2013 around 2000 participants collected more than RMB 4.28m. The Shanghai United Foundation, however, does not only distribute funds to NPOs but su-‐‑ pervises and reviews all projects. In order to make sure that NPOs spend the funds in the proper manner, the funds are transferred in phases, and intermediary and final audits are conducted. These evaluations are published together with financial and final reports. The Shanghai United Foundation thereby follows its motto “Reliable and down-‐‑to-‐‑earth”.

Philanthropy and Nonprofit Organizations in China

Areas of Collaboration between Foundations Despite their different histories, developments, and present-‐‑day characteristics, there are interesting potential areas of mutual exchange and collaboration between the Chinese foun-‐‑ dation sector and its Swiss counterpart. The exchange and collaboration between founda-‐‑ tions from both countries would by no means be one-‐‑sided. For example, the still young Chinese foundations could profit from the expertise, experience and practical know-‐‑how of well-‐‑established Swiss foundations. In turn, existing Chinese private initiatives for a com-‐‑ prehensive foundation register and an online transparency index could be interesting for Swiss foundations, and could potentially even inspire new developments in the Swiss foun-‐‑ dation sector. This report presents three potential areas of collaboration between Chinese and Swiss foundations: foundation governance and self-‐‑regulation; mission-‐‑related invest-‐‑ ments; and foundation register and transparency.

Foundation Governance and Self-‐‑Regulation In 2008, the NPO Information Center and the China Youth Development Foundation jointly published the “China’s Public Welfare NPO Guidelines for Self-‐‑Regulation”181 (hereafter “NPO-‐‑Guidelines”).182 The NPO-‐‑Guidelines are directed at all Chinese NPOs (social organi-‐‑ zations, CNIs, and foundations) and – similarly to the Swiss NPO-‐‑Code183 – aim to improve the standards of conduct in the nonprofit sector, spur public trust in NPOs, and foster the healthy development of the sector. NPOs that accept these guidelines must accept evalua-‐‑ tions through third parties and the disclosure of information to the public.184 The guidelines contain nine chapters: -‐

Mission: The mission of NPOs should be to serve the public interest; it should be clear and definite, be discussed by members of the organization and approved by the board, be regularly reviewed to determine whether it still serves the public interest or whether it should be adapted, and be understood and accepted by all employees. Further, the mission should be in accord with the NPO'ʹs conduct, and consistent with the aims and strategic planning of the organization.

-‐

Conflicts of interest: The personal interests of current and new board members should not be at odds with the interests of the organization. Board members or employees who have a personal stake in a collaboration or business relation should not partici-‐‑ pate in their negotiation.

-‐

Internal governance: The guidelines contain recommendations concerning the struc-‐‑ ture and functioning of the board, the behavior of its members and operational pro-‐‑

NPO Information Center (2008) China Development Brief (2011b) 183 Konferenz der Präsidentinnen and Präsidenten grosser Hilfswerke der Schweiz (KPGH) 184 Non-‐‑Profit Incubator (2008) 181 182

Philanthropy and Nonprofit Organizations in China

cedures. Amongst others, the board should have at least three members. No more than one third of board members should receive remuneration, and those who re-‐‑ ceive financial compensation should work full-‐‑time for the organization. Board members should guarantee the regular and efficient functioning of the board, review and approve the organization'ʹs strategic planning, appoint the NPO'ʹs management team and evaluate their performances. -‐

Fundraising: The board and the responsible employees should assess whether sources of financing are consistent with the mission and values of the organization. Financ-‐‑ ing costs and their calculation should be open and transparent, and the financing ac-‐‑ tivities of the organization should respect the interests and privacy of the donors. Funds should be used in accordance with the donors'ʹ wishes, and the use of funds should be documented and disclosed to the donors.

-‐

Finances: NPOs should establish sound and clear internal accounting and monitoring systems in order to improve the financial management within the organization. The annual financial report should be reviewed by an independent auditing company, and be published four months or less after the end of that year.

-‐

Projects: NPOs should have a systematic project management system. Projects should be consistent with the mission and the aims of the organization, have a complete pro-‐‑ ject schedule (including objectives, target groups, plans, results and budget), and be finalized with a final project report available for review by the donors. Further, NPOs should establish a systematic project monitoring and evaluation procedures primarily based on the observations and recommendations made by target groups and other stakeholders.

-‐

Personnel: The organization should create a standardized recruiting process that is open, non-‐‑discriminatory, and eliminates conflicts of interest. Employees should have a standardized employment contract, be motivated through incentive mecha-‐‑ nisms, and their performance should be realistically and uniformly evaluated.

-‐

Collaboration between NPOs: NPOs should avoid rivalries and harmful competition and instead work together towards achieving common objectives. The reputation, in-‐‑ tellectual property and trademark rights of all NPOs should be respected.

-‐

Information disclosure: Information on the mission, areas of activity, board composi-‐‑ tion, audited financial reports, projects, project evaluation reports, and annual work-‐‑ ing reports should be published truthfully and in a timely manner. In addition, NPOs should establish an information system that allows them to answer public questions efficiently, and to quickly and easily publish and provide access to infor-‐‑ mation.

Although many Chinese NPOs have recognized the need for more self-‐‑regulation and standardization of regulations, the NPO-‐‑Guidelines have had only little impact in the non-‐‑

Philanthropy and Nonprofit Organizations in China

profit sector.185 Non-‐‑governmental self-‐‑regulation initiatives or Governance Codes directed primarily at foundations, such as the Swiss Foundation Code186 in Switzerland, do not exist yet in China. Both in China and in Switzerland, the social and economic importance of foundations has increased over the past years, and the public demands increasingly higher standards regard-‐‑ ing the professionalism, transparency, and checks and balances of foundations. The proac-‐‑ tive definition of these standards and the formulation of recommendations regarding the establishment, governance, organization and financial management of foundations are pos-‐‑ sible areas of collaboration between Chinese and Swiss foundations. 187 Potential contacts in China are: -‐

China Foundation Center

-‐

China Youth Development Foundation

-‐

Narada Foundation

-‐

NPO Information Center

-‐

Vantone Foundation

-‐

YouChange Foundation

Mission-‐‑Related Investing China’s philanthropy sector is still nascent and consists mainly of GONGOs, foundations, grassroots-‐‑NPOs and social enterprises, which are in need of financial and technical support. Due to its relatively recent emergence, the Chinese philanthropy sector can learn a lot from more developed sectors in other countries, and possibly leapfrog some stages in its develop-‐‑ ment by adopting more innovative approaches in philanthropy. In China as well as in Switzerland, an increasing number of foundations discuss and concern themselves with new concepts and alternative strategies to fund projects and make invest-‐‑ ments. The most well-‐‑known concepts are:188 -‐

Impact Investments: Investments in companies, organizations or funds that aim to have a positive and measurable social or environmental impact as well as to realize a financial profit. Depending on the economic circumstances or objective, the return can be above or below the market return.

-‐

Socially Responsible Investments: Socially Responsible Investments (SRIs) or sustaina-‐‑ ble investments are investments that, in addition to the usual aspects of investment

China Development Brief (2011b) Sprecher et al. (2009) 187 von Schnurbein (2009), p. 10 188 Knoepfel (2012); Schneeweiss & Weber (2012) 185 186

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management, take into account social, environmental and ethical criteria. SRIs aim at the market return rate. -‐

Venture Philanthropy: A very active form of philanthropy that draws from entrepre-‐‑ neurial principles and methods from venture capital investments. Venture Phi-‐‑ lanthropy employs long-‐‑term, performance-‐‑oriented development funding, and tech-‐‑ nical support such as coaching and capacity building. Through the (partial) repay-‐‑ ment of the investment, Venture Philanthropy aims to reuse its funds multiple times.

-‐

Mission-‐‑Related Investments: The use of a foundation’s capital and investment deci-‐‑ sions that support the foundation’s cause and, at the same time, look to be profitable, in most cases aiming for a market return. As a generic term, this method of invest-‐‑ ment includes SRIs, Impact Investing and Venture Philanthropy.

By the end of August 2012, only three major Impact Investments had been made in China.189 The Chinese investment market is still relatively young and for many investors the distinc-‐‑ tion between SRIs, Impact Investment and private equity investments is not clear. At the same time, many NPOs and social enterprises are not familiar with the concept of Impact Investing either, and are thus not able to present themselves as “impact organizations” in order to acquire investors. In China and in Switzerland, the adoption of Mission-‐‑Related Investment strategies could provide foundations with further opportunities for the promotion and realization of their mission. However, many founders feel overwhelmed with these new concepts and many are not familiar with them at all. In addition, many foundations lack the necessary know-‐‑how and technical knowledge regarding Mission-‐‑Related Investments. The joint discussion on the opportunities, benefits and limits of Mission-‐‑Related Investing constitutes an interesting area of collaboration between Swiss and Chinese foundations. Potential contacts in China are: -‐

Avantage Ventures

-‐

Non-‐‑Profit Incubator

-‐

Phoenix Global Impact

-‐

Transist Impact Labs

-‐

Venture Avenue

Foundation Register and Transparency While both Swiss and Chinese foundations’ social and economic significance has increased in their respective countries over the past years in Switzerland, only little development has

189

Lane (2013), p. 28

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taken place concerning a foundation register.190 There is no comprehensive register of Swiss foundations that would strengthen the transparency in the nonprofit sector and allow for a more efficient exchange of information between foundations and organizations seeking funds.191 A 2012 study performed by the Centre for Philanthropy Studies (CEPS) on behalf of SwissFoundations examined the benefits of foundation registers.192 According to the study, clear guidelines for disclosure requirements and compulsory, comprehensive data collection constitute two key prerequisites for a foundation register.193 In China these two prerequisites are, at least de jure, partially fulfilled. Each year foundations have to publish a publicly-‐‑available annual working report, which has to contain the follow-‐‑ ing information: accounting report, audit report by a certified auditing firm, activities such as fundraising, received donations and funding as well as changes of staff and the internal structure. Public fundraising foundations further have to publish their charitable activities and detailed information about the use of donated funds.194 In August 2013, the MoCA and the governmental China Charity Donation Information Cen-‐‑ ter launched the online database China Charity Information Platform (CCIP).195 The data-‐‑ base contains more than 1600 foundations, public institutions, social organizations and CNIs. Users can search organizations geographically by province, by field of activity, total assets, outgoing funds and donations received. In addition, each organization has an individual site containing the following information: -‐

Main page: basic information, total assets, public expenditures, annual donation in-‐‑ come, annual income and expenditures.

-‐

Basic information: registration information, charter, award information, inspection results, annual assessment and annual working report.

-‐

Governance information: organizational structure (including names of board mem-‐‑ bers and supervisors), list of meetings and decisions (including personnel changes, major donations and investments, changes is assets) and internal management sys-‐‑ tem (including project, financial, information disclosure and human resources man-‐‑ agement systems).

-‐

Business information: list of daily earnings and expenses, annual financing and use of funds plan, and list of projects.

-‐

Financial information: key financial data and annual financial report.

-‐

Other information: project news, recruitment, training sessions and events.

Since 2010, the Beijing-‐‑based China Foundation Center (CFC) has maintained an online foundation database, the Foundation Transparency Index. The database draws from the an-‐‑ Eckhardt et al. (2013), p. 32 Eckhardt et al. (2012), p. 34; Eckhardt et al. (2013), p. 32 192 von Schnurbein et al. (2012) 193 Eckhardt et al. (2013), p. 32 194 §25 Sentence 2 Foundation Regulations 195 See npo.charity.gov.cn 190 191

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nual working report and other publicly available information disclosed by foundations, and contains both general information (e.g. information on foundation assets or annual expenses) and more specific information about funding areas, contact persons and information. On the basis of this information and 60 indicators divided into four categories – basic, financial, project and donor information – the CFC calculates a “transparency index”. All recorded foundations are listed and ranked according to their transparency index on the CFC’s web-‐‑ site.196 Since 2006, the Social Venture Group (SVG) maintains an NPO database that contains infor-‐‑ mation on the objectives, infrastructure, projects and impact of the listed organizations. So far the SVG has reviewed and listed over 300 NPOs. After their inclusion in the database, the SVG tracks the performance and outcomes of the NPOs. A main challenge for all foundation and NPO registers is that the current legal regulations clearly specify which information has to be disclosed but remain unclear on the sanctions in case of violations of the disclosure requirements. In 2012, 60 percent of all foundations did not publicly disclose their annual working report.197 In both the Chinese and Swiss foundation sectors, interest in a foundation and NPO register has been professed. For the successful development of a register it is essential to clearly de-‐‑ fine its content, scope and function. The development of a foundation register and the ex-‐‑ change of experiences between different interest groups is another potential area of collabo-‐‑ ration between Chinese and Swiss foundations. In particular the Foundation Transparency Index could be of great interest to foundations and NPOs in Switzerland. Potential contacts in China are: -‐

China Charity Donation Information Center

-‐

China Foundation Center

-‐

Social Venture Group

196 197

See en.fti.org.cn China Foundation Center (2013a)

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Conclusion and Outlook In the course of China’s economic growth over past few years, the social, economic and legal environment for philanthropy and nonprofit organizations has undergone different devel-‐‑ opments. This study aimed at giving a first overview of these developments, as well as of the size and scope of philanthropy and NPOs in China. In summary, three central state-‐‑ ments can be made concerning these elements: -‐

The donation behavior in China is extremely irregular and volatile and the annual donation volume greatly depends on natural disasters and the current public opinion of NPOs. Extreme natural disasters, such as the Sichuan earthquake in 2008 or the scandals involving the embezzlement of funds among foundations in 2011, dramati-‐‑ cally increased or decreased the annual donation volume. Charitable giving is still only weakly anchored in Chinese society and the public image of NPOs is strongly characterized by a lack of knowledge and mistrust.

-‐

The influence of the Chinese government over the nonprofit sector remains strong and is expressed on different levels. The restrictive and unclear legal environment fa-‐‑ vors established organizations close to the government and causes many small, in-‐‑ dependent NPOs great problems or even prevents their establishment. This helps ex-‐‑ plain why the Chinese government and organizations close to the government are still the biggest donation beneficiaries, and that the development fields of education, poverty and health care, which are part of the current political agenda of the govern-‐‑ ment, receive the most donations.

-‐

Additionally, numerous organizations experience difficulties in finding access to sus-‐‑ tainable and long-‐‑term sources of funds and in hiring qualified and experienced staff. These circumstances make difficult for NPOs to build capacity, and strengthen and professionalize their operations.

How the Chinese nonprofit sector will develop in the future depends on, among others, two important factors: -‐

For a future positive development, the reinforcement and further expansion of the current “NPO ecosystem” are decisive. This ecosystem – the institutional and social environment for NPOs – requires different resources, such as financial, human, social and intellectual capital. On the part of private individuals and organizations, this re-‐‑ quires the close collaboration, mutual support, direct communication, transparency and patience of all philanthropy and NPO actors – donors, founders, philanthropists and NPOs. The youth volunteer organization iJoin, which connects NPOs with busi-‐‑ ness consultants, students and foundations, is an excellent example of an initiative that aims at bringing together different actors and their unique resources.

-‐

On the part of the government, further legal forms in favor of independent organiza-‐‑ tions and smaller grassroots-‐‑NPOs will be necessary. Different reforms and reform

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attempts, e.g. of the dual management system, on the national and provincial level show a certain willingness of the government to improve the legal framework for NPOs and to partially grant them greater freedom. The success of these reforms would require local government officials, who frequently hold a generally negative or indifferent attitude toward NPOs since their first priority is political stability, to change their views. Ultimately, not only are further reforms necessary, but the con-‐‑ sistent enforcement of existing and future legal regulations, such as the disclosure re-‐‑ quirements for NPOs, are equally important. In a final step, this study aimed to identify different potential areas of collaboration between Chinese and Swiss foundations, particularly the following: foundation governance and self-‐‑ regulation; mission-‐‑related investments; and a foundation registration, and transparency. It remains to be seen to which extent joint initiatives and projects develop in the future as well as how the general collaboration between foundations from both countries further develops.

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Figures and Tables Figures Figure A: Annual financial and in-‐‑kind donation volume 2007-‐‑2011 ...................................................22 Figure B: Annual disaster relief and other donations 2007-‐‑2011 ...........................................................22 Figure C: Annual individual donation volume 2007-‐‑2011 .................................................................... 24 Figure D: Annual corporate donation volume 2010-‐‑2011 ......................................................................25 Figure E: Annual distribution of donations by beneficiary 2010-‐‑2011 ..................................................27 Figure F: Annual distribution of donations by beneficiary 2010-‐‑2011 ...................................................28 Figure G: Number of NPOs 1988-‐‑2012 ..................................................................................................31 Figure H: Number of foundations 2005-‐‑2012 ........................................................................................31

Tables Table A: Number of registered foundations ..........................................................................................33 Table B: Fields of activities of NPOs ......................................................................................................34

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Afterword: About this study One of the accompanying events at the swissnex Day on 16 November 2011 at ETH Zurich was “swissnex meets SwissFoundations”, marking the first exchange between representatives of the two Swiss networks. This forum provided an opportunity to get to know one another and identify starting points for col-‐ laboration. There is indeed a lot of common ground between swissnex and SwissFoundations: They are both network organisations that broker expertise and seek out gaps, potential and opportunities calling for specialist and financial resources. The two networks get people, institutions, companies and official agencies together to talk. They both provide a translation function, mediate between practice and theory, between business and science, and offer tools to facilitate exchange between diverse cultures. Not least, they share the same vision of Switzerland: They gear their efforts to the Switzerland of tomorrow, a country that confidently showcases itself at the world's hot spots as a hub of technical, social and cultural innovation and is perceived as a dynamic knowledge society. The meeting centred not only on getting mutually acquainted but also on the question of synergies. One of the project ideas that came out of the encounter was to establish Swiss Philanthropy Desks in China and India, the two key BRIC countries for Switzerland, as well as at the major East Asian hub Singapore: They are to serve as liaison points for people wishing to do philanthropic works and ben-‐ efit from Switzerland's expertise, tradition and leadership position in the philanthropy community. The focus is on wealthy private individuals and companies inspired by the thriving economic devel-‐ opment of the two emerging markets to address the issue of social entrepreneurship. The role of the Swiss Philanthropy Desks is to raise Switzerland's profile as a knowledge provider through its pres-‐ ence in the three regions and to position Switzerland as a foundation paradise and home to leading-‐ edge philanthropic expertise. At the same time, they are charged with growing swissnex's outreach and know-‐how portfolio. But where is China's philanthropy sector today? On 30 August 2012, swissnex Shanghai organised a local philanthropy event open to the public with one representative from each of the Swiss and Chi-‐ nese foundation sectors. This was followed by a call for applications for a research internship at swissnex China in Shanghai that was financed and supported by Gebert Rüf Stiftung. Lennart Bolliger, master's student in Development Studies at the University of Oxford, spent six months on the swissnex China team in Shanghai from March to August 2013. He presents the find-‐ ings of his research in this study. Beate Eckhardt General Manager of SwissFoundations Print and e-‐paper versions of this study are available in English and German from SwissFoundations and swissnex China. Basel/Shanghai/Zurich – 2014 S. 71

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This research paper is available as print version and as e-paper via SwissFoundations und swissnex China Basel / Shanghai / Zürich – 2014

ENGLISH

RMB, RMB bill y’all Philanthropie and Nonprofit-Organisations in China

RMB, RMB bill y’all Philanthropy and Nonprofit-Organisations in China

Lennart Bolliger

SwissFoundations – swissnex 2014 ENGLISH