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UNDP-CH-Handbook of Charity Law of the Peoples Republic of China (1)

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China is now home to more billionaires than the United States and has experienced an annual economic growth rate of 7% since 2010. Despite this, the country is still ranked second to last in a list of 145 most charitable countries, according to the 2015 U.K.-based Charities Aid Foundation's World Giving Index. However, China's new Charity Law seeks to promote a model for greater domestic charitable giving within the country.

The law will also prospectively support the country's sustainability in disaster relief, environmental protection, public health and anti-poverty efforts to lift rural residents out of poverty by 2020. As of 2015, 55.75 million of China's rural residents were still considered impoverished.

What Will China's New Charity Law Assist?

While China's annual donations to charities have soared from 10 billion to 100 billion yuan in the last ten years, growth has remained stagnant within the last five years paradoxically alongside economic prosperity.

According to the Boston Globe, the China Philanthropy Project at the Harvard Kennedy School's Ash Center identified three reasons.

First, giving in China remains localized and focused on a single cause - six out of 10 renminbi was donated to the same province where the donor's corporate headquarters was situated, leaving the poorest rural areas without financial support.

Second, three-quarters of the donors gave to a single cause: education, leaving out other realms needing support.

Third, the majority of donors gave through their corporations, a pattern "reflecting the range of legal, regulatory, and political challenges facing the development of a vibrant giving environment on a national level."

China's new Charity Law will encourage a more sturdy model of contemporary giving, allowing for more charities to raise funds from the public without a complex registration system or a need for approval from the supervisory board and China's Ministry of Civil Affairs.

The law will also allow for tax incentives for charities and make it easier for the wealthy to establish charitable trusts on their own. Moreover, with a track record of scandals in the past which have deterred success in charitable giving, transparency, as well as tighter management, will be incorporated. "From the philanthropy side and public policy side, it's very well written," Edward Cunningham, a scholar at Harvard University said.

The global community looks forward to the results from the Charity Law, not just in better services and poverty alleviation for Chinese citizens but a transparent and confident government charity program.

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China is now home to more billionaires than the United States and has experienced an annual economic growth rate of 7% since 2010. Despite this, the country is still ranked second to last in a list of 145 most charitable countries, according to the 2015 U.K.-based Charities Aid Foundation's World Giving Index.

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Current as of November 2018 | Download print version (in PDF)

This section describes the legal framework of nonprofit organizations (also known as non-governmental organizations or NGOs) in China, along with translations of legislative provisions relevant for a foundation or advisor undertaking an equivalency determination of a foreign grantee under IRS Revenue Procedure 92-94.

These reports have been prepared by the International Center for Not-for-Profit Law (ICNL). Please direct corrections and comments to Lily Liu.

We include hyperlinks to the following information, to the extent available:

Longer country reports analyzing various aspects of local legislation; and

Texts of local laws that affect the decision whether or not to qualify a grantee (generally in translation, although ICNL and the Council cannot warrant the accuracy of any translation; in addition, legislative excerpts were selected by in-country contacts, and ICNL and the Council cannot warrant that all relevant provisions have been translated).

Table of Contents

I. Summary

A. Types of Organizations

The People's Republic of China (PRC) is a civil law country [1] with four primary legal forms of not-for-profit organizations (NPOs):

Social Associations (SAs) (社会团体, shehui tuanti), which are the equivalent of membership associations; [2]

Social Service Organizations (SSOs) (社会服务机构, shehui fuwu jigou) which are similar to service providers. Before 2016, they were known as Civil Non-Enterprise Units (民办非企业, minban feiqiye); [3]

Foundations (基金会,jijinhui); and

Public Institutions (事业单位, shiye danwei).

The first three of these forms are non-governmental entities known collectively as "social organizations," which is the official Chinese term for non-governmental NPOs. By contrast, the "public institution" or "public service unit" is a quasi-governmental NPO, generally formed by the government and staffed with government employees. Public universities, research institutes, and hospitals fall under this category. They are discussed in this Note because they frequently receive grants from foreign donors and are subject to some of the same tax rules as NPOs. There is also a plan to carry out a reform of public institutions by privatizing a portion of them and turning them into social organizations.

In addition to these three legal forms, the Charity Law that went into effect on September 1, 2016, created two new legal arrangements for organizations that carry out charitable activities. The first is the charitable organization (慈善组织, cishan zuzhi) status, which is open to "lawfully established nonprofit organizations" whose main purpose is "carrying out charitable activities" and who do not have a "profit making purpose" (Charity Law Articles 8-9). Chinese NPOs (also known as social organizations) can obtain charitable organization status in one of two ways. One is to apply for the status when registering as a social organization. If they have already registered as a social organization, then the NPO can apply for charitable status recognition following procedures in the Measures for the Designation of Charitable Organizations issued in September 2016.

The second legal status is the charitable trust (慈善信托, cishan xintuo). The charitable or public benefit trust was first recognized in the 2001 Trust Law. However, the law did not make clear who the supervisory authorities were, nor did it set forth clear tax provisions governing charitable trusts. As a result, very few charitable trusts were established after the Trust Law was passed. The intent of including charitable trusts in the Charity Law appears to be to clarify the management of those trusts and tax provisions applicable to them in order to encourage their establishment and use. Article 45 of the Charity Law states that charitable trusts must "file documents for the record" ( bei'an) with the Civil Affairs authorities in order to be eligible for tax benefits.

Besides the above legal forms, there are unregistered NPOs and informal NPOs registered as for-profit businesses. [4] Some unregistered NPOs gain legal status by attaching themselves to another legal entity, such as a social organization or a "public institution," a term that includes universities and research institutes. NPOs registered as businesses and unregistered NPOs are technically not NPOs in the legal sense, but they are voluntary, nongovernmental, not-for-profit, self-governing organizations in an operational sense. They are mission-driven, not-for-profit organizations founded by and governed by private individuals. Many are funded by foreign governments and embassies and international organizations and foundations, and are required to justify the not-for-profit nature of their activities in their reports to funders.

Together, these legal forms of NPOs and informal NPOs are the closest equivalent to non-governmental, not-for-profit organizations. A substantial portion of the legal NPOs-in particular, SAs and foundations-were either created by the government or have close ties to a particular government agency. These NPOs are often referred to as government-organized NGOs (GONGOs). In contrast, informal NPOs are generally more independent of the government.

Note on Terminology:

In addition to the term "social organization," Ministry of Civil Affairs authorities who oversee NPOs sometimes use the term minjian zuzhi (民建组织), which literally means "popular" organizations, or "citizen-initiated" organizations. There is no good English-language equivalent for this term, but it is often used synonymously with civil society organization (公民社会组织, gongminshehui zuzhi ; non-governmental organization, 非政府组织, feizhengfu zhuzhi; or not-for-profit organization, 非盈利组织, feiyingli zuzhi). This " minjian zuzhi" category covers SAs, CNIs, and foundations, but not public institutions. The agency within the Ministry of Civil Affairs charged with supervising and registering these organizations-the NPO Management Bureau (民间组织管理局, minjian zuzhi guanli ju)-also uses the same term.

The term "social organization," in its broadest and unofficial sense, is sometimes used to refer to trade unions, religious organizations, and other "mass organizations" (群众组织, qunzhong zuzhi) or "people's organizations" (人民团体, renmin tuanti), which have been created by the Communist Party of China as links to specific social constituencies. Examples include the All China Federation of Trade Unions, Communist Youth League, All China Women's Federation, China Science and Technology Association, All China Youth Federation, and All China Federation of Industry and Commerce. These people's organizations enjoy a special status; they are governed by separate laws and are beyond the scope of this Note, but they often present themselves to the outside world as NGOs. [5] Similarly, certain not-for-profit organizations such as the Chinese Red Cross enjoy special status and are governed by their own laws. In addition, specific rules governing various kinds of not-for-profit organizations may apply in certain provinces and cities. These rules may be, but are not always, available in Chinese on the websites of the local Civil Affairs authorities or the website of the Ministry of Civil Affairs based in Beijing. This Note focuses primarily on national legislation.

Recent Developments:

In March and April of 2016, China passed two of the most significant laws regulating the nonprofit sector in the last eighteen years. On March 16, 2016, the National People's Congress passed the Charity Law; it went into effect on September 1, 2016. The National People's Congress then passed the Overseas NGO Management Law on April 28, 2016; it went into effect on January 1, 2017. This law is formally titled the "Law on the Management of Overseas NGOs' Activities in Mainland China;" it regulates the mainland China activities of all "nonprofit, non-governmental, social organizations legally established overseas [including Hong Kong, Macau and Taiwan]" (see Section F below).

The passage of the Charity Law was followed by a series of implementing regulations clarifying various aspects of the law (see the list of Applicable Laws and Regulations below), including measures on the designation of charitable organizations, public fundraising, and the management of charitable trusts. As of April 2018, the Ministry of Civil Affairs (MCA) had designated 4,022 social organizations as charitable organizations and received filings from 82 charitable trusts.

In addition, the three regulations governing the registration and management of the three types of "social organizations"-SAs, SSOs and foundations-are currently under revision. [6] In early August 2018, the Ministry of Civil Affairs issued a draft Regulation for the Registration and Management of Social Organizations for public comment. This draft regulation replaces the three previous regulations that formed the core of the regulatory system for social organizations: the "Regulations for the Registration and Management of Social Groups" issued on October 25, 1998; the "Provisional Regulations on the Registration and Management of Civil Non-enterprise Units" issued on October 25, 1998; and the "Foundation Management Regulations" issued on March 8, 2004. If this regulation is approved, as expected, it would constitute the biggest regulatory development since the passage of the Charity Law and Overseas NGO Law in 2016.

One other important development concerns the regulation of online fundraising, which has grown quickly over the last few years. In 2017, the MCA approved 12 online fundraising platforms, the biggest of which are Tencent Charity, Ant Financial, and Taobao Charity. Together, these platforms raised a total of 2.58 billion yuan ($405 million) in donations in 2017. The MCA also issued two standards for online fundraising platforms: the "Basic Technical Specifications for Online Fundraising Platforms for Charitable Organizations" and the "Basic Management Specifications for Online Fundraising Platforms for Charitable Organizations." The two standards strengthen overall supervision and establish a rule that if platforms fail to pass a government assessment twice, their qualifications will be canceled. They are also intended to protect the rights of donors through oversight from society and information disclosure. Information on public donations is to be posted prominently on the platform's webpage, and platforms are to publicly announce information about their operations at least every six months. The standards require platforms to strengthen their service functions by ensuring non-discriminatory treatment, clearly stating their fees, and properly managing information on the donations they receive and on the donors' identities.

B. Tax Laws

Income Tax: In theory, donations, state subsidies, and some other forms of income are tax-exempt. According to the Public Welfare Donations Law, contributions to legal NPOs are theoretically deductible from income tax, with limits depending on the type of taxpayer, the type of beneficiary, and the use of the contribution (see Section V.B). [7] In practice, however, NPOs that are legally registered with Civil Affairs must still apply separately to the tax bureau in order to obtain tax benefits. Furthermore, there is little familiarity with income tax deductibility for donations among both tax authorities and donors, a problem that is compounded by the absence of a comprehensive and coherent tax system tailored specifically to NPOs. Contributions to informal NPOs, moreover, are not tax deductible.

On August 31, 2018, the National People's Congress Standing Committee passed an amendment to the Individual Income Tax Law, incorporating into law the cap on income that individuals may deduct based on donations to charitable causes. Article 6 of the amendment addresses charitable donations as follows: "the amount of money for donations that does not exceed 30% of the taxable income declared by taxpayers can be deducted from their taxable income, on condition that the income is donated to charitable causes such as education, poverty alleviation, and relief. The provision stipulated by the State Council that a full pre-tax deduction can be made for charitable donations shall prevail." The 30% figure is stated in implementing regulations of the tax law, but the amendment incorporates it into the law itself. The amendment also introduces a full pre-tax deduction for charitable donations with the approval of the State Council.

Another significant development with regard to tax incentives for charitable contributions came on May 10, 2016, when the Ministry of Finance and the State Administration of Taxation issued a Notice on Questions Concerning Corporate Tax on Equities Donations to Public Benefit Organizations, clarifying that stock donations for charitable purposes are eligible for tax deductions. The notice affects donations made since January 1, 2016, and applies to equities of other corporations and shares of publicly held companies held by corporations (see Section V.D).

Indirect Taxes: In theory, NPOs that engage in nursing, medical, educational, cultural, or religious activities or activities in which services are performed by the disabled are exempt from the Business Tax on the sale of services. In practice, they often need to register separately for tax benefits. Moreover, informal NPOs that are registered as businesses are required to pay the Business Tax.

The PRC also subjects most goods and services to VAT and imposes customs duties on imports. Certain goods are exempt from VAT and customs duties, including goods donated by international organizations as well as goods donated by persons outside China to specified national-level social organizations.

II. Applicable Laws and Regulations

Constitution of the People's Republic of China (1982, as revised)

Provisional Measures on Management of Foreign Chambers of Commerce in China (July 1, 1989)

Law of the Red Cross Society of the People's Republic of China (adopted by the Standing Committee of the National People's Congress, October 31, 1993)

Regulations on the Registration and Administration of Social Associations (issued by the State Council, October 25, 1998)

Interim Regulations on the Registration and Administration of Civil Non-enterprise Institutions (issued by the State Council, October 25, 1998)

Interim Regulations on the Registration and Administration of Public Institutions (issued by the State Council, October 25, 1998)

Public Welfare Donations Law (adopted by the Standing Committee of the National People's Congress, June 28, 1999)

Provisional Measures on Banning Illegal NGOs (issued by the Ministry of Civil Affairs, April 10, 2000)

Trust Law of People's Republic of China (adopted by the Standing Committee of the National People's Congress, April 28, 2001)

Non-State Education Promotion Law of the People's Republic of China (adopted by the Standing Committee of the National People's Congress, December 28, 2002)

Regulations on the Management of Foundations (issued by the State Council, March 8, 2004)

Provisions on the Administration of Names of Foundations (issued by the Ministry of Civil Affairs, June 23, 2004)

Accounting System for Civil Not-for-Profit Organizations (issued by the Ministry of Finance, August 18, 2004)

Measures of Annual Inspection of Private Non-Enterprise Entities (issued by the Ministry of Civil Affairs, April 7, 2005)

Measures for the Information Disclosure of Foundations (issued by the Ministry of Civil Affairs, January 12, 2006)

Measures for the Annual Inspection of Foundations (issued by the Ministry of Civil Affairs, January 12, 2006)

Law of the People's Republic of China on Individual Income Tax (1980, as amended); and Detailed Rules for the Implementation of the Individual Income Tax Law of the People's Republic of China (revised in 2005)

Provisional Regulations of the People's Republic of China on Enterprise Income Tax (1993), and Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Enterprise Income Tax (1994)

Notice of the Ministry of Finance and the State Administration of Taxation on the Policies and Relevant Management Issues Concerning the Pre-tax Deduction of Public Welfare Relief Donations (January 18, 2007)

Enterprise Income Tax Law of the People's Republic of China (promulgated by the National People's Congress March 16, 2007, effective January 1, 2008)

Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China (issued by the State Council, 2007)

Measures for the Administration of Donations for Disaster Relief (issued by the Ministry of Civil Affairs, April 28, 2008)

Select Opinions of the General Office of the State Council on Accelerating and Promoting the Reform and Development of Trade Associations and Chambers of Commerce (September 24, 2007)

Notice of the General Office of the Ministry of Health on the Provisions on the Administration of the Representative Agencies of Overseas Foundations whose Businesses are under the Charge of the Ministry of Health (March 27, 2008)

Notice of the State Administration of Foreign Exchange on Issues Concerning the Administration of Foreign Exchange Donated to or by Domestic Institutions (No. 63 [2009]) [English] [Chinese] [8]

Charity Law (March 16, 2016)

Management of Overseas NGOs' Activities in Mainland China Law (2016)

Provisional Regulations on Admonishment Meetings for Social Organizations by Registration Management Organs and Administrative Law Enforcement (March 16, 2016)

Provisional Notice on Registration Management Organs' Acceptance of Complaints and Reports about Social Organizations (August 15, 2016)

Measures for the Designation of Charitable Organizations (September 1, 2016)

Measures on the Administration of Public Fundraising by Charitable Organizations (September 1, 2016)

Notice on Social Organizations Initiating Party Construction Work During Registration (September 18, 2016)

Regulations on the Annual Expenditures and Management Expenses of Charitable Organizations Carrying Out Charitable Activities

Measures for the Management of Charitable Trusts (July 2017) Regulation on Social Organisation Credit Information Management (社会组织信用信息管理办法) (January 24, 2018)

Measure for Charitable Organizations' Information Disclosure (慈善组织信息公开办法) (August 6, 2018)

III. Relevant Legal Forms

A. General Legal Forms

Three main legal forms of NPOs in China are relevant to foreign grantmakers: the social association (SA) ( shehui tuanti); the social service organization (SSO) ( shehui fuwu jigou); the foundation ( jijinhui); and the quasi-governmental public institution ( shiye danwei). The 2016 Charity Law also provides for two other arrangements: the charitable trust ( cishan xintuo) and the charitable organization ( cishan jigou).

Social Associations (SAs): SAs constitute the earliest form of legal NPOs in the PRC and are essentially membership associations of various kinds. Many industry and professional associations fall into this category. They are formed to advance "the common desires of their members," and may be formed for mutual benefit or public benefit (Regulations on the Registration and Administration of Social Associations).

SAs are subject to joint oversight by (1) their registration and administration agency (generally the Ministry of Civil Affairs in Beijing or a provincial, municipal, or local civil affairs bureau or office); and (2) a professional agency responsible for the organization (generally a government ministry or other state agency at the national, provincial, municipal, or local level with jurisdiction over the SA's sphere of activity). As with all NPOs, the Civil Affairs bureaucracy carries out a "multi-level management system" (分级管理, fenji guanli) in which SAs with nationwide activities or impact are regulated at the national level, while SAs with regional or local activities or impact are regulated at the provincial, city, or county level.

The requirements for registering as an SA, particularly a national-level SA, are set quite high and it is difficult to obtain SA status without some amount of government support. As a result, many SAs have some sort of government background and are perceived as GONGOs, rather than independent NPOs.

Social Service Organizations (SSOs): SSOs are "non-profit legal persons established by natural persons, legal persons, or other organizations mainly using non-state-owned assets to provide social services" (Draft Regulations on the Registration and Administration of Social Service Organizations).

Private schools, private not-for-profit research institutes, and private not-for-profit hospitals are often registered as SSOs. SSOs, like SAs and foundations, are subject to the joint oversight of a registration and administration agency (generally Ministry of Civil Affairs or provincial or local civil affairs authority) and a professional agency such as a government ministry or agency at the provincial or local level.

It is generally easier to register as an SSO than an SA, and more independent NPOs have been able to register as SSOs, especially at the local level. In recent years, more informal NPOs registered as businesses have been able to register as SSOs.

Foundations: A foundation is a not-for-profit organization that promotes public benefit undertakings through grants and donations. Its assets are donated by individuals, legal persons, or other organizations (Regulations on the Administration of Foundations (RAF) Article 2).

Foundations, like SAs and SSOs, are regulated by both a registration and administration agency, usually the Ministry of Civil Affairs in Beijing or a provincial, municipal, or local Civil Affairs bureau or office, and by a professional agency such as the relevant government ministry or agency at the national, provincial, municipal, or local level. In laws and regulations issued prior to the 2004 Foundation Regulations (such as the Public Welfare Donations Law), the term "social organization" included foundations. [9]

The 2004 Regulations on the Administration of Foundations distinguish between foundations that are authorized to engage in public fundraising (hereafter "public foundations") (公墓基金会, gongmu jijinhui) and those that cannot, e.g. non-public fundraising (hereafter "private foundations") (非公墓基金会, feigongmu jijinhui). [10] Private foundations are generally funded by a major gift from a corporation or family. Over the last 14 years, with the rapid increase of wealthy entrepreneurs and the emergence of tax laws encouraging individual and corporate giving, private foundations have grown very quickly and now far outnumber their public foundation counterparts.

Before the 2016 Charity Law, public fundraising status was highly coveted and enjoyed only by public foundations, many of which were GONGOs such as the China Youth Development Foundation, the Soong Ching Ling Foundation, and the China Foundation for Poverty Alleviation. Only a few independent foundations were able to get public fundraising status. The Charity Law has essentially erased this distinction between public and private foundations by allowing all organizations that have held charitable organization status for two years to apply for public fundraising status (Charity Law Article 22).

Charitable Organizations: The Charity Law, which went into effect on September 1, 2016, created a new legal status: the charitable organization (慈善组织, cishan zuzhi). Charitable organization status is open to "lawfully established nonprofit organizations" whose main purpose is "carrying out charitable activities" and who do not have a "profit making purpose" (Charity Law Article 8-9). The three categories of social organizations can obtain charitable organization status in one of two ways. One is to apply for the status when registering as a social organization. Alternatively, if the entity has already registered as a social organization, then it can apply for charitable status recognition following procedures in the Measures for the Designation of Charitable Organizations issued in September 2016.

As of April 2018, 4,022 organizations have been officially accredited as charitable organizations (慈善组织), compared to more than 500 one year ago. Of these 4,022 charitable organizations, the vast majority are foundations, while the rest are social associations and social service organizations.

Charitable Trusts: Chapter 5 of the Charity Law revives the charitable trust (慈善信托, cishan xintuo) as another legal entity that can carry out charitable activities. The charitable or public benefit trust was first recognized by the 2001 Trust Law; however, the Trust Law did not clearly identify the supervisory authority or offer clear tax provisions governing this type of nonprofit. As a result, very few public benefit trusts were established. It appears that the Charity Law mentions public benefit trusts in order to clarify aspects of their establishment and governance, as well as to encourage their formation. Article 45 of the Charity Law states that charitable trusts must "file a record" ( bei'an) with the Ministry of Civil Affairs in order to be eligible for tax benefits.

Since the Charity Law went into effect, a total of 82 charitable trusts have been established, attracting around 952 million yuan (around $150 million) to address issues such as poverty alleviation, education, and left-behind children.

Public Institutions: Public institutions are "social service organizations sponsored by state organs or other organizations using state-owned assets that engage in educational, science and technological, cultural, medical, and other activities for the purpose of social benefit" (Interim Regulations on the Registration and Administration of Public Institutions, Article 2). Accordingly, these organizations are commonly and more closely-linked to the state than other types of NPOs. Public schools and universities, scientific research institutes, and public social care institutions are generally public institutions. [11] On April 16, 2012, the State Council released the "Guidelines on Advancing Public Institution Reform by Categories," regarding the government's ambitious plans to convert around 80 percent of existing public institutions into social organizations over a five year period as part of a broader effort to streamline government administration.

B. Public Benefit Status

Chinese law distinguishes between NPOs that have a public benefit purpose and those that serve other purposes. The two main laws defining the scope of public benefit activities are the 1999 Public Welfare Donations Law (PWDL) and the 2016 Charity Law.

The PWDL confers public benefit status on two categories of organizations: "public welfare social organizations" and "public welfare nonprofit public institutions." In theory, NPOs with public benefit status are eligible for tax deduction or exemption (PWDL Chapter 4). However, the reality is quite different, as China lacks a comprehensive, coherent, and detailed set of tax regulations for NPOs. As a result, tax bureaus and NPOs themselves are often not familiar with the preferential tax provisions, and receiving tax deductions or exemptions requires that both the NPO and the individual or enterprise making the donation undertake additional procedures. NPOs with public benefit status are also subject to stricter government supervision (PDWL Chapters 3-5). [12]

According to Article 10 of the PWDL, "public benefit social organizations" are legally established foundations, charitable organizations, and other social organizations founded to promote public benefit undertakings. Article 3 of the PWDL provides that the following activities qualify as "public benefit undertakings": (1) Disaster relief, poverty alleviation, assistance to the handicapped, and assistance to social organizations in needy circumstances; (2) Education, scientific, cultural, public health, and athletic undertakings; (3) Environmental protection and construction of public facilities; and (4) Other public benefit undertakings promoting social development and progress. [13]

"Public benefit nonprofit institutions" are legally-established educational institutions, scientific research institutions, health institutions, cultural institutions, public sports institutions, social welfare institutions, and others that carry out public benefit undertakings and are not-for-profit.

All foundations, some SAs, and most public institutions have public benefit status. In theory, SSOs can also obtain public benefit status and accept donations under the PWDL.

Informal NPOs registered as businesses or that are unregistered, however, are not eligible for tax exemption, even though operationally they are nonprofit and have a public benefit purpose. Some of China's best-known independent public benefit NPOs fall into this category.

Articles 3-5 of the 2016 Charity Law define the scope of charitable, public benefit activity as follows:

Article 3: 'Charitable activities' in this law refers to the following public interest activities voluntarily carried out by natural persons, legal persons and other organizations through the donation of property, the provision of services or other means: (1) Helping the poor and the needy; (2) Assisting the elderly, orphans, the ill, the disabled, and providing special care; (3) Alleviating losses incurred by natural disasters, accidents, public health incidents and other emergencies;(4) Promoting the development of education, science, culture, health, sports and other causes; (5) Preventing and alleviating pollution and other public hazards, protecting and improving the eco-environment; (6) Other public interest activities in accordance with this law.

Article 4: Charitable activities shall abide by the principles of being lawful, voluntary, honest, and non-profit, and must not violate social morality, or endanger national security or harm societal public interests or the lawful rights and interests of other persons.

Article 5: The government encourages and supports natural persons, legal persons and other organizations in legally carrying out charitable activities that represent the core values of socialism and promote the traditional morals of the Chinese nation.

Charitable organizations should be existing NPOs such as SAs, SSOs, or foundations that apply for and obtain charitable status. Registration for charitable organization status requires applying to the Ministry of Civil Affairs or local department of Civil Affairs. Among other requirements, the applicant must aim to carry out charitable rather than profit-making activities and must have a name and address, an organizational charter, necessary financial assets, and an organizational structure and person in charge (Charity Law Article 9).

The Measures for the Designation of Charitable Organizations detail how social organizations that registered before the Charity Law went into effect will be able to receive charitable organization status. According to these measures, to be eligible an organization must: (1) meet the conditions for registering as a social organization; (2) have as its purpose the carrying out of charitable activities; (3) not have profit-making as its purpose and set aside all earned income for charitable purposes provided for in the organization's charter; and (4) ensure that its directors comply with the law. An organization applying for charitable status needs to show that its members or board have approved the application for charitable designation. It must submit the application with supporting materials to the relevant Civil Affairs department.

Charitable organizations may engage in fundraising, and, if they meet certain qualifications may engage in public fundraising, including online fundraising (Charity Law Article 22). Other benefits include special tax benefits, the preferential use of public land under certain conditions, and qualification to participate in government programs that purchase social services from charitable organizations (Charity Law Chapter 9).

The Measures on the Administration of Public Fundraising by Charitable Organizations provide more detail on the criteria and process for charitable organizations seeking public fundraising credentials. Under these measures, all qualified, registered social organizations that have had "charitable organization" status for at least two years will be able to apply for public fundraising credentials. The charitable organization must meet various requirements, such as setting up standard internal governance structures, maintaining full-time staff, participating in a social organization assessment, and complying with the law. Social organizations that already enjoyed public fundraising privileges prior to the passing of the Charity Law will not need to reapply through this process. The new measures also address public fundraising over the Internet, as well as collaborative public fundraising arrangements in which social organizations lacking public fundraising credentials may carry out public fundraising in collaboration with social organizations that have those credentials.

In an effort to increase transparency and trust in the charitable sector, charitable organizations must disclose detailed information about their organization and activities, fundraising, and use of donated funds, particularly if the funds are raised through public channels (Charity Law Chapter 8).

IV. Specific Questions Regarding Local Law

A. Inurement

Chinese law generally prohibits inurement for all NPOs except private schools, which are regulated by the Law to Promote Private Education.

Existing laws and regulations generally prohibit any action to "usurp, divide in secret, or misappropriate the assets" of an SA (Regulations on the Registration and Administration of Social Associations Article 29). All of an SA's income must be devoted to the activities addressed in the association's governing statute or constitution, and may not be divided among members. All donations and subsidies must be used in conformity with the association's purposes and the agreements made with donors. In addition, employees' compensation must be set with reference to the salaries set for employees of the supervising governmental agency or other unit, which means they generally mirror the salaries of civil servants.

With regard to foundations and CNIs, the relevant provisions are nearly identical to those governing SAs (Regulations on the Management of Foundations Article 27; Interim Regulations on the Registration and Administration of Civil Non-enterprise Institutions Article 21). A 2005 Ministry of Civil Affairs notice on CNIs' accountability and self-governance further requires that all CNIs comply with the Accounting System for Civil NPOs issued in August 2004, thereby securing additional protection against inurement in the case of CNIs.

The 2004 Foundation Management Regulations, for example, provides detailed provisions on "self-dealing" and conflicts of interest. Article 20 of the Regulations states: "For non-public fundraising foundations established using the assets of a private individual, no more than a third of board members may be close family relations of that individual; for other foundations, close relations may not serve simultaneously as directors," and "directors who receive financial remuneration from a foundation may not make up more than a third of its board members." Article 23 of the Regulations specifies other rules regarding conflicts of interest:

The posts of chair and deputy chair of the board of directors or secretary general should not be taken by persons currently employed by state bodies. The legal representative of the foundation may not at the same time be the legal representative of any other organisation. The legal representative of public fundraising foundations and non-public fundraising foundations whose original funds are of domestic Chinese origin should be a person whose is a legal resident of mainland China (应当由内地居民担任).

Should a board member find there is a connection between their personal interests and the interests of the foundation, they should not take part in decision making related to the matter; nor should a board member, the supervisory official or their close relations have any kind of business dealings with the foundation.

The supervisory official and board members not serving in a full time post at the foundation may not be paid.

For public institutions, all of the institution's income must be devoted to activities that advance its purposes (Interim Regulations on the Registration and Administration of Public Institutions Article 15). The public institution must use all donations and subsidies in conformity with the purposes of the organization and the agreements with donors.

The Public Welfare Donations Law sets forth similar provisions regarding inurement (Public Welfare Donations Law Articles 17, 18, and 23).

There is one exception to the general rule against inurement: The founders of a private school are permitted to receive a "reasonable return" on their investment (Law to Promote Private Education Article 51).

The legal framework contains general prohibitions governing financial transactions or "self-dealing" between NPOs and their founders, donors, directors, officers, employees, or family members.

These prohibitions can also be found in recent legislation such as the Charity Law. Article 52 of the Charity Law states, "The assets of charitable organizations shall only be used entirely for charitable purposes in accordance with their charter and the donation agreement, and must not be distributed among the founders, donors, or members of the charitable organizations. Charitable assets must not be privately divided, embezzled, withheld, or misappropriated by any organization or individual. "

Furthermore, Article 14 of the Charity Law states that the founders, major donors, and managers of charitable organizations "must not use their association to harm the interests of charitable organizations or beneficiaries or the public interest" and if they "partake in transactions with the charitable organization must not participate in the charitable organizations' decision making process regarding the transactions, and conditions related to the transactions shall be made public."

B. Proprietary Interest

The Accounting System for Civil NPOs (effective January 2005) specifically states that "resource providers do not have ownership of [NPOs]" (Accounting System for Civil NPOs Article 2(3)). Though the law and regulations do not explicitly prohibit a donor from making a conditional donation, various regulations limit how an NPO can use its property and income, which may imply that donors cannot revoke their contributions.

The Public Welfare Donations Law provides that if the recipient changes the nature and use of the donated property without the consent of the donor, and refuses to abide by a competent authority's order to cure the violation of the donor's instructions, the authorities can transfer the property to another NPO with the same or similar purposes, after consulting the donor (Article 28).

The regulations do not address whether members of a mutual benefit SA can reclaim their contributions when they cease being members.

The founders of a private school may retain a proprietary interest in the property they contribute to a school. During the existence of the school, however, they are entitled to claim only a "reasonable return," and they cannot revoke their contribution or reclaim their property (Law to Promote Private Education Article 36). It is not yet clear whether they can recover their property upon dissolution of the private school.

With regard to charitable or public interest NPOs, the 2016 Charity Law states: "The assets of charitable organizations shall only be used entirely for charitable purposes in accordance with their charter and the donation agreement, and must not be distributed among the founders, donors or members of the charitable organizations. Charitable assets must not be privately divided, embezzled, withheld or misappropriated by any organization or individual" (Article 52).

C. Dissolution

Because the State has formed virtually all public institutions and most SAs and foundations that exist today, the assets of a dissolved NPO generally are transferred to another NPO or to the State.

For SAs, Article 25 of the Regulations on the Registration and Administration of Social Associations provides that "[t]he remaining assets of a cancelled social association shall be disposed of in accordance with the relevant provisions of the State." The relevant governmental agencies have opined that the assets should not be returned to members or donors. [14] Further, the Standard Form of Statutes of Social Associations, issued by the Ministry of Civil Affairs, provides that remaining assets should be used to support undertakings similar to those of the dissolved organization, under the supervision of the relevant government authorities (Standard Form of Statutes of Social Associations, Article 25).

The Interim Regulations on the Registration and Administration of Civil Non-Enterprise Institutions are silent in this regard, but officials generally treat CNIs (SSOs) in the same manner as SAs. [15]

For foundations, Article 33 of the Regulations on the Administration of Foundations provide that "[t]he remaining assets of a cancelled foundation shall be used for public benefit purpose designated in its constitution. When it is not feasible to do so, the registration and administration agency will arrange for the assets to be donated to public benefit organizations whose nature and purpose are similar to the one in question."

As noted above, because public institutions are established with state-owned assets, the state typically acquires remaining assets upon dissolution, even in the absence of explicit provisions for their return.

Private schools may be an exception. The Law to Promote Private Education provides that the remaining assets will be disposed of according to related laws or regulations, which have not been issued yet (Article 59). It is possible that the rules will allow founders to recover the property they contributed, but only to the extent of its original value.

Regarding charitable NPOs, Article 18 of the 2016 Charity Law requires either the decision-making body of the organization to establish a team for liquidation or allows the local department of the Ministry of Civil Affairs to apply to a people's court to form a team for liquidation. Financial assets remaining after liquidation must be transferred to charitable organizations with the same or similar aims, in accordance to the organization's charter. If the charter does not specify such organizations, the local department of the Ministry of Civil Affairs will be tasked with transferring the funds to such organizations. After the liquidation process, the dissolved organization must apply for deregistration with the local department of the Ministry of Civil Affairs with which they registered, and the departments will announce the results to the public.

D. Activities

1. General

An NPO must limit its activities to those set forth in its constitution or statutes (Regulations on the Registration and Administration of Social Associations Articles 29 and 33; Interim Regulations on the Registration and Administration of Civil Non-Enterprise Institutions Articles 21 and 25; Regulations on the Administration of Foundations Articles 27 and 42).

Different types of NPOs are able to qualify as legal persons, provided that they follow the appropriate registration procedures. As such, all NPOs have the power to engage in activities of legal persons, except to the extent that the law provides otherwise.

Charitable or public welfare activity is defined in Article 3 of the 2016 Charity Law as "initiation of the following non-profit activities on a voluntary basis by natural persons, legal persons and other organizations through means such as donating assets or providing services, or voluntarily carrying out the following public interest activities: (1) Poverty alleviation and assistance; (2) Eldercare, aid for orphans, aid for the ill, assistance for the disabled, or special aid; (3) relief from damage caused by natural disasters, disasters caused by accidents, public health incidents and other emergencies; (4) promotion of the development of areas such as education, science, culture, health, and sports; (5) prevention and control of pollution and other public harms, and protection and improvement of the environment; (6) Other public interest activities compliant with the provisions of this law."

2. Economic Activities

NPOs face certain limitations on commercial activities. SAs, SSOs, foundations, and public institutions cannot themselves engage in for-profit activities, but they can invest in commercial entities unless the State Council provides otherwise. [16] According to the Charity Law, conducting commercial activities cannot be the principal purpose of a charitable organization (Charity Law Article 9). The law does not distinguish between "related" and "unrelated" commercial activities.

An NPO's commercial activities are taxed on the same basis (25 percent) as those of a commercial corporation unless the law stipulates otherwise. Exceptions to this rule are rare. Enterprises owned solely by public schools, for example, are exempted from a substantial part of the business tax and VAT. The income of scientific research institutes and higher educational institutions, if derived from the transfer of technology, is also exempted from business tax. [17]

3. Political Activities

The Charity Law and Overseas NGO Law both contain provisions that may limit NPOs' engagement in political activities. Article 15 in the Charity Law, for instance, includes the following broadly-worded prohibitions: "Charitable organizations must not undertake or assist activities that endanger national security and societal public interests or accept contributions that carry additional conditions in violation of laws, regulations and social mores, and must not attach conditions for beneficiaries that are in violation of laws, regulations and social mores."

The Overseas NGO Law specifically prohibits foreign organizations from "engaging in or funding political activity" or "other situations that endanger state security or damage the national or public interest" (Article 5).

Though no explicit rules exist, NPOs are generally forbidden from engaging in political activity surrounding an election, except for mass organizations like the All-China Federation of Trade Unions and certain organizations affiliated with the Chinese Communist Party.

Despite these prohibitions, there are no formal legal rules explicitly restricting NPO involvement in the legislative process. Social organizations commonly debate legislative proposals through the mass media, and communicate their opinions to the National People's Congress (NPC), the Chinese People's Political Consultative Conference (CPPCC) (an advisory body that meets annually at the same time as the NPC), and provincial and municipal legislatures.

E. Discrimination

The Constitution of the People's Republic of China guarantees that all "Citizens of the People's Republic of China have the duty as well as the right to receive education" (Constitution Article 46). Article 4 of the Constitution also guarantees, in formal terms, the equality of all national and ethnic groups in China, and prohibits any form of discrimination against minorities (Constitution Article 4). [18]

F. Control of Organization

A Chinese NPO may be controlled by a for-profit entity. For-profit organizations commonly form or join social organizations, such as chambers of commerce, trade associations, or industry associations. In formal terms, members control a social organization through the members' assembly, though in practice, the members' authority may not be substantial.

Many SSOs and private foundations have been established by for-profit organizations. Founders of an SSO or a foundation are permitted to control it throughout its existence. Although it is not explicitly provided in the regulations, control may be established by the statute of an SSO or a foundation. In practice, a public institution is wholly controlled by its founding organization, which is ordinarily a government agency.

In theory, a Chinese NPO could be controlled by a foreign charitable organization, which must be disclosed in the affidavit accompanying its establishment. According to the Regulations for the Administration of Foundations (2004), foreign individuals and organizations may establish representative offices in China, and foreigners are eligible for the positions of president and officers of foundations as long as they reside in China no fewer than three months a year. [19] Generally the only form of social organization that foreigners can legally join is a foreign chamber of commerce, such as the American Chamber of Commerce-People's Republic of China (AmCham China) and the British Chamber of Commerce in China. [20] The Overseas NGO Law, however, does not have provisions allowing foreign NGOs to establish a Chinese NPO.

G. Annual Inspection and Information Disclosure

The Measures for the Annual Inspection of Foundations issued by the Ministry of Civil Affairs in 2005 require that foundations and representative offices of overseas foundations provide their annual work report for the previous year to the relevant registration and administration organ for review. An annual work report must include: financial statements, auditing reports, and information on donations, acceptance of donations, and offers of funding, as well as any changes in staffing or institution.

The Regulations on the Registration and Management of Social Associations and Interim Regulations on the Registration and Administration of Civil Non-Enterprise Institutions spell out similar requirements for SAs and CNIs.

The Measures for the Information Disclosure of Foundations issued by the Ministry of Civil Affairs in 2006 require foundations or representative offices of overseas foundations to disclose internal information and business undertakings to the general public. The following information must be made generally available: (1) the annual work report of a foundation or representative office of an overseas foundation; (2) information on donation activities by the foundation; and (3) information on the welfare funding projects undertaken by the foundation.

Article 13 of the Charity Law requires that "charitable organizations shall submit an annual work report and a financial accounting report to the civil affairs department with which they were registered. Reports should include information on annual fundraising and donation acceptance, the use and management of charitable assets, the implementation of charitable projects and also charitable organizations' staff wages and benefits."

To increase transparency and trust in the charitable sector, Chapter 8 of the Charity Law has stricter, more detailed requirements for charitable organizations to disclose information regarding their organization, activities, fundraising, and use of donated funds, particularly funds raised through public channels. These requirements will increase the reporting burdens on charitable organizations.

In line with the renewed emphasis on transparency and information disclosure, the drafts of the revised regulations for SAs, SSOs, and foundations also contain more detailed requirements for disclosing information.

V. Tax Laws

A. Income Tax Exemption

China has three categories of income tax: Enterprise Income Tax, Foreign Invested Enterprise and Foreign Enterprise Income Tax, and Individual Income Tax.

Under the Public Welfare Donations Law, the "state encourages the development of public benefit undertakings, and grants support and preferential treatment to public benefit social organizations and public benefit nonprofit institutions." The Public Welfare Donations Law establishes benefits relating to Enterprise Income Tax (Article 24), Individual Income Tax (Article 25), and Import Duties and VAT (Article 26), but the specifics of the exemptions are set forth in other laws and regulations.

In January 2008, the revised Enterprise Income Tax of the People's Republic of China came into effect. Under Article 26 of the new amendments, legal not-for-profit organizations are exempt from income tax provided that they meet relevant provisions. Specifically, the income of "qualified not-for-profit organizations" is exempt from Enterprise Income Tax. The procedures for obtaining tax-exempt status require that the NPO get approval from the finance and tax departments under the State Council, in addition to other relevant ministries and agencies of the State Council.

According to the Regulations on the Implementation of the Enterprise Income Tax Law of the People's Republic of China, the term "qualified not-for-profit organizations" refers to an organization that meets the following conditions:

1. It has completed registration for not-for-profit organizations according to law;

2. It engages in public interest activities or not-for-profit activities;

3. Income obtained is used entirely for the public interest or not-for-profit undertakings as registered, approved, or stipulated in the charter, with the exception of reasonable expenses related to the organization;

4. Properties and the benefits thereof are not to be distributed;

5. Pursuant to the registration, approval, or stipulations of its charter, the surplus properties of the organization after write-off shall be used for public interest or not-for-profit purposes or shall be donated via the administrative agency responsible for registration (usually the Ministry of Civil Affairs or local civil affairs bureau) to another organization of the same nature and with the same tenets, and shall be publicized to the general public;

6. No sponsor shall reserve or enjoy any property rights to the properties the sponsor gave to the organization in question; and

7. Expenses for the salaries and fringe benefits of staff members are controlled within prescribed limits, and none of the organization's properties shall be distributed in any disguised manner.

The term "qualified income of the not-for-profit organization" does not include income of the not-for-profit organization arising from profit-making activities unless it is set forth by the relevant department of finance or taxation of the State Council.

An NPO's donations, financial support from the government, membership dues, and some other income are all exempt from Enterprise Income Tax. [21] However, because tax offices are often unfamiliar with the tax regulations related to NPOs, income exemptions for Chinese NPOs appear to be more the exception than the rule. Additionally, informal NPOs are ineligible for such tax exemptions.

B. Deductibility of Charitable Contributions

Recent changes in tax legislation have increased the portion of taxable income that individuals and enterprises can deduct for public benefit donations to qualified NPOs. Individual taxpayers can now deduct up to 30 percent of their taxable income for public benefit contributions to legal NPOs (Regulations for the Implementation of the Individual Income Tax Law, Article 24, and the 2018 amendment to the Individual Income Tax Law). Enterprises can deduct up to 12 percent of their taxable income (Enterprise Income Tax Law Article 53). The State Council may also approve a full pre-tax deduction for charitable donations (2018 amendment to the Individual Income Tax Law).

According to the Regulations on the Implementation of the Enterprise Income Tax Law of the People's Republic of China, the term "public interest donations" as used in Article 51 of the Enterprise Income Tax Law refers to donations made by an enterprise to "public interest social organizations" or the people's government at the county level or above, and its departments, for public interest undertakings as prescribed in the Public Welfare Donations Law.

The term "public interest social organizations" includes any foundation or charitable organization that meets the following conditions:

1. It is lawfully registered and has the status of a legal person;

2. It serves the purpose of promoting public interest and does not adopt profit-making as its purpose;

3. All of its assets and profits belong to the legal person;

4. Its proceeds and operational surplus are used primarily for the cause for which the legal person was established;

5. The surplus property after the termination of the enterprise is not distributed to any individual or profit-making organization;

6. The organization refrains from engaging in any business that does not relate to its purpose of establishment;

7. It has a sound financial and accounting system;

8. The donor does not participate in the distribution of the property of the social body in any way; and

9. Other conditions as prescribed by the departments of Finance and Taxation of the State Council in collaboration with the Civil Affairs departments of the State Council in charge of managing the registration of social organizations.

The more favorable regulations regarding tax deductibility of public benefit donations have had mixed results. Enterprises have taken advantage of these incentives to establish private foundations. The increase in the percentage of enterprise income eligible for tax deductibility from 3 percent to 12 percent in 2008 was one main factor behind the rapid growth of private foundations. Individuals, however, have not been as quick to take advantage of the tax laws due to poor implementation of the laws regarding deductibility on individual income taxes and a cultural perception that individuals should not benefit financially from public benefit donations. As a result, the large majority (about 60 percent) of donations to public benefit causes in China come from corporations. [22] The fact that individual giving makes up a small part of total giving in China is in part a reflection of the lack of clear, simple, and well-publicized tax exemption regulations and procedures for individual donors.

While in theory there are significant tax incentives in the various income tax laws, the process of applying for a tax benefit is unclear and inconsistent. Only a small number of NPOs have applied and been approved to provide receipts to donors for tax exemption purposes. Moreover, tax offices and individual donors often are not aware of the tax exemption laws or are unsure about how to apply them. In addition, these tax incentives can only be enjoyed by legally registered NPOs, not informal NPOs. Informal NPOs, such as those registered as businesses, do not enjoy these incentives and must pay an additional business tax on their income.

Chapter 9 of the Charity Law lists various general tax exemptions for charitable organizations and activities, as well as individuals and organizations that make donations to charitable organizations and activities. The specific details will come out in implementing regulations issued by the tax and finance departments.

C. Indirect Taxes: Business Tax, Value Added Tax, and Import Duties

China subjects certain sales of goods and services to Business Tax (which relates to provision of services) and VAT (which relates to sales of goods), and offers few exemptions.

The general Business Tax law exempts NPOs and other entities that engage in nursing, medical, educational, cultural, or religious activities, or activities in which services are performed by the disabled (Interim Regulations on the Business Tax, Article 6).

Goods sold within China or goods imported from abroad are subject to VAT. The Interim Regulations on the Value Added Tax exempts from VAT goods for scientific research, experimentation, and education; antique books; and goods imported by organizations of the disabled to be used specifically for the disabled. Imported goods donated by foreign governments and international organizations are also exempt from the VAT (Interim Regulations on the Value Added Tax Article 16).

Goods donated by foreign governments and international organizations are also exempt from customs duties (Customs Law Article 56), though an application may need to be submitted in order for organizations to enjoy that exemption.

Certain other donations are also exempt from customs duties and VAT (Public Welfare Donations Law Article 26). In 2001, the Ministry of Finance, the State Administration of Taxation, and the Customs General Administration jointly issued the Interim Methods of Customs Duties Exemption of Donated Goods for the Purposes of Poverty Relief or Charity. This exemption applies to goods donated by people outside China that are accepted by the government or by "Social Organizations established with the permission of competent departments of the State Council, whose purposes are humanitarian, poverty relief or charity" (Public Welfare Donations Law, Article 5). The Customs General Administration enacted implementing rules, under which the exemption applies only to several national-level social organizations. Most NPOs are excluded. [23]

According to other rules made by the Customs General Administration, goods are exempted from Customs Duties and VAT if (1) they are imported by scientific research institutes or schools, (2) they are directly for scientific research or education, and (3) they cannot be produced in China.

Certain customs duties or taxes may also be exempted by special rules adopted after significant disasters, such as the 2008 earthquake in Sichuan Province.

On January 18, 2007, the Ministry of Finance and the State Administration of Taxation issued a Notice on the Policies and Relevant Management Issues concerning the Pre-Tax Deduction of Public Welfare Relief Donations. This notice exempts relief donations given to NPOs from their pre-tax income. Eligible donations include those for the purpose of education, civil affairs, other public welfare undertakings, or those for districts suffering from natural disasters or poverty.

On April 1, 2016, the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation jointly issued an announcement stating that there would be no import tariff or value-added taxes (VAT) levied on materials from foreign donors used directly for charity.

D. Other Taxes

NPOs also qualify for exemptions from other taxes, including Real Estate Tax, Urban Land Use Tax, and Tax on Acquisition of Real Estate.

On May 10, 2016, the Ministry of Finance and the State Administration of Taxation issued a Notice on Questions Concerning Corporate Tax on Equities Donations to Public Benefit Organizations which clarifies that stock donations for charitable purposes are eligible for tax deductions. The notice affects donations made since January 1, 2016, and applies to equities of other corporations and shares of publicly held companies held by corporations. For the purposes of this notice, "public benefit organizations" are nonprofit social organizations such as foundations and charitable organizations that are dedicated to the public benefit, are registered domestically, do not have profit-making as their purpose, and have been confirmed as eligible for tax-deductible donations. This notice is intended to prevent situations in which large donations of stock give rise to heavy tax burdens. [24]

E. Double Tax Treaties

China and the United States have entered into a double-taxation treaty, but it does not specifically address the deductibility of contributions by U.S. residents and businesses to NPOs.

F. Foreign Organizations and Grants

Incremental efforts to regulate foreign organizations and funding reached a watershed in April 2016 with the passage of the Management of Overseas NGO Activities in Mainland China Law (hereafter "Overseas NGO Law") by the National People's Congress. This law represents the first, comprehensive effort to regulate overseas NGO (ONGO) activity in China. [25]

The Overseas NGO Law provides two options for "not-for-profit, nongovernmental social organizations lawfully established outside of mainland China" to legally carry out activities in China: They must either (1) register a representative office; or, (2) file documentation (备案, bei'an) to carry out so-called "temporary activities" (临时活动, linshi huodong) in case they want to only carry out activities without setting up an office (Overseas NGO Law Article 9). The law states that "ONGOs that do neither of these [i.e. neither register an representative office, nor file a record for "temporary activities"] are not allowed to carry out activities either openly or covertly, or to authorize, fund, or covertly authorize any Chinese work unit [单位, danwei] or individual to carry out activities" (Overseas NGO Law Article 32). This statement essentially provides that all Chinese work units and individuals will be putting themselves at risk if they cooperate with a ONGO that has not undergone one of the two legal channels for working in China.

For ONGOs wishing to set up a representative office, the Overseas NGO Law retains the main defect of the 2004 Foundation Management Regulations that prevented so many ONGOs with an office in China from registering: the dual-management system. Under this system, an ONGO must find a relevant government agency to serve as a professional supervisory unit (PSU) before registering with the Ministry of Public Security (Overseas NGO Law Article 11). The Ministry and provincial public security bureaus (PSBs) have published a directory of eligible professional supervising units. [26]

The law requires representative offices of ONGOs to go through burdensome approval, inspection, and reporting procedures. By December 30 of each year, the representative offices of ONGOs will have to send activity plans for the following year to their professional supervising agencies, which approve the plans and within ten days file a record with the registration authorities (Overseas NGO Law Article 19). Under special conditions, changes in activity plans may be reported to the Ministry of Public Security in a timely manner. A representative office must also undergo an annual inspection (年度检查, niandu jiancha), which entails submitting to the professional supervisory unit a work report that includes a financial report, audit report by a certified accountant, and reports on fundraising activities, donations received, grants made, and staffing and organizational changes (Overseas NGO Law Article 31). After approval, the report is then submitted to the relevant department in the Ministry of Civil Affairs. The representative office must also report to the registration authorities about the staff that it hires (Overseas NGO Law Article 27). [27]

Representative offices of ONGOs must "engage in public benefit activities that are appropriate for the nature of public benefit enterprises in China." Representative offices of ONGOs do not have the status of legal persons and therefore, in accordance with the law, assume civil legal liability for the actions of their representative offices in China. They may not engage in fundraising but they can accept donations from within China.

The other option proposed by the Overseas NGO Law for ONGOs working in China-that of filing documentation for "temporary activities"- may be less onerous. The ONGO will only need to file materials with the PSB showing that it has an agreement with a Chinese partner, which can be a government agency; mass organization (群众组织, qunzhong zuzhi); public institution (事业单位, shiye danwei), such as a public university; or a social organization (社会组织, shehui zuzhi) [28], such as an SA (that is, a membership association) (社会团体, shehui tuanti), CNI (or social-service provider) (社会服务组织, shehui fuwu zuzhi), or foundation (基金会, jijinhui) (Overseas NGO Law Article 16). The Chinese partner is different from a professional supervisory unit, which should be a government agency and acts in a supervisory role vis-à-vis the ONGO. The Chinese partner does not act in a formal supervisory role and may be a quasi-governmental institution, such as a public university or research institute, or a social organization.

ONGOs that go through this second process to operate in China must fulfill certain conditions and procedures. The Chinese partner must go through an unspecified approval procedure at least fifteen days before the planned activity and file a record with the registration authority in the locality where the activity will take place. The ONGO must also file certain information with the public security authorities, including "certification of its legal establishment; its agreement with the Chinese partner; the name, goal, location, and time period for the temporary activity; certification of project expenses and funding sources; the Chinese partner's bank account; and approval documents from the Chinese partner for the activity" (Overseas NGO Law Article 17). The temporary activity may not exceed one year. If the time period for the activity is longer than that, the ONGO will need to re-file documentation. ONGOs carrying out temporary activities must use the bank accounts of their Chinese partners to manage funds and must create a special account for their activities (Overseas NGO Law Article 22).

The Overseas NGO Law went into effect on January 1, 2017. After a slow start, the Ministry of Public Security and its provincial bureaus have been more rigorously implementing the Overseas NGO Law. As of November 2018, overseas NGOs had registered 427 representative offices in China, and filed 1,179 temporary activities. More information about the implementation of the law can be found on ChinaFile's China NGO Project, and China Development Brief, both of which are regularly monitoring the law's implementation.

VI. Knowledgeable Contacts

Shawn Shieh: Independent Consultant and Research Fellow, Chinese University of Hong Kongo, shawnshieh@gmail.com.

Professor Mark Sidel, University of Wisconsin Law School: sidel@wisc.edu.

Footnotes

[1] After more than 2,000 years with its own unique legal tradition, China began to embrace the civil law tradition of the western world early in the 20th century. During the Republic of China period (1912-1949), systematic legislation placed China firmly in the civil law family. Since the establishment of the People's Republic of China in 1949, the legal tradition in China has remained mainly civil law, though with significant characteristics of socialism. Thus there is no Civil Code in China at present, but only General Principles of Civil Law.

[2] The standard translation for "Social Associations" has, in the past, been "Social Organizations," which is confusing because "Social Organizations" is also the term used for the broader concept of shehui zuzhi, which includes SAs, CNIs, and foundations. This Note therefore uses "Social Associations," instead, because they most closely resemble what are known as membership associations.

[3] The Charity Law and the coming revision of the Registration and Management Regulations for CNIs now refers to them as SSOs.

[4] A number of scholars estimate that informal NPOs outnumber legal NPOs. As of 2012, there were approximately 450,000 legally-registered NPOs, but estimates of the number of informal NPOs run from 1 million to 3 million, depending on which types of organizations are counted. For discussions of these estimates, see Andrew Watson, "Civil Society in a Transitional State: The Rise of Associations in China," in Jonathan Unger, ed., Associations and the Chinese State (Armonk, NY: M.E. Sharpe, 2008), and Guosheng Deng, "The Hidden Rules Governing China's Unregistered NGOs: Management and Consequences," The China Review, 10:1 (Spring, 2010).

[5] In 2007, "Some Opinions of the General Office of the State Council about Accelerating and Promoting the Reform and Development of Trade Associations and Chambers of Commerce" encouraged the separation of trade unions from the government.

[6] The three regulations being revised are the Regulations on the Registration and Administration of Social Associations (1998); Interim Regulations on the Registration and Administration of Civil Non-Enterprise Institutions (1998); and Regulations on the Management of Foundations (2004). Drafts of those regulations were issued for public comment in the second half of 2016; however, the drafting process has been held up and as of May 2018 it was unclear when the final versions will be issued.

[7] For further information on tax laws applicable to NPOs in China, see Leon Irish, Jin Dongsheng, and Karla Simon, China's Tax Rules For Not-For-Profit Organizations (hereafter Tax Report). The paper also contains a lengthy discussion of the general legal rules applicable to all types of NPOs in China.

[8] The Regulations on the Administration of Foundations (2004) were adopted to replace the 1988 Regulations on Foundations (issued by the State Council on September 27, 1988). Under the 1988 Regulations, foundations were a special category of social organization. Consequently, the term "social organization" in other laws and regulations has usually been used to include foundations. But the 2004 Regulations no longer describe foundations as a special category of social organization. Foundations may be in somewhat of a legal limbo, in theory if not in practice, because they are not discussed in the General Principles of Civil Law.

[9] English translations of some of these laws and regulations can be found on China Development Brief's website.

[10] The revised draft Regulations for Management of Foundations and the Charity Law do away with the distinction between public and private foundations. Under the new law and regulations, all foundations, as well as other charitable organizations, that meet certain criteria will be able to apply for public fundraising status.

[11] One may question whether a public institution qualifies as an NPO at all, given that the government provides a public institution's original assets and exerts greater control over it than over an ordinary NPO. Even so, a public institution is subject to certain taxes on the same basis as social associations and civil non-enterprise institutions, and the Public Welfare Donations Law treats donations to institutions the same as donations to public benefit social organizations. Whatever category public institutions may belong in, they are regularly the recipients of foreign grants, and so they are included in this Note.

[12] Leon Irish, Jin Dongping, and Karla Simon list some of the problems with China's tax system for NPOs in Section 5 of their 2004 World Bank study, "China's Tax Rules for Not-for-Profit Organizations." These problems are still relevant today.

[13] Article 50 of the Trust Law also lists the extent of "public benefit purposes" in terms of public benefit trusts (or charitable trusts). It is nearly the same as Article 3 of the Public Welfare Donations Law.

[14] The Department of Politics and Law of the Office of Law of the State Council & the Bureau of Administration of Non-governmental Organizations of the Ministry of Civil Affairs (ed.), "Interpretation of the Regulations on the Registration and Administration of Social Organizations and the Interim Regulations on the Registration and Administration of Private Non-enterprise Units," Beijing: China Social Press, 1999, pp.58-59.

[16] Article 6 and 7 of the Opinions on Several Issues Concerning Registration and Administration of Enterprises (June 29, 1999).

[17] See Tax Report, supra note 7.

[18] In practice, however, there is evidence of widespread discrimination in employment and education against members of particular ethnic groups, as well as other groups such as those with disabilities and certain diseases. Some Chinese NPOs, such as Yirenping, were founded specifically to combat discrimination against these groups.

The Constitution also provides in formal terms for other rights and freedoms, including the freedom of speech, the press, assembly, association, procession, and demonstration; the right to petition the state; the right to receive compensation for violations of civil rights; the right and duty to work and to rest; the right to assistance from the state for the elderly, ill, or disabled; rights to pursue scientific, literary, and artistic creation; equal rights for women; the right to defense for accused persons; and the right for minority nationalities to use their national languages.

In recent years, Chinese public interest lawyers have sought to enforce and detail some of these rights and freedoms through legal action. In most of those cases, the courts have declined to hear such petitions or have rejected them, and a number of public interest lawyers have been arrested, detained, or discouraged from undertaking rights-based cases.

[19] One rare example of a legally-registered NPO that was founded by a foreigner and managed to register as the representative office of a foreign foundation is Half the Sky, which works on orphan care and has very close ties with the Ministry of Civil Affairs.

[20] Chambers of commerce are the only type of foreign NPO regulated by stand-alone regulations, namely the Provisional Measures on Management of Foreign Chambers of Commerce in China issued in 1989. As mentioned earlier, foreign foundations are allowed to gain legal status under a section of the 2004 Regulations on Administration of Foundations, but these Regulations primarily address the legal registration and administration of Chinese foundations.

[21] Although in theory all of an NPO's income is subject to Enterprise Income Tax, a 1997 Ministry of Finance and State Administration of Taxation circular provides a broad exemption for qualified NPOs (Circular Concerning Related Issues of Collection of Enterprise Income Tax to Public Institutions and Social Organizations). To implement this circular, the State Administration of Taxation adopted the Methods of Administration on the Collection of Enterprise Income Tax to Public Institutions, SAs, and CNIs. These two documents provide for the described exemptions.

[22] Anke Schrader and Mingxia Zhang, "Corporate Philanthropy in China," The Conference Board Report, 2012.

[23] Methods for the Implementation of the Interim Methods of Customs Duties Exemption of Donated Goods for the Purposes of Poverty Relief or Charity.

[24] "New Policy on Equity Donations to Public Welfare Organizations Released," China Development Brief, May 18, 2016. http://chinadevelopmentbrief.cn/news/new-policy-on-equity-donations-to-public-welfare-organizations-released/.

[25] The official English-language translation can be found at on the Ministry of Public Security's website here. For more detailed analysis of this law, see Shawn Shieh's ChinaFile article, "The Origins of China's New Law on Foreign NGOs", Kristin Shi-Kupfer and Bertram Lang's article in The Diplomat, "Overseas NGOs in China: Left in Legal Limbo", and Professor Jia Xijin's "China's Implementation of the Overseas NGO Law," the English-language translation of which can be found on China Development Brief's website. More analysis and information and FAQs about the Overseas NGO Law can also be found on the blog, NGOs in China.

[26] The directory is now available on the Ministry of Public Security's website in Chinese: http://www.mps.gov.cn/n2254314/n2254409/n4904353/c5579013/content.html?from=timeline&isappinstalled=0.

[27] The Measures for the Information Disclosure of Foundations issued by the Ministry of Civil Affairs in 2006 require that domestic foundations or representative offices of foreign foundations publicly disclose information about their internal operations and business undertakings. This information must include the annual work report, descriptions of fundraising activities by the foundation, and descriptions of public benefit funding projects (that is, projects of a public benefit nature, including grants to other organizations) undertaken by the foundation. It is doubtful that this measure will continue to be in effect for foreign NPOs with the passage of the Overseas NGO Law.

[28] There is no further description of what constitutes a "social organization," but presumably, it should be a legally registered social organization (there are also many social organizations that are registered as businesses or unregistered). For-profit businesses are left out of this list of potential partners.

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Current as of November 2018 | Download print version (in PDF) This section describes the legal framework of nonprofit organizations (also known as non-governmental organizations or NGOs) in China, along with translations of legislative provisions relevant for a foundation or advisor undertaking an equivalency determination of a foreign grantee under IRS Revenue Procedure 92-94.

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Special Report: The Role and challenges of international NGOs in China’s development.

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Special Report: The Role and challenges of international NGOs in China’s development.

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Shieh, Shaun and Knutson, Signe. 2012. Special Report The Role and challenges of international NGOs in China’s development

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The Contested Role of Foreign and Domestic Foundations in the PRC:Policies, Positions, Paradigms, Power

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The Contested Role of Foreign and Domestic Foundations in the PRC:Policies, Positions, Paradigms, Power

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Ms. Ding Li (丁立) is Vice President of Non-Profit Incubator (NPI) - one of the leading organizations that provide support for NGOs, social innovation and entrepreneurship in China. She also sits on the advisory board of the Global Social Entrepreneur Network (GSEN) and the Asia Venture Philanthropy Network (AVPN). Ms. Ding has worked in China's nonprofit sector for over 13 years, before which she worked for multinational companies. This interview was carried out by CDB's Gabriel Corsetti on the sidelines of AVPN's 2019 annual conference in Singapore.
Could you give our readers an overview of what NPI does?

We were established in January 2006. We have been the first organization of this kind in China ever since Mr. Lu Zhao (吕朝), our founder, conceived the idea of setting up an incubator for NGOs. The roots of our establishment lie in a pilot program launched in August 2005 by the central government to deepen social reform, which basically provided a way to loosen up the registration of NGOs in many major cities. Thanks to this, in those cities NGOs had the right to register directly under the Civil Affairs Bureau, without needing to go through the "dual management system" in which they first had to find an official body to be their supervisor.

So Mr. Lu Zhao foresaw that there would be a lot of people wanting to set up their own NGOs, but they would not have much experience and they would be in need of capacity-building and of a place to work together, and that was how the idea of NPI came up. In the beginning the idea got the support of two charitable foundations, the Narada Foundation and the Ford Foundation. So we started our incubating program in April 2007, and then it soon spread to other cities, and in 2010 we were invited by the Ministry of Civil Affairs to replicate the NPI model all over China. Soon after that there were more than 300 city-level and provincial-level incubators for NGOs. At its peak the NPI was directly managing 13-14 incubators, and we also provided technical support for another 30 incubators. So that is how we started.

Soon afterwards we also entered the field of community development. As a premise, starting from the early 1990s the Chinese government established many community centers. They had different names, like neighbourhood centres, citizen centres or community service centres, but they were all set up and directly managed by the government. As you will know, however, the government has difficulty in providing direct services to the people, so they were in need of finding capable organizations to run the community platforms.

In the beginning of 2007 we sent two policy papers to the Pudong New District, promoting the idea of entrusting NGOs to run all those services. Luckily they adopted this idea, and at the end of the year we won the bid to run one of the largest community centers in China, the Sanlin World Expo Community Centre, which is about 8,000 square meters. We are currently still running this center in Shanghai. And that was just the beginning; currently we are managing over 60,000 square meters of community platforms in a variety of cities. The community centers we manage cover more than 1,500 different communities in total. It's not that every community has a community center, rather 5 to 10 communities will normally share one.

So this has been a very major program for NPI since 2007. We also have capacity-building programs, not only for our incubatees but also for other NGOs. We have developed many online capacity-building programs, and in 2016 we started to not only incubate NGOs, but also incubate and accelerate social enterprises. In the same year we also launched the NPI Social Venture Fund that provides funding support to early-stage social entrepreneurs, but as equity investment, not as donations.

Starting from 2007 we had a platform to leverage funding from government agencies and corporations to support the development of NGOs, and in 2009 we also established the Shanghai United Foundation, which is the first grassroots public charity foundation to have ever survived in China. There was in fact a previous one established in Ningbo in 2007, but after a few years they just closed down. The Shanghai United Foundation however is still up and running. It mostly leverages money from individuals, for instance through Shanghai's annual Egg Walkathon which it initiated. At the very beginning it was about raising money to buy eggs to alleviate the malnutrition of rural kids, but then starting in 2011 it evolved into an annual charity walk of 50 kms that raises funds from the participants. The funds go to NGOs that have programs helping the kids of migrant workers and rural kids, by offering them education and not just eggs!

Apart from this, we also have a media platform. With the support of the Ford Foundation we ran a magazine called Social Entrepreneur for almost 8 years, which later evolved into an online platform. So these are all examples of our programs; we are an intermediary agency that supports the development of the social sector in China, and that is what we are trying to do. From this April we have also renovated our mission statement and strategic focus, and in the future we will really focus on community development.

It seems that NPI has already done a lot of work on community development in the past.

Yes, but in our first 12-13 years the real focus has been on incubating NGOs of all kinds. After the 2016 Charity Law came out however, there was an internal government document that in a sense reintroduced the dual management system in most places. This means that at least in the major cities like Beijing and Shanghai registering a new NGO will become more difficult. The government has also stopped providing as much support for incubator programs, because many government agencies believe that there already are enough NGOs. This is why we are putting more emphasis on community development.

In 2016 we found that there was very low growth rate for new NGOs, and the Overseas NGO Law also shifted things to some extent. We realized that the market for our services was no longer large enough, so since 2016 the incubator program in Shanghai shifted towards social enterprises, and last August we decided that the NPI Social Venture Fund would also shift towards community services.

So overall what would you say was the effect of the Charity Law of 2016 on your work?

I think that you need to look not only at the Charity Law, but also at the policy documents that came out in its wake. They show that the government feels it is time to clean up the NGO sector a little bit, especially in the major cities where they have already put a lot of effort in trying to incubate more NGOs over the last decade. Now they think that perhaps it is time to have a pause and rethink the whole policy.

Furthermore, the government has been putting more and more effort into community development and autonomous community management systems. Since around 3-4 years ago every sub-district government will normally have a budget of more that 200,000 RMB for volunteer groups to run their own charitable projects within the community, but what happens in reality is that very few such volunteer groups exist, and those funds are often just sitting there with no one applying for them. One of the main things we have been doing in the communities is to try and cultivate more community-based organizations and volunteer groups. In the past 12 years we have incubated more than 1,500 community-based organizations, mostly informal organizations that do not necessarily have to register under the Civil Affairs Bureau.

Could you tell us a bit about your own story? What motivated you to enter this field?

It's quite an interesting story. Even when I was 10-11 years old I really had a passion for nature conservancy and sustainable development, because I pretty much grew up in a library and I had access to all these interesting books. This was in the beginning of the 1980s, shortly after the Cultural Revolution, and there were no NGOs, you could only read about such things in books. I graduated from college in 1993 in Shanghai and still there were no NGOs or social enterprises. The closest thing was actually the multinational companies, so I joined a multinational in 1994. The first time I heard the term "NGO" was actually when I was working for Danone, which I joined in 1996. The Danone group owns a brand called Evian, and in Danone's annual report I saw a story about Evian working with local environmental NGOs to preserve the watershed. This was the first time I ever knew that NGOs existed.

Around 2004 I started to feel that the current model of economic growth, based on producing more and more, is unsustainable for the Earth, so my long-term interest in sustainable development was kindled. I then found the opportunity to join Conservation International's China program, which was working precisely on sustainable development and trying to tackle climate change. CI's work is not all done on their own, they believe in partnerships, and my job at that organization was actually corporate partnership. Basically it was talking with multinational companies like Walmart, trying not only to get funding for conservation programs but also encouraging them to make pledges. For example, Walmart has very ambitious environmental goals for 2020, they want to green their supply chain, recycle 100% of their waste and also use only renewable energy. I do not know whether they have achieved this yet, but at that time our job was to help Walmart to put these plans into place, and also try to convince their staff to embrace them. So this was my job, and I found it quite exciting.

At some point it became obvious to me that international NGOs can only do so much in China. China is such a vast country, and particularly with environmental issues it is not only about advocating with the government or convincing a few companies, you need a bottom-up approach. I realized that unless you have thousands or even millions of environmental NGOs, volunteer groups and people really willing to go the extra mile to change their own behavior, change just will not happen. Organizations like Conservation International can certainly change a lot of policies or behaviors in Madagascar or Costa Rica, but think of the size of those countries compared to China! Then in 2007 I met Mr. Lu Zhao, the founder of NPI. He said that NPI was trying to incubate capable, grassroots NGOs, which I thought was awesome. That is the reason I joined NPI.

Could you speak a bit about Mr. Lu Zhao's background?

Mr. Lu Zhao graduated from Peking University in 1992, after which he joined the Xinhua news agency for two years as a journalist. Then he left and became a civil entrepreneur, setting up his own companies, but at some point he felt that this was not enough either. He really wanted to do something to make the world a better place, so in 2004 he became chief editor of the Charity Times. He was basically working as a volunteer however, and then starting from 2005 he also became a volunteer for the NPO Information Network of Shang Yusheng. The NPO Information Network was the first capacity-building intermediary agency that ever existed in China for the social sector. At that time Mr. Lu Zhao was the deputy director of that organization. At the end of 2005 he met Madame Ma Yili, who was head of the Civil Affairs Bureau in Pudong New District. Madame Ma invited Shan Yusheng and Lu Zhao to Shanghai and they registered the NPI. That is how NPI started.

You have been working in this field for a long time. How do you see the future of China's NGO sector?

I think that the development of the social sector is crucial to create a more harmonious society. Recently, for a variety of reasons, there have been some setbacks. The policies are one factor, but the other factor is that, especially in these last two years, many of the sector's opinion leaders have been talking about how NGOs should learn from business, improve their efficiency and think about scaling up. It makes me feel that the core values of the social sector are being diminished. Many people are now thinking that turning their organizations into social enterprises would be a better way to develop sustainably, but based on my experience running the NPI Social Venture Fund, I can tell you that it is actually not. Frankly speaking, I think that if you really want to have a successful social enterprise you need a very good ecosystem, a very strong business model and you need to find a big enough market where you can survive. You can't just think: "I have some difficulties in fundraising, and maybe running a business would be easier". It is in fact definitely not.

If you look at the Chinese business environment right now, there is already much cutthroat competition. How can you just expect, without any business experience, to earn a lot of money? When deciding whether to set up another entity or try to transform itself into a social enterprise, the only question that an NGO should consider is whether doing business is really a better way to fulfill its mission.

I think that in the long run this sector will definitely have a bright future, but first we really should start from rethinking our positioning and our core value for the whole society, and refocus on the issues we are going to tackle. Also we should build more partnerships between NGOs, be proactive in communicating with the general public and stakeholders, and have more meaningful conversations and dialogue between funders, donors and NGOs. As a sector, we really need to realize this challenge. We need to emphasize that if an organization really wants to have a bright future, it should stay true to its mission. We need more mission-driven organizations, including not only NGOs but also social enterprises. Sometimes NGOs struggle to find the funds to sustain their services and apply for all kinds of funding just in order to survive, but at that point you have to ask yourself why you are doing this.

One positive development is that some NGOs have been very successful in using social media to build a good network of supporters, volunteers and donors who really believe in the mission and also really enjoy working with the NGO, which is very important. However this is easier said than done. Even within NPI we have to work to build a more resilient and robust community. In my view this is a very important key for a successful NGO.

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An Interview with Ding Li, Non-Profit Incubator - China Development Brief

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Ms. Ding Li (丁立) is Vice President of Non-Profit Incubator (NPI) - one of the leading organizations that provide support for NGOs, social innovation and entrepreneurship in China. She also sits on the advisory board of the Global Social Entrepreneur Network (GSEN) and the Asia Venture Philanthropy Network (AVPN).

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Funding China’s Civil Society – Tax Incentives, Donation Law, and the Role of Foreign Charities

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Funding China’s Civil Society – Tax Incentives, Donation Law, and the Role of Foreign Charities

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By Samuel Wrest

2016 saw China pass two new laws that will play a major role in shaping its civil society sector. The Charity Law, already in effect, and the Overseas Non-Government Organization (NGO) Law, set for implementation in January, are closely intertwined, but while the former has been largely praised for incentivizing and making simpler charitable donations and funding, the latter has been widely condemned for restricting which charities can accept these donations and successfully operate in the Middle Kingdom.

China is a country that has traditionally struggled with funding its civil society. In 2012, charitable donations totaled US$13.2 billion - four percent of those made in the US. 2961 philanthropic foundations were registered during the same year - three percent of the US - and only 1.5 percent of those foundations actually funded grassroots NGOs. On the Charities Aid Foundation's World Giving Index for 2015, China ranked 144th out of 145 countries, with only Yemen ranking below it.

The Charity Law is seen as an attempt to address this imbalance. The law contains various tax incentives for both charitable donations and charitable organizations themselves, potentially increasing the amount of funding that they receive. When considered alongside the Overseas NGO Law, however, the Charity Law's potential impact is tempered. The NGO Law prohibits foreign charities from accepting donations in China, and looks set to further scale back their operations, significantly shrinking the pool of charitable organizations that the Charity Law could actually benefit.

Defining NGOs and charities in China
The Charity Law
Foreign and domestic charities are defined differently in China, with the new Charity and Overseas NGO Laws detailing what activities they must each respectively undertake and, more importantly, what they are unable to do.

The Charity Law has a specific list of activities that qualify as being charitable, carried out by either providing services or donating property. They include:

Aiding the poor and the needy;

Assisting the elderly, orphans, the ill, and the disabled;

Alleviating damages from natural disasters, accidents, public health incidents, and other emergencies;

Promoting the development of education, science, culture, health, sports, and other causes;

Preventing and controlling pollution and other public hazards, protecting and improving the ecological environment.

The law emphasizes that any organization carrying out charitable activities must abide by principles of being "lawful, voluntary, in good faith, and non-profit", and cannot "violate social morality, or endanger national security or harm public interest or the lawful rights and interests of others." A definition of the latter terms, however, is not provided.
RELATED: Hiring Disabled Workers in China: Incentives and Challenges The Overseas NGO Law
Article 2 of the Overseas NGO Law refers to foreign NGOs as "not-for-profit, non-governmental social organizations lawfully established outside mainland China, such as foundations, social groups, and think tank institutions." Article 10 further clarifies that foreign organizations must have existed for two years prior to entering China.

Article 5 of the NGO Law is perhaps its most arbitrary, broadly stating that foreign NGOs must not "endanger China's national unity, security, or ethnic unity; and must not harm China's national interests, societal public interest and the lawful rights and interests of citizens, legal persons and other organizations." The vagueness of the language used, combined with the law shifting who NGOs are reviewed by from the Ministry of Civil Affairs to the Public Security Bureau - widely seen as an attempt to further crack down on activism - is likely to have the biggest impact on their operations in China.

Tax incentives available to charities
Incentives for companies making donations
Businesses - including foreign businesses - that provide charitable donations to domestic charities are eligible for special tax treatment, with corporate income tax (CIT) waived on donations accounting for up to 12 percent of their profits. This can be rolled out over a three-year period. If a company donates US$4 million and their profits are US$10 million, for example, they wouldn't be able to deduct the entire US$4 million for a single year's CIT, but would be able to do so incrementally over three years.

Additionally, overseas companies making donations are entitled to either a reduction or full exemption of China's import duties and import VAT.
Incentives for charities and NGOs
Both the Charity Law and the Overseas NGO Law state that charitable organizations are eligible for tax incentives, but don't specify what exactly these incentives are. This may be because the laws are new and still due for revision of specific policies, or, perhaps more likely, that they're intentionally vague to allow for individual assessments rather than a blanket tax reduction.
Qualifying for the incentives
In order for a charity to qualify for these incentives, they must appoint a trustee, have them sign a "charitable trust document" (慈善信托文件), and file it with their local department of the Ministry of Civil Affairs. Failure to do so results in both the charity and companies making donations to that charity being ineligible for tax benefits. For donating companies, it is therefore advisable to check that the charity has gone through these procedures prior to making a donation.
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Methods for funding foreign charities and future outlook

With foreign charities and NGOs prohibited from both receiving donations in China and conducting for-profit activities, the means of funding them is essentially limited to overseas payments. These payments can gain interest in Chinese bank accounts, but any other funding method runs the risk of seeing the charity closed.

The implementation of the Charity and Overseas NGO Laws will therefore see a clear line drawn between funding available to foreign and domestic charities. Because of its restrictions, the new source of funding that the donation tax incentive creates will be limited to domestic companies, weakening overseas charities' competitiveness and ability to operate in the Chinese market. The same can be said for domestic charities that collaborate with or receive funding from their foreign counterparts, with such charities often closely monitored for doing so.

The two new laws present a mixed bag for the future of China's civil society sector. The Charity Law is almost certain to provide a well needed boost to domestic charities in the country, but, as indicated in its description of charitable activities, only to those engaged in certain areas, such as social service provision - a sector where civil society is well placed to fill the gap left by the state's gradual withdrawal of funding. Engagement in other areas, such as political rights, labor rights and religion, would likely be seen as harming the "national security" and "public interest" specified in the Charity Law. Conversely, foreign charities - which are generally more willing to engage in some of the latter areas - will have even less space to work in the Middle Kingdom. In short, the implementation of the Charity and Overseas NGO Laws is further evidence that the Chinese government is crafting its own civil society. Foreign charities do not feature heavily in its plans.

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Funding China's Civil Society - Tax Incentives, Donation Law, and the Role of Foreign Charities - China Briefing News

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By Samuel Wrest 2016 saw China pass two new laws that will play a major role in shaping its civil society sector.

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NGOs in China: What’s the state of non-state actors today?

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NGOs in China: What’s the state of non-state actors today?

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On 6 December 2016, the John L. Thornton China Center at the Brookings Institution hosted a discussion exploring the trajectory of China’s civil society development and Taiwan’s comparative experience.

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NGOs in China: What’s the state of non-state actors today?

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'Why No One Trusts Government Charities in China Anymore'

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'Why No One Trusts Government Charities in China Anymore'

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Really interesting article which talks about why there is a lack of trust in GONGOs and NGO's among the Chinese general public.Also discusses issues such as the 'wage robbery law' and lack of responsibility or commitment to charity on the governments end.

Ruth.

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"What is the concept [behind] the Charity Law? A certain amount from everyone's paycheck will have to be donated, just like a tax... and one single Charity Law can solve all problems facing charity in China."

This controversial idea to treat charitable giving as a tax came from a recent interview of Zhou Sen, the Honorary Vice President of the China Charity Federation and a representative of the National People's Congress, China's law-making body. Soon after, this remark stirred a national debate on Sina Weibo, China's Twitter, attracting over 300,000 comments in just a few days. Web users shared their anger and frustration towards an idea they denounced as "shameless" and "legalized robbery," with one Web user vividly opining that Zhou Sen's "head has been kicked by a donkey." Some even christened the proposal with a new name: "Wage Robbery Law."

MORE FROM TLN

This controversy is in fact a reflection of public distrust toward government-backed charity organizations in China, which have been trapped in a series of PR crises starting in 2011. In April 2011, a picture showing an invoice for a meal costing 9,859 RMB (about US$1,586) and paid for by the Red Cross of Shanghai Luwan District was posted on Weibo. This turned out to be the start of a collapse of public trust towards Chinese government-backed charities. Two months later, a 20-year-old girl named Guo Meimei, claiming to be an employee of an arm of the Chinese Red Cross, posted pictures that, asTLN reported, "showed Guo driving a Maserati, posing against a wall of Hermes bags, and otherwise living a life far beyond the means of any honest charity worker." Though later the Chinese Red Cross Association claimed "no connection" with Guo, this event again attracted national focus, the overwhelmingly negative sentiment accumulated heavily hit the reputation of Chinese gov-backed charities especially the Red Cross.

In December 2012, a widely reported scandal again attracted national attention -- cash in donation boxes in Chengdu for disaster relief were left uncollected for four years, causing the money inside the boxes to grow mold. Further investigations and apologies followed and a social monitoring board was even established to oversee charity reform. But the problem has not gone away. The Executive vice president of the Red Cross Society of China, Zhao Baige, admitted in an interview early this month that "public trust cannot be recovered in a short-run."

Given the deplorable recent history of certain Chinese charities, it's small wonder that web commenters are cool toward the idea of forced donation. Historian Lei Yi (@ 雷颐) hit the nail on the head when he posted on Weibo: "Is this [enforced donation] called charity? Government-back organizations lack transparency, [so] donors are fewer and fewer, [so] you compel them? ...the right path is gaining public trust." User @ Braveheart-121 brought the analysis further: "The Guo Meimei incident is just a lighting fuse for the charity crisis. The [government's] reluctant to give up control of the charity is in a sense a denial of the charity's transparency."

In fact, in China, the de facto boundary between the government and charity organizations is hard to define. The opposition the public shows to charitable organizations might be most accurately seen as a transfer of the distrust citizens feel towards their government. While Web users are dissatisfied with charities and their less-than-independent bureaucracies, the charitable organizations themselves also face an identity dilemma due to the current regulations. They can either fail to register with the government, and be illegal organizations, or they can register and implicitly submit to some degree of governmental control.

According to Jia Xijin, the Deputy director of the NGO Research Center of Tsinghua University, in order to register an NGO in China, the organization itself must find a "Unit in Charge" (业务主管单位), which includes related government organizations or organizations with government authorizations. From the government's perspective, oversight of an additional (non-profit generating) entity is simply a pain. In addition, governmental suspicions towards social organizations in general are deep-rooted. The very term "social organization" is more or less a sensitive label associated with threats to the Party's leadership. Thus, most registered social organizations are the ones initiated by the government itself, which are impossibly named "G-NGOs" (Governmental Non-Governmental Organizations) rather than civil NGOs.

The "Wage Robbery Law" has recently faded as a touchy subject in Chinese social media. Most importantly, it appears that Zhou Sen spoke out of turn. On March 6, the Ministry of Civil Affairs of the People's Republic of China published an article entitled "China Charity Federation Does not Agree with the 'Donation Law'" to absolve itself : "Zhou's title is just honorary, as a reward for his contribution to Chinese charity. His words as a representative are his own... Zhou does not participate the specific operations of the Federation either." According to the Five-year Guideline for the Development of China's Charitable Organizations published in 2011, "Donors will be able to decide for themselves the size of their donations and how they want to have their donations used," and the Ministry agrees: "China Charity Federation...is against any form of enforcement or donation quotas."

More broadly, mistrust of NGOs -- and for that matter, G-NGOs -- persists, and the fate of civil social organizations in China remains an unsolved question. It may ultimately be entrepreneurs and rule-breakers from outside the system who revive charity as a force in Chinese society. As @ 瑞克周 wrote: "The status quo of NGO is that the semi-civil servant system monopolizes a lot of resources, but the future surely belongs to the real idealist doers, [and] transparent, efficient, and low-cost civil groups."

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Why No One Trusts Government Charities in China Anymore

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"What is the concept [behind] the Charity Law? A certain amount from everyone's paycheck will have to be donated, just like a tax... and one single Charity Law can solve all problems facing charity in China."

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Registration site for international NGOs working in China

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Registration site for international NGOs working in China

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Please note that this site is only available in Chinese. On 1 January 2017, the controversial Law on the Management of Foreign NGOs’ Activities within Mainland China came into force and this website (managed by the Ministry of Public Security) went live later that month. For those of you who are Chinese speakers it offers specific information about the registration process.

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境外非政府组织办事服务平台

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By I-Ting Shelly Lin

On February 7, 2018, the Chinese Ministry of Finance (MOF) and the State Administration of Taxation (SAT) released a notice clarifying key concerns about the tax exempt status of non-profit organizations (NPOs) ( Cai Shui [2018] No.13).

The notice amends the tax exempt qualification standards set out in Cai Shui [2014] No.13, and provides guidance for application procedures. This new notice does not relate to foreign NGOs unless they set up a domestic NPO.
RELATED: China's New NGO Law and Its Impact on FDI into the Higher Education Industry
According to this announcement, an NPO must meet the following eight requirements to be eligible for tax exempt status:

1. The NPO must be legally established or registered as a public institution, a social organization, a foundation, a social service organization, a place for religious activities, a religious institution, or other non-profit organization recognized by the MOF or SAT;

2. The NPO must be involved in public welfare or non-profit activities;

3. Other than the payment of reasonable organization-related expenses, all income must be used for the public welfare or not-for-profit purposes and approved by the registration authority or the NPO's Articles of Association;

4. Assets and fruits are not to be distributed, except for expenditure of reasonable wages and salaries;

5. Upon de-registration, with approval from the registration authority or the NPO's articles of association, the remaining assets must be used for public service or not-for-profit purposes, or donated to other similar organizations by the registration authority;

6. Aside from government and administrative units, individuals, legal entities, and other organizations that have contributed property to the NPO will not be allowed to retain or enjoy any right to those properties;

7. Expenditures for wages and employee benefits must comply with the prescribed ratio, with no further distribution of organization property. Specifically, average wages should not exceed two times of the average salary of similar organizations in the same industry in the city (or above the level of the city) in which the organization is registered; and

8. Costs, expenses, and losses related to taxable and non-taxable incomes must be accounted for separately.

To apply for tax-exempt status, an NPO shall prepare and file all relevant required documents, including:

The application form;

The Articles of Association or management system;

A certified copy of registration;

Documents that state the sources and uses of funds for the preceding year and the details of public welfare and non-profit activities;

The Salary Report for the preceding year;

Proven financial statements and audit reports from a qualified intermediary;

Materials issued by the registration authority stating that the NPO's development or non-profit activities for the preceding year complies with related regulations and national policies; and

Other requested files.

According to the 2018 notice, an NPO's tax exempt status is valid for five years.

An NPO should submit an application for re-examination within six months, compared to the previously stated three months, after the expiration of its tax exempt status. If an NPO fails to submit its application for re-examination or fails the re-examination, it will automatically lose its tax exempt status.
RELATED: Setting Up a Foreign NGO as an RO in China
Major changes introduced in Cai Shui [2018] No.13 include:

Allowing social service organizations and religious institutions to apply for and be granted tax exemption;

Abolishing the requirement of qualifying annual inspections when applying for tax exemption and replacing them into "materials issued by the registration authority stating that the NPO's development or non-profit activities for the preceding year accord with relevant regulations and national policies";

Replacing "average wages shall not exceed two times of 'the preceding year's average salary where the NPO is registered" with "average wages shall not exceed two times of the average salary in 'similar organizations in the same industry in the city (or above the level of the city) in which the organization is registered" (item 7);

Requiring newly established NPOs applying for tax exempt status to submit additional verification documents: A special report on wages and salaries for the preceding year, including the remuneration system, average employee wages, proportion of wages and benefits to total expenditure, and information about wages and salaries of important personnel (including at least the top 10 highest paid personnel);

Extending the re-examination term from three months to six months;

Adding a regulation that states: During daily management processes, if an NPO enjoying tax exemption is found to not meet the tax exempt requirements of this notice, the government unit which has granted the NPO tax exempt status should review its qualifications. For NPOs that fail the qualification review, their tax exempt status will not be cancelled, but they will not be allowed to enjoy preferential policies in the corresponding year.

Canceling an NPO's tax exempt status and prohibiting it from filing a re-examination application for at least one year, if it is found to have violated related laws and policies, was discredited by the civil affairs department, engaged in illegal political activities, or received a Class C or D rating in taxation credit;

Barring organizations that engage in illegal political activities from tax exempt status in the future; and

Adding regulations that state: When an NPO's tax exempt status is cancelled, it should pay taxes according to the law. Once the NPO fails to pay taxes according to the law, taxation authorities should collect tax payments starting from the year since the NPO lost its tax exempt status.

Audit and Financial Review Services from Dezan Shira & Associates

Hannah Feng, Senior Manager of Corporate Accounting Services at Dezan Shira & Associates commented, "The conditions for NPOs' tax exemption have become more flexible. Measures are also keeping pace with the times." Feng noted, "Narrowing down average wage comparisons to the same industry of the NPO is more suitable for the actual development of the industry, making it more conducive to attract talents."

According to Feng, NPOs with higher average wages in the industry will have a higher possibility to qualify for tax exemption. She said, "The average wage level of NPOs in some industries is low. Tax exemption will encourage these organizations to strengthen industry synergy and to progress together. The incentive effects of this new notice will continue in the future."

Regarding conditions that may lead to cancellation of tax-exempt status, the government has also loosened restrictions. Compared with previous measures that canceled an NPO's tax exemption when it is found to have failed the annual inspection or have received minor penalties, the current notice indicates that only those who have seriously violated the law and have been recorded as seriously dishonest will be canceled tax- exempt status. This means that as long as an NPO who has previously received light punishment has corrected its behaviors, the NPO can still enjoy tax exemption.

Feng concluded, "The changes are closely linked to the reform of social organization's registration management system, and are closely linked to credit management of the tax sector, making the document highly enforceable and forward-looking."
China Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Asia, including ASEAN, India, Indonesia, Russia, the Silk Road, and Vietnam. For editorial matters please contact us here, and for a complimentary subscription to our products, please click here. Dezan Shira & Associates is a full service practice in China, providing business intelligence, due diligence, legal, tax, accounting, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact us at china@dezshira.com or visit us at www.dezshira.com

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Non-profit Organizations in China: How to Apply for Tax Exempt Status - China Briefing News

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By I-Ting Shelly Lin On February 7, 2018, the Chinese Ministry of Finance (MOF) and the State Administration of Taxation (SAT) released a notice clarifying key concerns about the tax exempt status of non-profit organizations (NPOs) ( Cai Shui [2018] No.13).

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A new PriceWaterhouse Coopers study projects that China will overtake the United States to become the world's largest economy by 2030, but Steven Wang expects more: "If China wants to be a truly great power, it needs to be a more compassionate society," says the former Rhodes scholar. At just 28, Wang has witnessed radical change in a country where his father was put up for adoption as the third child of a destitute family and his aunt worked in a coal mine as a teenager to support her parents. Change has brought unimaginable wealth for some, but Wang has also seen compressed growth precipitate a cascade of social and environmental problems, which beckoned him back to China.

Two years ago, Wang founded Yiqiao, a one-year paid service fellowship for Chinese students and professionals around the world that pairs fellows with a nongovernmental organization in China. While Yiqiao is younger than Teach for China, an independent nonprofit founded in 2010 and modeled after Teach for America, and Serve for China, founded in 2014 with a focus on empowering rural farmers, its scope is more expansive. Yiqiao places fellows in NGOs tackling an array of causes, from migrant workers' rights and HIV/AIDS to legal support for Tibetans.

Backed by the Bill & Melinda Gates Foundation, Yiqiao selected its inaugural class in 2016. The 10 fellows - former consultants at Bain and the United Nations among them - were matched with organizations including Serve for China, Lean In China and Friends of Nature. Ten might seem a paltry number in a nation of more than a billion people, but Yiqiao has expanded its cohort to 25 this year, with plans to double up to two fellowships per year.

Just as China had an economic boom in the 1980s, the social boom is now.

Steven Wang, founder, Yiqiao

China's citizen sector pales in comparison with the number and reach of American nonprofits and NGOs, which employ about 10 percent of the country's workforce, and many Chinese NGOs remain under state control as GONGOs (government-organized nongovernmental organizations). "Benevolence" and "justice" are two pillars of Confucian ethics, but emperors and Communist chairmen dating back to the Qin Dynasty have mistrusted entities operating outside the centralized, omnipresent state.

In the 1980s, Deng Xiaoping's economic reforms and embrace of free enterprise allowed some foreign NGOs, such as Doctors Without Borders, or Medecins sans frontieres (MSF), to enter China. However, after Xi Jinping assumed leadership of the Communist Party in 2012, the government's crackdown on NGOs intensified and MSF left China two years later. On Jan. 1, 2017, Xi further tightened his grip on China's citizen sector by granting police oversight over some 7,000 foreign NGOs.

"Although the Chinese Communist Party has 70 million members ... it sees an environmental organization of 10 volunteers as a potential challenge to a one-party state," says Andreas Fulda, who researches Chinese civil society at the University of Nottingham. "It could undermine the legacy of international giving." Tsinghua University, Xi's alma mater (and considered China's Harvard), was founded in 1911 with American dollars raised so that Chinese students could study in the U.S. through the Boxer Indemnity Scholarship Program.

Wang is sensitive to the political climate but unswayed in his objectives. Prior to launching Yiqiao, he managed fellows, both Chinese and American, at Teach for China, an experience that taught him a thing or two about dealing with Chinese bureaucracy. Sipping sorghum wine with village educators in the southwestern province of Yunnan, Wang learned to manage the delicate guanxi (relationship) with the education ministry and the local Communist Youth League. "Although party members were slightly suspicious of outsiders, I learned they're just normal people," he says. Later, Wang worked as a leadership adviser at Peking University, where he was hired to develop the fledging Yenching Academy, a postgraduate scholarship modeled after the Rhodes scholarship - and, in effect, a practice run for managing Yiqiao.

Asked to describe the traits he seeks when choosing Yiqiao fellows - Wang interviews every applicant - he says, "We look for qualities of a junzi," referring to the Confucian archetype of a leader with moral cultivation. He also likes to compare Yiqiao to Whampoa Military Academy, which was founded by the revolutionary Sun Yat-sen and trained most of the Communist Party's early commanders. "Leaders are not educated by pampering them with fancy things. You have to send them to NGOs, where it's not all smooth," Wang says.

Sophie Shen, a Tsinghua alumna and Yiqiao inaugural fellow, deferred a master's program at Northwestern University to do child advocacy work with Zhicheng Public Interest Lawyers in Beijing. Most of her university classmates headed straight for the private sector or graduate school, but Shen felt those options were "limited and [lacked] imagination." She recalls first meeting Wang: "Steven looked like a village bureaucrat with his white shirt and suit pants," but after the group's two-week orientation, "he put on a hat and sunglasses and rapped for us."

Wang spent his undergraduate years in Toronto, Paris and Jerusalem, an experience that left him convinced that "being a global citizen without understanding [one's] roots is disingenuous." So he returned to Shanxi, his paternal birthplace, where his grandfather took him to the grave of Wang's great-great-grandfather. For three years, Wang has deferred admission to Harvard Law School so that Yiqiao - Chinese for "bridge of public good" - can continue to put down roots. "Just as China had an economic boom in the 1980s, the social boom is now," he says.

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Can This Millennial Put China's Nonprofits on the Map?

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A new PriceWaterhouse Coopers study projects that China will overtake the United States to become the world's largest economy by 2030, but Steven Wang expects more: "If China wants to be a truly great power, it needs to be a more compassionate society," says the former Rhodes scholar.

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Hundreds of foreign not-for-profit groups in China who suspended activities after a law placing them under close state supervision went into effect last year are now returning to work as normal. But others who worked on human rights advocacy have been less successful.

About 350 groups have registered offices in mainland China since the country's international non-governmental organisation (NGO) management law became effective in January 2017. "It was not easy, but we are very happy," said Cyril Poulopoulos, China director of French charity Handicap International.

Groups registered included dozens of trade organisations, large charities such as Oxfam, the World Wide Fund for Nature and Save the Children, as well as funding groups such as the Bill and Melinda Gates and Ford foundations.

But four organisations that, before the law, worked for years in China with projects including training criminal lawyers and advocating for greater protection of women's and LGBT rights told the Financial Times that they were unable to register. They asked not to be named because of the sensitivity of the matter.

Temporary permits for activities had also been denied, staff at the organisations said, which made work in mainland China impossible. "We are in a holding pattern," said a representative for one of the groups.

The legislation, which would in effect expel such organisations, was in line with a crackdown on human rights lawyers and feminist and labour rights activists overseen by China's President Xi Jinping in recent years, which had seen hundreds of such activists detained and scores jailed.

There was "a group of rights and advocacy organisations . . . for whom registration will be difficult or impossible", said Mark Sidel, a professor at the University of Wisconsin-Madison, an expert on NGOs in China.

By giving Beijing the ability to block groups' activities without explicitly banning them, the law's registration requirement "allows plausible deniability about which groups will have to leave", said Jessica Batke, a researcher at the Asia Society, a non-profit research group.

Beijing argues the law is necessary to regulate organisations that for years have operated in a legal grey area, with many registering as businesses. Ahead of the law's passing, state media said some groups sought to foment revolution in the country. China's ministry of public security did not respond to a request for comment.

All organisations that have registered under the law are required to submit regular "work plans" describing the future activities to Chinese police for approval. "There is definitely pressure to work on programmes in line with government priorities," said a worker at US group that had registered.

The overseas NGO law was the third in a set of laws introduced under Mr Xi that granted the country's security apparatus sweeping legal powers over civil society. Separate counter-terrorism and national security legislation institutionalised police powers over communications technology and the internet.

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China law puts foreign NGOs under tighter control

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Hundreds of foreign not-for-profit groups in China who suspended activities after a law placing them under close state supervision went into effect last year are now returning to work as normal. But others who worked on human rights advocacy have been less successful.

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Some of the most famous names in the nonprofit world may be forced to quit China this year.

A new law targeted at foreign NGOs, effective as of Jan. 1, requires such groups to submit themselves to greater government control if they want to continue working in China. They must find government sponsors, register with the police, and submit annual reports on their financing, among other requirements. Any violations could result in punishment ranging from asset confiscation to deportation.

The crackdown on foreign NGOs is one of the many fronts in Chinese president Xi Jinping's ongoing war against "foreign forces," which Beijing claims are destabilizing the country and undermining China's national interests. At best, foreign NGOs will try to navigate the red tape, adapt, and survive. At worst, groups working in such causes as criminal justice and HIV prevention may simply have to abandon China altogether, whether voluntarily or forcibly.

The new foreign NGO law is being implemented at a time "when there is arguably a rise in xenophobic attitudes on the part of the government, and increasing paranoia about the role of civil society that is not directly controlled by the Communist Party," said William Nee, a China researcher with Amnesty International.

Released in its approved form in April, the "Law on Management of Domestic Activities of Overseas Non-governmental Organizations" is part of a string of legislation focusing on state security and enacted in recent years. Nonprofits working in sensitive fields such as human rights and the rule of law are the most likely targets, NGO workers and researchers say.

The new law also prohibits unregistered foreign groups from funding their local counterparts. That could effectively cut off the lifeline for many Chinese NGOs that can't get support from domestic sources.

Confusion reigns

Chinese officials estimate that over 7,000 foreign NGOs-ranging from charities to foundations to chambers of commerce-operate in the country. Previously there was no uniform law to regulate them all. While some well-known organizations like the Bill & Melinda Gates Foundation are registered with the Ministry of Civil Affairs under old regulations, the majority are registered as businesses, or without registration at all.

The new law seeks to put an end to this gray area by requiring all foreign groups to have a government sponsor and register with their local public security bureaus. But its implementation has been disorganized and chaotic. Though the law was made known two years ago when a preliminary draft was issued publicly, the exact regulations were not published until late November 2016, leaving many NGOs scrambling to comply with the rules by Jan. 1. For example, a guideline for registration (link in Chinese) that includes all the paperwork needed was not released until Nov. 28, and the list of sponsors (link in Chinese) was not released by the public-security ministry until Dec. 20.

That confusion has already resulted in at least one foreign NGO retreating. The American Bar Association (ABA), which runs programs providing legal training and promoting the rule of law in China, has closed its office in Beijing and will have no staffers on the mainland pending its registration. It is registering its new East Asia regional office in Hong Kong.

The ABA is firmly in the Chinese government's crosshairs. In July, it announced that it would give its inaugural International Human Rights Award to detained Chinese lawyer Wang Yu. In a videotaped confession believed by activists to be forced, Wang, who has since been freed from a 12-month detention, denounced the award, saying it was "just another way for [foreign forces] to use me to attack and smear the Chinese government."

Wang Yu in Beijing in March.

The ABA's decision to withdraw from China was taken considering "there is still uncertainty surrounding which types of activities will be approved, and it's also unclear whether or not there will be a grace period for organizations already in the country to pursue registration without penalty," said Elizabeth Andersen, director of the ABA's Rule of Law Initiative based in Washington DC. Chinese officials have said (link in Chinese) that there would be no "grace period" for the enforcement.

In the ABA's case, it could pursue sponsorship by the justice ministry, which oversees NGO activities in "legal services," or with the civil affairs ministry, which oversees activities in "social aid," among others.

"There has not been sufficient time to contact any potential sponsor agency..."

"There has not been sufficient time to contact any potential sponsor agency since the list was published. We anticipate doing so early in January and will hope to hear back promptly," Andersen said.

While some think the foot-dragging by the government is a deliberate attempt to frustrate foreign NGOs, others believe it was merely symptomatic of bureaucratic incompetence, or even domestic turf wars.

The short notice of the sponsor list was only because the public-security ministry had to coordinate among government entities, "which means there is inevitably going to be pushing and shoving among them," said Karla Simon, a scholar at the New York University School of Law and author of Civil Society in China. "I do not think we should worry so much about registrations."

An employee at a foreign NGO based in Beijing, who asked not to be named, said that her NGO is not yet clear on who they should have as an official sponsor, as their activities fall into different areas covered by multiple government entities. They are now in contact with every possible sponsor to see which is more likely to welcome them on board, she said. In the immediate term, they will have to find registered local partners such as universities or research institutes to continue their activities in China, she said.

Until the registration is approved, her organization will be more careful not to "confront the state interest," though that's something it's avoided since starting operations in China, she added.

NGOs based in Hong Kong and Taiwan are also defined as overseas groups under the new law. China Labour Bulletin, a Hong Kong-based workers' rights group that operates in mainland China through partner organizations and volunteers, said it won't scale down its presence on the mainland despite the new law. The group has found "technical methods" that are "absolutely not illegal" for continuing funding its mainland partners, said its founder Han Dongfang, who is exiled from mainland China, though he did not elaborate on these means.

Han, however, conceded that from now on the group has to be "more low-key," so as to lower the risk of being targeted by police.

A "manufactured xenophobia"

When China's top lawmaking body, the National People's Congress (NPC), released its latest five-year plan (link in Chinese) in October 2013, it didn't speak of any intention to legislate on state security. But the matter soon became a key issue for the Communist Party after the establishment of a secretive agency the following year.

The party's National Security Commission (NSC) was established in January 2014 with Xi as its head. The commission's other members were never revealed, and it only held one publicly reported meeting, in April 2014. In it, Xi decided to build a new "national security system" with the NSC at its core.

Since then, the NPC has passed a series of laws focusing on state security, including ones involving counter-espionage, national security, counter-terrorism, foreign NGOs, and cybersecurity (the latter coming into effect in June 2017).

During the same period, Xi's crackdown on dissidents, activists, lawyers, and civil society has grown harsher. Prominent examples included a weeks-long detention of five female activists campaigning against sexual harassment in April 2015, a nationwide detention of over 100 human rights lawyers including Wang Yu in July 2015, and the arrest and deportation of Swedish NGO worker Peter Dahlin last January.

Meanwhile, propaganda departments initiated campaigns against "foreign forces" through various channels. For example, ahead of China's first National Security Day on April 15, officials distributed propaganda material including a comic warning Chinese women not to date foreigners, and cartoons that explained new security laws with the help of Western pop culture figures such as Batman and Mr. Bean.

In August 2016 the wife of a prominent human rights lawyer, accompanied by foreign diplomats, protested outside the Tianjin court where he was being tried.

The climax perhaps came in August ahead of a closely watched trial of four human rights lawyers. Official and semi-official accounts on Weibo, China's version of Twitter, promoted a series of videos blaming foreign forces for inciting a pro-democracy "color revolution" in China. One of the videos, promoted by the party's youth league, said the ABA had a strange "s exual fetish" (link in Chinese) because it gave an award to an empty chair in the absence of Wang Yu.

Just before the new law was set to go into effect, Chinese authorities also arrested several well-known human rights lawyers and activists including Jiang Tianyong, Huang Qi and Liu Feiyue, all well-connected to the international community.

"It is more of a manufactured xenophobia that has to be enforced through numerous Communist Party policies and directives against a society that is increasingly learning more about the outside world and foreign ideas," Amnesty's Nee said.

Staying alive

Politically sensitive NGOs like human rights groups are, to some extent, accustomed to being targeted. That's less true of other organizations that work closely with foreign groups and now find themselves on shaky ground.

A Guangzhou-based environmental NGO worker, who asked not to be named, said that her organization has been preparing for the new law since its first draft was released two years ago. Since then, it's been gradually curtailing its overseas funding. One of its major donors, the Rockefeller Foundation, has begun transferring money to it via Chinese foundations in an attempt to work around the new regulations.

She estimates her NGO will receive 10% less funding in 2017 as it might be unable to take money from other existing foreign donors, including Oxfam and the Global Greengrants Fund, that are still seeking workarounds. The group is now registered as a business while operating as an NGO, but the group's lawyer says that this gray area will no longer be tolerated under the new law.

"We are thinking about quitting once and for all."

"We are thinking about quitting once and for all," she said. The group will perhaps turn itself into a for-profit entity, and break even by selling environmental-monitoring products while continuing its advocacy-a common strategy for many Chinese NGOs, she said.

A director of a Chinese LGBT rights group based in Guangzhou said he would cease activities for several months to "observe the environment."

He added that there's no precedent of an LGBT rights group registering with the civil affairs ministry under the regulations that already existed for domestic NGOs. That made it impossible for his organization to receive money from Chinese foundations. Individual donors make up around 40% of the funding.

More than half of the group's funding comes from European countries' embassies in China, he said. He fears these sources, too, will be cut off, even though the new foreign NGO law doesn't apply to them. Other NGOs that are receiving money from the US embassy in China have in recent months been harassed by local authorities and pressured to reject the funding without giving specific reasons, he said.

A Chinese court rejected a gay couple's attempt to secure the right to marry in China's first same-sex marriage case in April.

Many NGO workers who haven't been operating in politically sensitive areas "are not mentally prepared at all," said a Hong Kong-based NGO researcher who's from mainland China and didn't want to be named for fear of government retaliation. "They would never have imagined that they would become the government's enemies."

"They would never have imagined that they would become the government's enemies."

It's a reminder that working in China's civil society is like walking a tightrope. A seemingly innocuous cause could incur the wrath of officials if it undermines some arbitrary definition of "state security" or "national interest."

"The point is, of course, how do we distinguish between an NGO that intends only to help with the environment and one that wants to start a movement?" said NYU's Simon.

What is the endgame?

China's crackdown on civil society has a precedent in Russia. In July 2012, Russian president Vladimir Putin signed a law restricting the operations of NGOs labeled by the government as "foreign agents" and considered to be engaging in "political activity." Four years after it came into force, 27 of the 148 organizations listed as "foreign agents," including those providing legal representation or environmental monitoring, were forced to shut down, according to a November 2016 report from Amnesty International.

It is too soon to estimate the impact of the Chinese law, Amnesty's Nee noted, but there is a fear in the NGO community that it could lead to many less politically sensitive NGOs and international sources of funding to abandon operations in China, or invest in projects elsewhere.

The trend has already been happening. Donors think they "could get a lot more 'value for their money' in other contexts where costs are cheaper and the government is less hostile," Nee said. "In this context, some may perceive that the law will require further bureaucratic hassle and overhead costs on staff and administration, which NGOs usually find difficult to find funding for."

Some NGO workers are less pessimistic about the future, as they believe NGOs play too important a role in China for the government to curtail their activities.

NGOs are "a key pillar that prevent the current system from collapsing" and help provide the "stability" that the government so craves, said Han of CLB. He believes the new legislation could be overhauled. Until then, foreign NGOs just have to "live longer than the law."

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NGOs are under threat in China's latest crackdown against "foreign forces"

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Some of the most famous names in the nonprofit world may be forced to quit China this year. A new law targeted at foreign NGOs, effective as of Jan. 1, requires such groups to submit themselves to greater government control if they want to continue working in China.

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To understand the role of nonprofits and the ways in which the third sector is evolving in China-and to fully appreciate recent social innovations- it's important to first understand how social welfare and civic society has evolved in China over time.

This special supplement examines the different ways that social innovation is evolving in China, Hong Kong, South Korea, and Japan, as a result of each country's unique history, culture, and political-economic system.

China established a centralized state based on the imperial bureaucraticpeasant system (aka the Qin system created during the Qin dynasty) some 2,000 years ago. Compared with the aristocratic and church-diocesan system in the pre-modern West, China's system gave its leader-the Chinese emperor-significantly more centralized power. But the Chinese state actually shouldered far fewer welfare responsibilities than did the Western systems.

The classic Confucian thinkers of the time did generate some ideas about welfare. For example, they believed that the government should take care of the elderly-people over 70 years old-and children-those younger than 10-and that it should provide education to youth over 11 years old. The legalists who built the ideological foundation for the Qin system, however, pursued another route. They advocated for a strong state and a weak society. They believed that the state should monopolize all private interests, and that individuals should not accumulate wealth but instead should give their wealth to the state. They also believed in harsh punishments for those who didn't conform.

At the same time, these legalists reduced the state's civic responsibility, showing little sympathy to the weak by neglecting social protection and contending that poverty was the result of extravagance or laziness. To care for poor people, they maintained, was to encourage laziness or extravagance. They also defied notions of civic freedom and rights.

Constrained by the power of these legalists and like-minded emperors, and facing the insufficient provision of public goods, Chinese people traditionally turned to private associations for public goods and services. There is a consensus that in the West, churches and other religious organizations were the major providers of nongovernmental charitable and public services during the premodern period. But in traditional Chinese society, powerful kinship (family) organizations undertook that role. This understanding does come with a caveat, however: In the West, churches were often founded in political opposition to a king, while Chinese kinship organizations were completely subordinate to the emperor. However, the "legalist" Chinese royal court was always leery of the solidarity of the strong kinship organizations and attacked them relentlessly.

What's more, these multifunctional kinship organizations (ones that were big and wealthy enough to provide benefits to people outside their family lineage) were common in southeast coastal China but, at least initially, not prevalent throughout the rest of the country. It was not until the Song dynasty (960- 1279) that this kind of organization began to blossom throughout China, and only during the Qing dynasty (1644-1912) did they become full-fledged. These kinship organizations not only had charitable functions but also were not strongly opposed to modernization, individual freedoms, or a market economy. In the modern period, some of these organizations even began to downplay their traditional exclusive membership rules (based on kinship lineage), preferring instead to provide goods and services to address social challenges under a constitutionalized structure.

It's important to note that during the premodern time in China, other associations responsible for the public good also emerged. For example, the sheyi, which was dedicated to providing obituary services, was functioning during the Northern and Southern dynasties and the Tang-Song dynasty. The public services undertaken by Buddhist temples were popular during the Song-Yuan period. And the yicang (public granary) and yixue (public schools) emerged during the Ming-Qing dynasty. However, like the yamen (local government offices) and local markets during the premodern time, these associations were not dedicated to serving the interests of the public but rather frequently were controlled by rulers of the country for their own interests.

The Emergence of Welfare Organizations in the Modern Period

During the modern period, beginning around 1840, traditional charitable organizations (including kinship and religious-based entities) continued to grow in China's rural areas. At the same time, Western-style charity organizations were emerging in coastal commercial cities; these included professional and community associations, and foundations.

After the communist revolution in 1949, however, private associations-including kinship organizations, temples, and other forms of nonprofits-were almost entirely extinguished. Theoretically, this meant that the socialist state monopolized the right to provide for all public goods. And indeed, at this time, the state did greatly expand its role as a provider of public services. Compared with people living in the Western-style welfare state at this time, however, Chinese people were not entitled to seek accountability from the state or to demand a given level of service. And in certain extreme situations, such as during China's great famine in the 1960s, many of those who were lucky enough to survive genuinely appreciated what the government did for them. Many of those who suffered from extreme starvation could blame only the natural disasters. Even compared to states with a laissez-faire welfare tradition, the Chinese governments during this period provided minimal social services.

The problems with China's welfare provision during this period can further be seen in the unequal treatment received by different groups of Chinese. State welfare services favored social elites, while subordinate populations received little. This trend exacerbated social inequality in China. Although the wage difference among Chinese workers was not large during this period, the external benefits that were provided outside normal wages (such as housing and medical care) were very different between the elites and ordinary people. The tensions over different groups' views of the distorted distribution of public welfare, and the repression of private welfare, were similar to those during the Qin system.

Strictly speaking, there was no private charity during the Mao period save for the charitable acts of individuals (such as helping beggars during a famine). However, the influence of the earlier, private-charity models was still felt. For example, most of the medical mutual-aid services that sprang up in China's villages in the 1970s were essentially revivals of the traditional private forms of medical mutual-aid organizations.

China saw a major change with regard to private charity beginning in 1978, during what is known as the country's first reform period. Although the market economy (or commodity economy) would generally align with some democratic ideals as in the West, in the first decade of the reform the Chinese people did not possess a parallel view of what a nongovernmental organization (NGO) could be, much less a nonprofit organization, the third sector, or volunteer-based activities of significant scale.

However, in 1995-three years after Deng Xiaoping preached the move toward a "market economy" during his historic inspection tour in south China-many Chinese got to know the term "NGO" for the first time through an international event. That year the Fourth World Conference on Women was held in Beijing, marking the first time that China held an international conference of this kind. A parallel NGO Forum held near Beijing attracted more media attention than the conference itself, which generated some concerns from the Chinese government. Beginning with this event, the concepts of NGOs and the third sector gradually made their way into China and gained momentum. Over time, the Chinese government also learned that NGOs were not antigovernmental organizations or oppositional political parties and thus relaxed its initial cautious attitude.

Most important, the popularity of the market economy in China has supported the attitude that the market is more efficient than political (coercive) force in solving social problems. An unintended consequence of this evolving view, however, was that the government invested even less in social welfare services than before, especially since the tax reform in 1994. The government expected society to take on the responsibility of providing welfare services that it also requires through initiatives such as Project Hope- xiwang gongcheng -encouraging donations to support China's mandatory education programs.

All of these conditions made NGOs and nonprofit organizations increasingly popular in China, and various third sector organizations mushroomed in the less restrictive environment. The more lenient regulations of the 1990s also created the running room that allowed foreign NGOs and other government-created organizations to develop in China. We witnessed the establishment of large charity organizations such as the China Charity Federation and the China Youth Development Foundation. We also witnessed the emergence of environmental organizations such as Friends of Nature, poverty relief organizations such as The Amity Foundation, numerous community service organizations and professional associations, and foundations for education and science. These social organizations have made great contributions to social welfare.

In the 1990s, Chinese third sector organizations were not only burgeoning in China but also organizing globally. International exchanges between nonprofit organizations were characteristic of this period. For example, the Tsinghua University NGO Research Center and the China Youth Development Foundation held international conferences on nonprofit organizations during this period. And in 1998, 18 foundations established the China Foundation and NPO Information Network as a forum for charity organizations.

The Challenge and Prospects of Philanthropy in Contemporary China

Beginning in the new century, however, the development of the philanthropic sector in China became more complicated. After the 2005 Orange Revolution in Ukraine, there were rising concerns in China about NGOs being used as a tool by the West for a "color revolution." As a result, the government began to tighten its control over NGOs. In addition, following a period during which the concept of a market economy gained ground, the concept of the welfare state again became an influential concept in Chinese politics.

During the 10 years of the Hu-Wen regime (2002-2012), the government began to realize that it needed to provide certain social services. This was the reason for the termination of the Project Hope initiative. As public welfare investment by the government increased, the need for this kind of private welfare decreased.

Also, during that time, government-organized nongovernmental organizations (GONGOs) began to monopolize various charities. For example, the China Red Cross attempted to monopolize the donation market by excluding other private organizations to raise funds from the public. The China Red Cross and other GONGOs were also often very bureaucratic and lacked transparency. Further, numerous scandals severely impacted their public reputation and donations decreased. All of these events and activities have severely hindered the development of modern charity and philanthropy in China.

Nonetheless, after 30 years of reform, just like the concept of a market economy and a modern government, the concepts of a modern philanthropy and charity have begun to have a significant influence on China. Facilitated by the Internet, the latest innovative concepts and practices of private philanthropy are diffusing into China. Concepts such as social enterprises, venture philanthropy, impact investments, B Corps, and the fourth sector have been introduced into China and are gaining in awareness and acceptance. These innovations have broadened the scope of philanthropy and charity in China; they have opened many possibilities for those who are interested in participating.

Furthermore, after several decades of economic development, there is now a group of well-off Chinese, whose investment capacity and ability to provide public goods far exceeds past capacities. With a growing middleclass consciousness, their ideas on doing good have also shifted from pure benevolence to a desire to promote positive social change through philanthropy. The weakening of the Chinese economy, the increasing risk of market investment, and the restriction of political participation are also contributing to this rising interest in philanthropy.

Although the Chinese government has recently paid more attention to welfare issues, the lack of accountability and the increasing complexities of welfare issues in modern society are leaving a large gap. The poor reputation of many GONGOs is also influencing society to demand more private welfare services.

The Chinese government today under the leadership of President Xi has not fundamentally changed the dynamic in China, where conservative and reforming tendencies coexist and conflict even as they guide social policies. This is evidenced in two recent pieces of legislation regulating public philanthropy, which tighten supervision on charities and at the same time ease restriction on fundraising from the public. Yet overall, Chinese philanthropy in the new century continues to develop and to persevere. The base of philanthropic resources is growing, and the ways in which to engage in philanthropy are expanding; and ultimately these are strong signals that the third sector and the fourth sector are advancing in China.

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Understanding China's Third Sector (SSIR)

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To understand the role of nonprofits and the ways in which the third sector is evolving in China-and to fully appreciate recent social innovations- it's important to first understand how social welfare and civic society has evolved in China over time.

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The growth of civil society in China. Key challenges for NGOs. Lu Yiyi

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The growth of civil society in China. Key challenges for NGOs. Lu Yiyi

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Lu, Yiyi. 2005. The growth of civil society in China. Key challenges for NGOs

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The Decline of Foreign Aid and the Dilemma of theChinese Grassroots NGOs 

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The Decline of Foreign Aid and the Dilemma of theChinese Grassroots NGOs 

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How Many NGOs Are There Really in China?

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How Many NGOs Are There Really in China?

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The conflation of the term "NGO" with the administrative concept of "social organization", a much broader category encompassing bodies that would not normally be described as NGOs, produces consistently inflated and misleading estimates of the number of NGOs in China.
What is the total number of domestic NGOs in Mainland China? The country's vastness and the varying definitions of the term NGO mean that a definitive answer to this question will probably never be given, but this has not stopped analysts from trying to come up with estimates. Very large numbers are often quoted, in the hundreds of thousands or even the millions, but rarely does anyone conduct a serious analysis of the reliability of such figures.

When foreign observers offer estimates of the number of NGOs in China, they tend to base themselves upon the number of "social organizations" (社会组织) that have officially registered with the country's Civil Affairs departments. By way of example, in December 2016 the Brookings Institution published an article entitled " The State of NGOs in China Today", authored by four academics, Carolyn Hsu from Colgate University, Fang-Yu Chen from George Washington University, Jamie P. Horsley from the John L. Thornton China Center and Rachel Stern from the University of California Berkeley. In its first paragraph, the article essentially equates social organizations with NGOs, and then provides an estimate of their number: " By contrast, the "Charity Law" sets regulations for China's domestic NGOs-which the country dubs "social organizations" - and took effect on September 1, 2016. Roughly 675,000 of these organizations are currently registered in China, with estimates on the number of unregistered social organizations reaching as high as 3 million." ⁽¹⁾

An article appearing in the Diplomat in March 2016 entitled " China's NGOs Go Global", by Reza Hasmath from the University of Alberta, also attempts to provide a total figure. The author claims that " the number of NGOs in mainland China have increased dramatically in the past two decades", and puts the number at half a million: " There are now approximately 500,000 registered NGOs in the nation, working in areas such as education, poverty alleviation, community development, environment and health." ⁽²⁾

A similar figure can be found in a piece entitled " Managing NGOs in China", by Yongshun Cai, a professor of Social Science at the Hong Kong University of Science and Technology, published by Asia Dialogue, the online magazine of the University of Nottingham Asia Research Institute, in February 2017: " Given the constructive role of NGOs, the government becomes tolerant of them, which leads to their proliferation. The number of registered NGOs in China is estimated to exceed 500,000, and there are many more non-registered ones." ⁽³⁾

A recent blog post published on the Asia Foundation's website in May 2019, entitled " Measuring China's Nonprofit Sector", provides an even higher estimate. Authored by Hui Fang, a program officer for the Asia Foundation in China, the piece opens with the assertion that nonprofit organizations in China have gone from being just over 4,000 in 1988 to 816,000 in 2017. ⁽⁴⁾

Chinese sources also tend to base their estimates of the number of local NGOs on the figures for officially registered social organizations, although some authors do make subtler distinctions. One attempt to address the question is made in an article by Professor Zhu Jiangang, a well-known expert on civil society from Sun Yat-sen University, published in July 2018 by Ifeng (凤凰网). Entitled " Ten Years of Transformation and Controversy in Chinese Charity and Philanthropy ", the piece was written on the occasion of the release of the Chinese Academy of Social Sciences' "Blue Book of Charity 2018". Since the first Blue Book was published a decade earlier, in 2009, the article looks back at the evolution of Chinese charity over the previous ten years.

Professor Zhu focuses on the two key-words of "transformation" (转型) and "controversy" (争议) as the defining features of Chinese civil society over the previous decade. In the part of the article dedicated to transformation, the following assessment is found: " Ten years ago, there were still very few non-governmental charities within the planning system. Even though there were purported to be already three million, eight million or even 22 million social organizations at the time, most of them had been set up by party or government bodies. Nongovernment organizations that are truly spontaneously created, self-governing and independent, which in those days we would call grassroots NGOs, were extremely few. What's more, under the double management system in place at the time, this sort of organization would face the three predicaments of having insufficient legality, resources and capabilities.
However, over the past ten years, and especially from 2011 to 2015, thanks to the government cancelling the double management system, non-governmental charity and philanthropic organizations have gained a rapid development, and currently the organizations already registered with the Civil Affairs Departments are already more than 800,000, which is more than double the figure for ten years ago. These civil society organizations, including the frontline social service organizations, especially social workers' organizations, went from initially relying solely on government procurement, to gradually moving towards a more diversified funding system to support their development; what's more, nongovernmental foundations already overtook the government-run ones in scale in 2010, and today a majority of the over 6000 foundations are nongovernmental." ⁽⁵⁾
As we can see, in this case a distinction is made between government-run and nongovernmental charities, but in the end the figure provided for nongovernmental organizations is still "more than 800,000", which is similar to the estimate found in the Asia Foundation's piece. Such estimates are in line with official statistics on the number of social organizations in China, given that the Minister of Civil Affairs Huang Shuxian announced in January 2019 that the total number of registered social organizations had reached above 800,000. The question that is not often asked, however, is whether most of these organizations can actually be considered to be NGOs in the commonly used sense of the word.

In China the administrative category of "social organizations" actually refers to a very broad range of bodies, only some of which would fit into the commonly used definition of NGOs.

The term NGO in itself contains a certain ambiguity, since it could be taken to mean any association created by citizens rather than the state, but the most commonly used definition refers to organizations that provide charitable and humanitarian functions, advocate and monitor policies and attempt to address social problems or help people in need. In China the administrative category of "social organizations" actually refers to a very broad range of bodies, only some of which would actually fit into this definition of NGOs.

Social organizations are divided into three main kinds: foundations (基金会), social groups (社会团体) and private non-enterprise units (民办非企业单位), which however the Charity Law of 2016 refers to as social service organizations (社会服务机构). In practice, the last two groupings include not only independent non-profits dealing with various environmental or social issues and helping vulnerable groups, but also trade and professional associations, state-organized mass bodies like the All-Women's Federations and trade unions, and private schools and hospitals.

A report released in September last year by Gridsum (国双数据), a respected Chinese company that provides enterprise big-data and AI solutions in China, offers some interesting data on China's registered social organizations. Entitled " Report on the Development of Charity and Philanthropy in China " (中国公益慈善发展报告), it takes social organizations that are non-profit and "have a charitable goal" as its object of research. The report opens by acknowledging that the total number of officially registered social organizations in China increased dramatically over the previous eight years, going from just over 300,000 in 2010 to over 800,000 in May 2018.

Findings contained further down in the report, however, suggest that only a very small minority of these social organizations can be considered to be charities (公益组织). The percentage of registered social organizations that are involved in charitable activities is found to be 0.3% in North-Western China, 3.1% in Eastern China, 0.4% in Northern China, 1.2% in Southern China, 0.6% in South-Western China, 1.1% in Central China and 0.3% in North-Eastern China. As can be seen, even in developed Eastern China, where charities are more abundant, the proportion still stands only at a paltry 3.1%. In other parts of the country it is far lower. Judging from these percentages, the number of registered social organizations in China that is actually involved in charity could be assumed to be around 10,000 at best.

Another interesting statistic contained in the report regards the distribution of the different types of registration available to social organizations. As already mentioned, social organizations are divided into foundations, social groups and private non-enterprise units. According to the report, by May 2018 China had a total of 371,648 registered social groups, 426,152 private non-enterprise units, and 6,463 foundations. Foundations are thus only 0.8% of the total number of registered social organizations in the country. On the other hand, the report also contains a similar breakdown of the social organizations that deal with charity. If we look exclusively at charities, then the proportions are reversed: 52.4% are registered as foundations, 31.7% as social groups, only 13.1% as private non-enterprise units, and 2.8% as "other". It appears clear from these figures that while foundations can generally be classified as charities, only a small proportion of the social groups and an even smaller one of the private non-enterprise units are involved in charitable activities.

Of course, these statistics refer only to charities that have officially registered as such. There is reason to believe that there are many more that remain unregistered, or are registered under different guises. In the past this was the norm, as the so-called "dual management" system by which NGOs would have to find a Professional Supervisory Unit (PSU), generally a government department, before they could register, discouraged many NGOs from going through the process of registration. Over the past decade, however, certain policy changes have made it easier for Chinese NGOs to officially register as social organizations.

Over the past decade certain policy changes have made it easier for Chinese NGOs to gain official registration.

In 2013 it was decided to allow "direct registration" without a PSU for four types of organizations: chambers of commerce; organizations focused on science and technology; "charitable and philanthropic organisations that provide support for the impoverished, help for the needy, support for the elderly, support of orphans, medical aid, support for the disabled, disaster relief, support for doctors or educational support"; and "social service organisations and social groups that provide community service support and similar work in order to fulfil the life needs of urban and rural communities". The last two categories would of course cover a large number of NGOs.

While implementation of this rule has reportedly been patchy, it has still encouraged more NGOs to take the step of registering with the Civil Affairs departments. The passing of the Charity Law in 2016, and of the supporting documents and regulations, was also an important milestone from this perspective, since the law contains specific language promoting the registration of charitable organizations.

It is revealing to look at a 2018 report by NGOCN on the amicability of the policy environment for civil society and philanthropic organizations. The report was based upon an investigation conducted across 10 cities seen as particularly representative from the point of view of their general development and the vitality of the charity sector. 680 civil society organizations provided valid questionnaire responses as part of the investigation.

In total, out of the 680 organizations that responded, 19% were found not to have registered with the Civil Affairs departments (which are responsible for all registrations of social organizations). 60 organizations were unregistered, while 24 claimed to be "in the process of registration", and 27 had registered as industrial and commercial enterprises. The reasons given for not registering by the 60 unregistered organizations included "time/cost of registration too high" (33 organisations), "unable to find appropriate PSU" (33 organisations), "fear of diminished flexibility in our activities post-registration" (26 organisations), "fear of increased risk in applying for overseas funding" (19 organisations), "not feeling the need to register" (11 organisations) and "not knowing how to register" (9 organisations). ⁽⁶⁾

The proportion of unregistered civil society organizations among those included in NGOCN's survey, 19%, is significant but not huge. It is of course hard to determine to what extent this may be the result of sampling bias, for instance due to unregistered organizations being smaller or less willing to take part in such surveys, or due to the fact that the survey was only carried out in 10 cities. It is quite probable that the true proportion of unregistered NGOs nationwide remains far higher. From this perspective, the total number of NGOs across the country may well be impossible to estimate with any precision. It is likely to be far lower, however, than the hundreds of thousands of organizations of which many observers speak.

There is little doubt that the NGO sector has grown enormously in China over the past decade, and will continue to grow. The growth in the number, variety and quality of local NGOs has been truly impressive. That is all the more reason, however, to remain realistic and not get carried away by inflated estimates of the number of NGOs in the country.

1 " The state of NGOs in China Today", by Carolyn Hsu, Fang-Yu Chen, Jamie P. Horsley and Rachel Stern, Brookings, December 15, 2016

2 " China's NGOs Go Global ", by Reza Hasmath, March 23, 2016

3 " Managing NGOs in China", by Yongshun Cai, Asia Dialogue, February 17, 2017

4 " Measuring China's Nonprofit Sector ", by Hui Fang, May 22, 2019

5 " 中国公益慈善十年的转型与争议", by 朱健刚, 凤凰网公益, July 2, 2018

6 " 民间公益组织政策环境友善度调查报告发布", by NGOCN君, July 3, 2018

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How Many NGOs Are There Really in China?

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The conflation of the term "NGO" with the administrative concept of "social organization", a much broader category encompassing bodies that would not normally be described as NGOs, produces consistently inflated and misleading estimates of the number of NGOs in China. What is the total number of domestic NGOs in Mainland China?

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Fundraising Policy Reform and its Impact on Nonprofits in China: A View from the Trenches

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Fundraising Policy Reform and its Impact on Nonprofits in China: A View from the Trenches

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The Emergence of Social Corporatism in China: Nonprofit Organizations, Private Foundations, and the State

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The Emergence of Social Corporatism in China: Nonprofit Organizations, Private Foundations, and the State

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What are some of the different types of charitable and civic society organisations operating in China today? 

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What are some of the different types of charitable and civic society organisations operating in China today? 

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Why is the term NGO problematic? What other terms are used in China and what do they mean?  

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Why is the term NGO problematic? What other terms are used in China and what do they mean?  

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Is it important that charitable organisations are non-profit making? Why / Why not? How does this help us understand the development of social enterprises in Chinese society?

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Is it important that charitable organisations are non-profit making? Why / Why not? How does this help us understand the development of social enterprises in Chinese society?

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What are some of the reasons that a group may be deemed to be legal/illegal in China? 

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What are some of the reasons that a group may be deemed to be legal/illegal in China? 

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How does this impact on their work and on the wider development of civil society in China? 

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How does this impact on their work and on the wider development of civil society in China? 

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Chinese non governmental organizations media and culture communication perspectives practices and provocations

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International NGOs in China: Current Situation, Impacts and Response of the Chinese Government 

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International NGOs in China: Current Situation, Impacts and Response of the Chinese Government 

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Chapter 2 of Li Yuwen's book

NGOs in China and Europe: Comparisons and Contrasts (2016)

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International NGOs in China Current Situation, Impacts and Response of the Chinese Government Han Junkui

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How China regulates foreign non-governmental organisations

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How China regulates foreign non-governmental organisations

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The entrance to the Beijing Public Security Bureau Overseas NGO Management Office in Haidian District is located on a quiet residential street just a few blocks away from a seven-story commercial complex on the Third Ring Road. The office itself is brand-new-everything is in pristine order, from the polished transaction windows in the reception area to the condition of the inevitable black imitation leather couches in one of the private meeting rooms. At the time of my visit, nearly two years following the passage of the "Law of the People's Republic of China on Administration of Activities of Overseas Non-Governmental Organizations in the Mainland of China" ("ONGO Law") in January 2017, it was also completely empty.

Taking up the second floor of what could otherwise be any other police station in Beijing, the office itself is a tangible reminder of one of the key features of the ONGO Law: When it comes to managing the affairs of foreign non-governmental organizations (NGOs) seeking to work in China, the Ministry of Public Security (MPS) (公安部, gōngānbù) is very much in charge. This is a significant departure from a previous 10 years of practice, when the Ministry of Civil Affairs (民政部, mínzhèngbù) was tasked with monitoring and reporting on the doings of foreign NGOs. In the ensuing bureaucratic negotiations before and during the drafting of the ONGO Law, perhaps unsurprisingly, the MPS came out on top -and foreign NGOs found themselves subject to unprecedented levels of police supervision and oversight.

"In the beginning, the general consensus was that as long as you're not doing anything wrong, playing by the rules, working on a non-threatening topic like poverty alleviation, you'd be fine," says Jessica Batke, a senior editor at ChinaFile who previously spent eight years at the U.S. State Department's Bureau of Intelligence and Research. "You would have more hoops to jump through, but overall, work could still go on. The first sign that something was going to be fundamentally different about this law was when the police were named as the main implementing authority. Suddenly that consensus was no longer so certain."

At the time the law came into effect in January 2017, increased MPS involvement was deemed a necessary and practical measure to ensure foreign NGOs were not in a position to "harm China's national security interests and some other illegal criminal activity," in the words of Hao Yunhong, then-director of the Foreign NGO Management Office under the MPS. (Given that the current homepage of the Overseas NGO Management Office links directly to an article accusing foreign groups of funding and supporting "violent rioters" in Hong Kong, there is evidence that attitude is still very much alive and well.) However, others insisted that since the MPS was in charge of other types of foreign exchange, this arrangement was only logical, and to the benefit of the "development" of foreign NGOs.

Nearly three years into implementation of the ONGO Law, it is difficult to make a strong case for this latter argument. According to data taken directly from the MPS, foreign NGOs' efforts to register representative offices have slowed to a trickle. Further, the number and range of foreign NGOs that have been able to formally sponsor or organize a one-off activity or event, or to use the technical term, carry out a "temporary activity filing" (临时活动备案, línshí huódòng bèiàn), remain limited. To understand why, in this week's SupChina Signal, we'll explain exactly how the ONGO Law works, the major obstacles it presents to a range of groups, and what this suggests about China's preferred style of international exchange and cooperation.
What organizations are impacted by the ONGO Law?
Given its roots in national security legislation, the scope of the ONGO Law is purposely broad. Since the release of the initial draft of the law, many have criticized its vague and imprecise language, which in theory sets the same requirements and restrictions on human rights groups as it does trade associations. This lack of specificity begins with Article 2 of the law itself, which defines foreign NGOs as "not-for-profit, non-governmental social organizations lawfully established outside mainland China, such as foundations, social groups, and think tank institutions." This definition leaves plenty of room for interpretation-and as a result, plenty of room for doubt. Out of an abundance of caution, even professional and trade associations not traditionally thought of as "NGOs" in the U.S. sense have sought to register in accordance with the law. The potential scope of the coverage of the law is therefore enormous; depending on which figures you prefer, all of the between 1,000 and 6,000 NGOs active in China prior to passage of the law-and any number of organizations who meet the broad criteria set out by Article 2-are subject to the law. This includes, of course, groups in Hong Kong, Taiwan, and Macau, which for the purposes of this legislation are considered "overseas" (境外, jìngwài).

A qualified exemption is provided for "foreign schools, hospitals, natural science and engineering technology research institutions or academic organizations" that engage in "exchanges or cooperation" with peer organizations of the same type in mainland China ( Article 53).
What is considered an "activity" under the law?
Foreign NGOs seeking to do anything in China involving organizing an event or even simply sending funding are required to pursue one of two courses of action to legally register their actions:

1. Register a representative office (代表机构, dàibiǎo jīgòu)

2. "File" a temporary activity (临时活动备案, línshí huódòng bèiàn)

What exactly constitutes an "activity" under the law is, once again, quite broad; substantial discretion is left to the police department responsible for implementation. Specifically, Article 3 provides that "NGOs may conduct activities beneficial to the development of the public welfare in fields such as economics, education, science, culture, health, sports, and environmental protection, and for areas such as poverty relief and disaster relief." Beyond this, and listing the types of activities that NGOs may not engage in, such as for-profit, religious, or political activities ( Article 5), the law is silent.

While questions of application are less ambiguous in the case of large-scale, public events, where it is almost certain the law will be rigorously enforced, it is less clear what this means for small, private meetings, exchanges, or events. The language of the law does not provide more detailed guidance. The likely intentional end result of this legal language is to force NGOs to choose between three options:

1. Applying for official permissions for literally any kind of engagement

2. Quietly implementing smaller-scale events without permission

3. Opting not to work in China at all

What does compliance with the ONGO Law require?
Both of the formal avenues for legally conducting NGO-related activities in China place a significant operational burden on the foreign NGO in question. First, in order to register a representative office, the foreign NGO must identify-and, crucially, be accepted by, which is far from automatic-a government department sponsor responsible for monitoring and supervising its work. This sponsor, also called the "professional supervisory unit" (PSU) (业务主管单位, yèwù zhǔguǎn dānwèi), must be at the provincial or higher level of government administration, and oversee work in the same substantive area that the NGO itself works in. For example, an environmental NGO may choose to seek out the relevant bureau of the Ministry of Forestry. (The MPS recently released an updated official list of recognized PSUs, available here.) After securing the cooperation of a PSU, the foreign NGO must then formally apply for registration from the local MPS. Assuming the NGO meets specific criteria and is able to satisfactorily submit the copious amount of notarized, authenticated, and translated paperwork involved in this process, then and only then may it begin regular operations. Every year, it must submit a work plan to its PSU and the MPS for review.

With regards to a temporary activity filing, the process is much the same, with a few key differences. Rather than approach a PSU, the foreign NGO must secure the agreement of a Chinese partner organization, which in turn is responsible for submitting the formal application for the activity to the MPS and for any other relevant permissions based on the activity type, e.g., a performance license for a live music event. Financial and activity reports are required, and no temporary activity may last for longer than one year or be automatically renewed.

Both of these processes require a great deal of time, money, and, most of all, insider knowledge about navigating Chinese bureaucratic procedure. Without a presence on the ground or solid local contacts, identifying the right PSU or Chinese partner organization can be difficult, if not impossible. Since a PSU or Chinese partner organization will ultimately be held responsible for the work of the foreign NGO, and is required to take on significant administrative duties to properly monitor and work with the foreign group, there are few incentives to take on such a role. In the event of a rejection or delays, there is realistically very little that can be done, and the law itself contains no formal mechanisms for challenging a refusal or forcing a PSU to enter into a partnership-at which point registration may simply be impossible, if no suitable substitute can be found.

Failure to comply with the provisions of the law may result in loss of legal status in China, seizure of assets, detention of staff, and a ban on future efforts to work in the country for five years. No appeals process is provided in the law.
What has this meant in practice for foreign NGOs in China?
As the statistics demonstrate, the road to registration or temporary activities has been a difficult one for many groups. Tellingly, as Jessica Batke explains, the monthly average of new office registrations had dropped to a rate of only two to three per month, though only 484 offices have been registered in total-for reference, there are over 1.5 million NGOs registered in the U.S., and thousands of foreign-funded groups. In addition, while 1,963 temporary activities have been recorded, only approximately 570 unique organizations have carried them out-meaning there are a significant number of "repeat customers," as Batke calls them, responsible for most of the activities, suggesting some groups are choosing to operate exclusively through temporary activities rather than register a representative office. The question remains, however: Given the high priority that has been placed on this law by central authorities in China, why are so many groups still encountering issues?

"What you see now are two sets of problems," Batke responds. "The first is the one that everyone anticipated: Certain groups were simply going to be cleared out. If you're looking at the law when it was passed in 2016, it was pretty obviously intended to prevent select organizations [that worked on politically sensitive issues] from operating altogether. The second, unanticipated problem is that there would be so many practical barriers to foreign NGOs establishing a presence, even when they are working completely within the bounds of the law. This is due to a wide range of reasons. When things get implemented at the local level, there's always going to be a variety of implementation, and combined with logistical, financial, and knowledge barriers, there's plenty of room for things to go wrong. Not having someone on the ground is a pretty fundamental issue, for example-you can't just show up, find a partner, and apply."

Once again, this fact compares unfavorably against standard practice in other countries. When Chinese NGOs seek to implement activities in the U.S. or even in Hong Kong, for example, legally speaking, they are treated exactly the same as local NGOs, regardless of the source of their funding. With very few exceptions, there is no separate body of law governing their registration or management. If organizations are able to file the necessary paperwork correctly, there are few meaningful barriers to formal incorporation as a tax-exempt nonprofit organization.

Finally, while statistics abound regarding the number of groups that have been successful in their efforts to work legally in China, an important set of numbers is still missing: How many groups have failed, given up, or been forced to compromise their missions as the price of legal registration. As of this writing, there remain entire provinces that have yet to host a temporary activity, and officially listed PSUs that have yet to accept a single foreign NGO. In a setting where rejection is rarely put into written records by authorities, and few NGOs are willing to openly discuss their experiences, it is impossible to say what the chilling effect of the ONGO Law has been in practice.

This issue also extends to groups that have registered but must have their annual plans reviewed by government authorities. As Batke explains, "People may or may not be altering their missions in China based on what they think they can actually achieve." And this, indeed, is perhaps the most difficult question posed by the passage of the ONGO Law: At what point is the price of engagement simply too high?

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How China Regulates Foreign Non-Governmental Organizations

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Nearly three years into implementation of the ONGO Law, it is difficult to make a strong case for this latter argument. According to data taken directly from the MPS, foreign NGOs' efforts to register representative offices have slowed to a trickle.

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1 、依照《中华人民共和国境外非政府组织境内活动管理法》第三条、第十一条、第三十四条的规定制定本目录名录，为境外非政府组织在境内依法开展活动提供指引。

2 、境外非政府组织在中国境内申请设立代表机构，根据业务范围、活动地域和开展活动的需要，依照本目录名录确定业务主管单位，并经业务主管单位同意后，向所设立代表机构所在地的省级人民政府公安机关申请登记。

3 、境外非政府组织设立代表机构涉及多个活动领域的，应以其主要活动领域和主要业务范围确定一个业务主管单位，所涉及其他领域的活动内容，主要业务主管单位可以征求相关部门的意见，相关主管部门积极配合，共同做好服务管理工作。

4 、各省级人民政府公安机关结合本地实际，会同有关部门，参照本目录名录，研究制定并发布本地区《境外非政府组织活动领域和项目目录、业务主管单位名录》，为境外非政府组织在境内依法开展活动提供指引。

5 、本目录名录依据《境外非政府组织在中国境内活动领域和项目目录、业务主管单位名录（ 2017 ）》修改，并将根据境外非政府组织在中国境内活动的实际情况和变化，适时予以调整和变更。

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境外非政府组织办事服务平台

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1 、依照《中华人民共和国境外非政府组织境内活动管理法》第三条、第十一条、第三十四条的规定制定本目录名录，为境外非政府组织在境内依法开展活动提供指引。 2 、境外非政府组织在中国境内申请设立代表机构，根据业务范围、活动地域和开展活动的需要，依照本目录名录确定业务主管单位，并经业务主管单位同意后，向所设立代表机构所在地的省级人民政府公安机关申请登记。 3 ...

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China Foundation for Poverty Alleviation 

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China Foundation for Poverty Alleviation 

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China Foundation for Poverty Alleviation (CFPA), established in 1989, is one of the largest charity organization in China in the field of poverty alleviation. CFPA's mission is to "disseminate good and reduce poverty," and at the same time promote reform, mobilizing social participation and building partnerships. CFPA is registered under the Chinese Ministry of Civil Affairs, and has projects in China and overseas. CFPA has offices in Beijing and Chengdu, and also international offices in Myanmar, Nepal and Ethiopia.

In China, CFPA alleviates poverty through a range of projects. CFPA provides healthcare and nutritious food to vulnerable populations, focusing on mothers and children. CFPA's education program provides scholarship, infrastructure construction and delivering stationery. To support the livelihood of communities, CFPA have projects to promote economic development through tourism, commerce and microfinance. In addition, CFPA works towards disaster relief, cooperative philanthropy projects and public advocacy.

CFPA also initiated international projects in less economically developed countries, notably Ethiopia, Columbian, Myanmar, Nepal and Uganda. Until 2019, CFPA has devoted more than 200 million RMB to its international work, benefiting over 900 individuals. The projects are highly diverse, including education, refugee integration, food provision, women empowerment, and professional training. In addition, CFPA plays a part in global emergency relief and advocacy.

Offcial website: http://en.cfpa.org.cn/

Email: idd@fupin.org.cn

Facebook: China Foundation for Poverty Alleviation

Linked-in: China Foundation for Poverty Alleviation

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China Foundation for Poverty Alleviation (CFPA)

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China Foundation for Poverty Alleviation (CFPA), established in 1989, is one of the largest charity organization in China in the field of poverty alleviation. CFPA's mission is to "disseminate good and reduce poverty," and at the same time promote reform, mobilizing social participation and building partnerships.

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History of the China Foundation For Poverty Alleviation 

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History of the China Foundation For Poverty Alleviation 

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History - China Foundation For Poverty Alleviation

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Visit to Hearing-impaired Children Assisted by the Tenth “Love Knows No Borders — Hear Love of the World” Charity Sale in Beijing