Karla Simon

The Ministry of Civil Affairs (MCA) ‘Five Year Plan for Charity Development’, mentioned in my first blog post, raises the matter of resource development for China’s operating charities. This post looks more closely at the question of how CSOs are expected to generate resources to carry out their social development projects. The first issue it addresses is how CSOs need to be more effective in accessing resources; the second is the type of philanthropy wealthy Chinese are engaging in and how it can be developed to assist operating CSOs.

One important note – the MCA released the ‘China Urban Charity Index 2011’ at the end of August; it is based on figures for 2008/09 and surveys 54 jurisdictions. You can read more about it in the IJCSL Newsletter. According to the survey, Shanghai ranked first in the index, with more than 5.4 billion yuan ($8.4 million) in charity revenues. In Beijing, Shenzhen, Wuxi, Chengdu, and Dalian over 1 billion yuan ($1.56 million) in revenue was received by charities. But one closely watched statistic not mentioned in the report shows that, in the face of recent scandals in the sector as a whole, donations from June to August 2011 stood at 840 million yuan ($131 million), compared to 6.26 billion yuan ($980 million) in March to May, according to MCA.

Effective fundraising

What sources of funds can Chinese CSOs look to? One source is donations from ordinary citizens; these are extremely important as the general upward trend in numbers of such contributions indicates. The difficulty in attracting donations is that many people lack trust in the newer CSOs because they are so new and because they are ineffective in getting the word out to the general public that they are able to do good work. Effective communication strategies need to be developed as time goes on, and training and incubation programs for CSOs are concentrating on those. At the same time, a growing uneasiness about established government-related charities may create more opportunities for worthy grass roots organizations.

A second source is funding from foreign foundations that have a presence in China, such as the Ford Foundation and the Bill and Melinda Gates Foundation. A recent report from the Center for Civil Society Studies at Peking University suggests that this source may well be more limited in the future. It says that ‘95% of grassroots organizations rely on foreign project funds, however, foreign capital began to pull out [beginning in] 2004’.

Thus, Chinese CSOs are called upon increasingly to rely on a third source of funding – China’s domestic foundations, both the public fundraising foundations such as Jet Li’s One Foundation and the ones generated from business earnings, the so-called ‘private’ foundations, like the Narada Foundation or the Vantone Foundation. As with the first category – funding from individuals – the difficulty of making either foreign or domestic donors aware of both projects and capacity is significant.

A fourth resource is outsourcing from government. This occurs when the local social service agencies, for example, contract out projects to CSOs. Outsourcing is a relatively new way for Chinese CSOs to obtain funding. While the government is encouraging outsourcing to CSOs, some of these programmes are in their infancy. Furthermore, social service agencies have the expectation that by outsourcing they will be able to leverage private funds to support social projects, thus encouraging private Chinese donors to give to CSOs and creating public-private partnerships. This has been successful in some places such as Shenzhen and Shanghai, but it also depends on public perceptions of the charities themselves.

What this all suggests is that emphasis must be placed on both effective management of resources once they are obtained and on needs assessment and communication to potential donors. In fact, the recent scandals regarding misuse of donations have led the MCA to follow the Five Year Plan issued earlier in the summer with detailed disclosure rules for charitable donations. These were published in draft form in late August and, after a short public comment period, are expected to be promulgated later this year. While they do not contain anything surprising, they do create formal guidelines that charities (and state-run welfare institutions) must follow in terms of publicizing donations and how they are spent.

Some assistance in better management and more effective communication is available from non-government sources, such as Business for Social Responsibility (BSR)-China, the One Foundation, and various training CSOs such as the Chinese Association of NGOs (CANGO). For example, the One Foundation recently discussed publicly the ways in which it is rigorous about its own audits as well as the audits of its grantees. Working together with the local Bureau of Civil Affairs in Shenzhen it is developing a model for transparency and accountability to donors and the general public.

Another effort is underway in Beijing, where the Capital Philanthropy Federation and the local Bureau of Civil Affairs have published a guidebook to take CSOs through the step-by-step process of how to handle donations. Called the Charity Organization Management Guide, this has been welcomed in the press and looks to be a good outcome of the yearlong project undertaken to create it. It is based on good practices from other countries.

Enhancing private giving

Assuming the trend toward public-private partnerships should be encouraged, it is also important to consider whether the Chinese government is correct in assuming that the wealthy will continue to give, either individually or through their own foundations or corporations, to important social programmes such as poverty alleviation, migrant education, elder care, etc. This depends to some degree on the ways in which wealthy Chinese decide to engage with civil society in the future.

Perception issues among the wealthy about how to conduct philanthropy create some difficulties for CSOs. According to Pei Bin (formerly of BSR-China and now with the Gates Foundation), there was recently ‘significant growth in corporate philanthropy, with nearly 60 percent of total charitable donations in 2009 coming from companies’. In spite of this, she has suggested that ‘strategic philanthropy in China still faces several challenges. Although corporate philanthropy is on the rise, most companies’ donations are for short-term support or disaster relief – aimed at getting a boost in public relations rather than creating long-term impact.’

Not only do some Chinese donors appear to be more concerned about what sort of philanthropy will attract good PR than about strategic giving, there has also been an enormous debate about how wealthy people should engage in philanthropy in China. On the one hand, some more thoughtful people like Xu Yongguang, Chairman of the Narada Foundation, think that strategic giving through a well-managed foundation makes sense – Narada supports around 100 operating CSOs annually, and it is developing processes to better manage its giving. Others, such as Chen Guangbiao, the renowned philanthropist famous for his high-profile approach to charity, disagree – Chen likes to give away bundles of cash directly to the poor.

In a recent third model for funding charities, China’s first charity foundation financed with shares of stock was set up in May to scale up the country’s efforts to fight poverty. The Heren Charitable Foundation, named after the father of wealthy businessman Cao Dewang (Fuyao Glass Industry Group), is now the largest foundation in China, with the shares having a market valuation of 3.55 billion yuan ($538 million). The foundation aims to provide financial support in education, health care and other projects designed to help the poor in the country’s impoverished regions. It holds around 15% of the company’s shares, which is a first in China.

Wealthy people who do give to charity, in whatever manner, often face public scrutiny and skepticism about their motives in doing so. For example, at the current time the city of Beijing is closing many of the private schools catering to migrant workers, for whom is it difficult to place their children in public schools (because of a residency requirement). It was recently discovered that one rich individual intended to donate a significant sum to finance the construction of schools in Africa, which led many netizens to react badly and to question whether it made sense to engage in such philanthropic projects when the needs in China are also great. And with respect to Cao Dewang of the Heren Foundation, some have criticized him because the donation of shares allowed him to avoid tax on the appreciation in their value.

Nonetheless, as studies have shown, new foundations are being created and they are increasing their support for the sector. Major concerns for the new foundations include good fund management, human resources and board development – how these foundations are seeking to make their giving more effective by enhancing each of these aspects of their operations will be the subject of the next blog.

Karla Simon (西 门 雅)  is professor of law and director of faculty development at the Catholic University of America and has worked in China for over 16 years