Charity and Social Enterprise in China

 

Karla Simon

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Karla Simon

Karla Simon

Charity

In mid-May the Ministry of Civil Affairs (MCA) held a conference on Philanthropy in China and released the news that 2013 was indeed a watershed year for CSOs. At the end of the year more than 541,00 CSOs were nationally registered. This is clearly due, as noted at the conference, to the removal of the “dual management” requirement.  By the end of the year every province (except Tibet and Xinjiang) as well as every self-governing municipality had adopted “direct registration” rules.  This makes it much easier for citizens and businesses to donate to charity.

It also makes it easier to set up “private foundations.” Indeed, while the overall increase in numbers of CSOs was 8.4 % in 2013, the number of foundations rose to 3496, an increase of 15.4%!   Philanthropy is clearly on the rise in China.  One telling story of creating a foundation concerns Jack Ma, Alibaba’s founder, who recently set up the largest Chinese foundation, worth as much as $3 billion.

As The Economist noted in its story about him and his foundation, “China’s wealthy are a notoriously stingy lot.” When Bill Gates and Warren Buffet visited China in 2010 to promote their “Giving Pledge,” they had troubled attracting people to the dinner they hosted. Yet, according to the magazine, “China now has 358 billionaires, one-fifth of the global total.”

Move over Bill and Warren!  China now has its own example of giving away extreme wealth, one we hope will be emulated by others.

Ma’s creation of the largest Chinese foundation comes at a time when there are problems for an existing foundation called the One Foundation, which was set up in 2007 by movie star Jet Li.  His story of his family’s surviving the Indian Ocean tsunami in the Maldives in 2004 is quite remarkable.  And it led him to set up the foundation, whose motto is “one person, one yuan, one world” implies that by everyone donating even a very small amount, there will be ways to effect change in the world.  The principal focus of the foundation at the outset was disaster relief.

After it became independent (coming out of the Red Cross Foundation to be set up on its own in 2010), One Foundation added child welfare work to its portfolio.  Elizabeth Knup, Ford Foundation’s Representative in China, wrote recently on the civil society listserve managed by ICCSL “the child welfare work is about 10% of their funds while disaster relief is 90%.  The child welfare program was well-designed with monitoring and evaluation and organizational capacity built in, and because there is not so much money, it has been able to handle its own growth.”

Yet disaster relief was not so well managed.  Although One Foundation out-raised the Red Cross Foundation (a “public” or state-run foundation) in the periods after the Yushu Earthquake in 2010, it has not been as quick to spend the funds, as it should have been.  The foundation has recently been met with a storm of criticism about that as well as suggestions of fraud and corruption in certain left-wing press outlets in China (that have no love for civil society!).  Part of the problem is a management crisis within the foundation, which Jet Li and his staff readily acknowledge.

But the other part of the problem is a legal one. At present there is no regularly enforced legal or regulatory mandated payout requirement for foundations in China, as there is in the US and the UK. Although the foundation regulations do contain a 70% payout requirement in the year following the receipt of funds, One Foundation would did not staff up with accounting personnel to make sure that it met the requirement.  That issue may be resolved sooner rather than later through better enforcement, though the national foundation regulations have yet to appear. Nonetheless, MCA is working on conceptualizing what should be in a new Foundation Law, and it would include this type of provision and perhaps something even better.

At the same time, there have been developments with the proposed national Charity Law, which would also help.  Although not containing an explicit payout requirement, the new draft does include legislated fiduciary responsibilities – the duties of care and loyalty (this must be done by legislation in a civil law country, which does not have the common law duties.)  This would make it implicit that a foundation’s board must see to it that monies earned through donations are promptly spent for the organization’s purposes. In the case of One Foundation, that would be for disaster relief.

The Charity Law is slowly wending its way through the legislative process, having been placed on the National People’s Congress agenda in early 2014.  There has already been one local conference to discuss the latest expert draft drawn up by the China Philanthropy Research Institute (CPRI).  ICCSL has been engaged by CPRI and the Asia Foundation to work with CPRI and provide comments in advance of the next national conference to be held end of June. There will also be a large-scale event at the Shenzhen Charity Fair at the end of July.

One other point of note is that Shenzhen, always in the forefront of developments, recently asked for comments on its own “charity regulations.”  While not as progressive as the new national draft, these are well considered, and the effort is a sound one.

Social Enterprise

At the same conference MCA also announced that social service purchase funds rose to 150 billion yuan in 2013.  This is an amazing statistic and underlies much of the state sector downsizing so desired by the party-state as well as by the Chinese people. It means that social enterprises, such as health clinics, elder hostels, child care organizations, etc. have even more funds at their disposal to provide services to the poor and socially needy in China.  The trend is only upward.

One immediate issue that arises is how the outsourcing of social services is being accomplished.  Supply side efforts, such as government purchases, are all well and good. But designing demand side incentives, such as vouchers, will be critical to the success of the program in the longer term.  There has been some experimentation in Shenzhen with vouchers for elder care (patterned on what is going on in Hong Kong).  But the jury is out as to whether this does produce the desired effect or may result in hoarding.

We will closely watch developments at the national level and in Shenzhen.  And we will continue to report on them in this column as time goes by.

Karla W Simon (西 门 雅) is chairperson of ICCSL

Tagged in: China


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