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Billions for Charity? In China, Just Give It to the Government


Inside China's little-known struggle to accommodate both charity and Communism.

MINYANVILLE ORIGINAL After the Communist revolution of 1949, China "made a break" with its ancient tradition of charity and came to associate philanthropy "with religion and superstition." It was "declared to be in conflict with socialist ideology and even labeled hypocritical," according to the Beijing Civil Society Development Research Center.

At this point 63 years ago, "charitable activities previously run by 'the people' fell under government control." Even today, independent "organizations have been closed, and civil society activists have been detained, tried, and imprisoned for their peaceful activities," according to the International Center for Not-for-Profit Law.

In 2008, the Sichuan earthquake began to force a change. The disaster prompted the Chinese public to donate more money than ever before -- giving roughly $1.5 billion over to government-directed rescue and reconstruction efforts. Global corporations pitched in billions more, including Google (GOOG), giving over $1.5 million, Merrill Lynch (BAC), giving $1 million, AIG (AIG), which gave $1 million, GlaxoSmithKline (GSK), which gave $1.4 million, Coca-Cola (KO), which gave $2.4 million, and Cisco (CSCO), which contributed $2.6 million.

But, as Rebecca Lee wrote in the April 2009 Pacific Rim Law & Policy Journal, the official response "brought the shortcomings of the bureaucratic Chinese government starkly into focus, creating the opportunity, and indeed the necessity, for the charitable sector to thrive."

Now, "opportunity" and "necessity" have apparently spurred China's policy makers to action. They now find themselves, says Liu Youping, vice director of the China Charity & Donation Information Center, "at the starting-phase for philanthropic causes, lagging behind by about 30 or 40 years."

Last month, a delegation of 25 Chinese government officials and academics visited the US on a mission to create a set of standards for the country's nascent independent non-profits, at least partially based on the American model. They met with, among others, Eileen Heisman, president and CEO of the National Philanthropic Trust, who told me the group was "fascinated" by the concept of providing social services free from government control.

"The Cultural Revolution changed the entire fabric of China's social structure," Heisman said in a telephone interview. "They now have a large number of officially-sanctioned charitable organizations, which they described as being sort of like the American Red Cross."

However, while the Chinese Red Cross does, in fact, enjoy official support, public sentiment has been soured by multiple scandals, ranging from simple financial mismanagement to the blog postings of Guo Meimei, who described herself as the "Business General Manager of Red Cross Society," posing with her white Maserati.

Indeed, the episode "eroded public trust in charity as a whole," Wang Zhenyao, the former head of the department of social welfare and charities under the Ministry of Civil Affairs and currently the dean of the One Foundation Philanthropy Research Institute at Beijing Normal University, told He Dan of China Daily. Wang said donations to the Chinese Red Cross "fell to about 385 million yuan ($61 million) in 2011 from 3.01 billion yuan ($468 million) in 2010."

The Chinese Red Cross (which denied employing Ms. Guo), is one of two dozen or so large organizations that answer to both the Communist Party and China's State Council. "Fundraising through government channels," points out the Beijing Civil Society Development Research Centre, "does not foster a modern notion of charity or independence among the citizenry, and it has a detrimental effect on the culture of charitable giving."

The conflation of charity and government also seems to raise other sets of issues in potential donors' minds. Xu Yongguang, founder and executive vice chairman of the China Youth Development Foundation, a national NGO founded in 1989, explains one of the sticking points:

Some enterprises donate conspicuously large amounts of money to the government, raising suspicions of money-power exchange schemes. China's Law for Public Welfare Donations regulates that the government can only accept donations under two conditions: that an enormous natural disasters had just taken place, and that the donation is of the donor's free will. Otherwise, donations made during non-disaster or "peaceful" times could be seen as a bribe for power, economic benefits, political recognition, or social prestige. Such actions disturb market equilibrium, and undermine charity regulations, as well as endow the government with unregulated spending money.

In light of this, the visiting delegation was naturally quite curious for Heisman's thoughts regarding transparency. And, though the well-known Chinese saying goes, "You sweep the snow only in front of your own porch," Heisman was asked to describe "the ways in which Americans give."

"There's a whole wealthy segment emerging in China that's interested in foundations, donor advised funds, tax benefitsand bequests," Heisman told me. "When I told them that 83% of the $300 billion donated last year in the United States came from individuals, they couldn't believe that."

Unfortunately, China's new rich, on the whole, have not been effectively encouraged to give, as China's existing tax structure does not incentivize philanthropy.

Again, CYDF's Xu Yongguang:

The concept of inheritance tax is nonexistent in China and will unlikely be implemented in the near future. Comparatively, inheritance taxes in America are meant to encourage the wealthiest to donate to charity. According to the law, Americans with over $1 million in inheritance must pay a 55% inheritance tax to the government. Inheritance-based family foundations, such as the hundred-year-old Rockefeller Foundation, are not only exempt from the tax, but can also dispense the funds according to the wishes of the deceased. This model has majorly advanced the development of American family foundations. China's corporate income tax law states that corporate welfare donations within 12% of the corporation's total profit are allowed a pre-tax deduction. On the other hand, China's Treasury and National Taxation Bureau stipulate that private charitable foundations, including family foundations, must turn an 8% annual profit and pay a hefty 25% tax. Other countries barely have any tax guidelines for private foundations; American law states that foundations only have to turn a 5% annual profit and pay only 1-2% in consumption taxes. These tax guidelines render it almost impossible for the rich to run private foundations in China, while existing foundations find themselves gradually shrinking instead of expanding their impacts.

Further complicating the issue, NGOs have had difficulty raising funds, as they are...not permitted to fundraise.

From the International Center for Not-for-Profit Law:

There are restrictions on fundraising and networking. With the exception of public fundraising foundations, CSOs (civil society organizations) are not allowed to engage in public fundraising. CSO networks are also a sensitive issue. A number of networks have emerged in recent years but they are all informal in nature. Approval is also required for receipt of external resources. A 2009 regulation requires CSOs to go through more paperwork to transfer donations from oversees organizations into their bank accounts.

The ICNL also notes that the Chinese government "has discretion to limit speech and advocacy for specific organizations and types of organizations and for specific cases that might be seen to negatively impact national security," and oftentimes requires organizations to "to report international contacts to authorities."

Still, recent events may portend a wider shift in China's official attitude toward NGOs.

Earlier this year, Guangdong Province announced that "by July 2012, they would eliminate what has been the main obstacle to nonprofit registration: the requirement to find a professional supervisory unit that would sponsor the nonprofit." They also announced a "series of other measures that made Guangdong the most open province with regard to nonprofit registration and management."

Since then, reports the ICNL, "the Minister of Civil Affairs has come out endorsing the Guangdong reforms, raising expectations that the long-awaited national-level revisions to the nonprofit registration and management regulations would incorporate the Guangdong measures."

When the Chinese Communist Party issued its 12th Five Year Plan (2011-2015) last year, it emphasized "innovative social management," which the ICNL says refers to changes in "the way it regulates or manages society and societal organizations (China's term for nonprofits)."

So, they're clearly talking about change, but as yet there doesn't seem to be any way, at least as a Westerner would perceive it, to give money to a (non-government) charity based in China.

Of course, the fundamental disconnect regarding charity under socialism will always exist. As Eileen Heisman noted, "A lot of other countries have higher tax rates, and the government takes care of the needs of individuals that private philanthropy takes care of here [in the US]."

In the meantime, China's wealth continues to accumulate -- and some people, like Alibaba founder Jack Ma (who is once again attempting to buy back the 40% stake in the company owned by Yahoo (YHOO)) -- are ready to give it away.

As he said in 2009, "If you have money, but have not turned this money into an experience to elevate your own or other people's level of happiness, then you may very well only possess a lot of symbols and a mountain of very colorful pieces of paper."

The question folks like Jack Ma will likely want answered now is how, exactly, to get that mountain of colorful paper to the right people.
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