Background and Trends, Latest Research »

Kang Xiaoguang[1] and Feng Li[2]

Beijing, 20 March 2004

I. Preface

In 2002, two headline-making events occurred in China.  The China Youth Development Foundation, a famous government organized NGO (GONGO), and Lijiang Mothers Association, a famous private NGO, were both sharply criticized by the media.  They were actually symbolic events in the development of Chinese NGOs, which suggested that the improvement of NGO governance has become an urgent and serious practical question in China.

NGO governance refers to the set of internal and external mechanisms, which provides correct objectives for the NGOs, facilitates them to pursue the right objectives in right ways and offers an analytical framework to study their situation and development.[1]  If we want NGOs to play their roles, they must be given corresponding rights.  If they enjoy certain rights, they must also undertake corresponding obligations or responsibilities.  This requires mechanisms that allow the stakeholders[2] to judge whether the behaviour of an NGO is in line with public interest and on that basis to award or punish the NGO concerned.  In this connection, rights, obligations, responsibilities and accountability constitute the core concepts of governance.

Since the beginning of reform and opening up, NGOs in China have experienced “explosive growth”[3].  They have not only grown in number but also in their varieties, scope of activities, capacity and roles.  However, compared with their counterparts in other countries, China’s NGOs must still be characterized as far from being well developed.  Some NGOs make mistakes or even become tools for crime, against the expectation of society.  At the same time, the general public, donors, beneficiaries and the mass media have gradually matured, with greater awareness of their respective rights and of the responsibilities of the NGOs.  They have also begun to exercise their rights consciously and condemn and protest against various unlawful and immoral acts.  In this connection, obligations, responsibility and accountability have become issues that NGOs in China need to address.

The present paper discusses the governance of NGOs in China.  The second section touches upon the responsibilities and obligations of NGOs.  The third section looks into the internal governance of NGOs and whether it can ensure fulfillment of their responsibilities.  The fourth section is about external supervision and regulation.  The authors discuss whether there is an external mechanism that enables the stakeholders to supervise effectively the behaviour of NGOs and hold them accountable.  The fifth section explores the environment for the existence of NGOs and seeks to find in terms of the broad economic, social and political background the sources of NGO governance.  The sixth section provides a brief note of the key tasks in improving NGOs governance.

Two points have to be made clear here.  First, China in this paper refers to the mainland of China.  The regions of Taiwan, Hong Kong and Macao are not covered.  Second, the NGOs in this papers refer to those social organizations which have formal organizational structure and engage in public welfare activities, no matter whether they are independent of the government or whether they have legal status as a social organization.  This is because in the mainland of China, there is almost not a single NGO as defined according to Western standards.  Chinese NGOs are either lacking in independence and under strict government control or are not formal organizations.  They do not have legal person status or the status of a legal social organization.  Sometimes they engage in for-profit activities without paying taxes according to law.

II. Responsibilities or obligations

NGOs’ social functions, that is, the provision of public goods, directly determine their responsibilities or obligations.  An NGO must cooperate with other social organizations or individuals to realize its social functions.  Consequently it has to satisfy the expectation or demand of these stakeholders.  It is their social functions and the stakeholders of an NGO that define its responsibilities and obligations.

Although in China NGOs have large number of stakeholders, the most influential among them are still the government, international organizations, multinational corporations, big domestic enterprises, experts and the mass media.  It is usually their requirements and expectations that define the NGO’s responsibilities and obligations.  Therefore, we have focused our research on the expectations and requirements of the government, international organizations, enterprises, experts and media.  Since an NGO’s recognition of its own responsibilities also has a direct bearing on its behaviour, we have also investigated this aspect.

Government expectations are embodied in a series of laws, regulations, rules and policies such as the Regulations on the Registration Management of Social Organizations, the Regulations on the Management of Foundations, the Law on Welfare Donations and the Law on Trusts.  The Law on Welfare Donations provides that NGOs must use the donations they receive to finance activities and undertakings that are consistent with their purposes, manage and use donations according to the wish of the donors, regularly report to competent government departments about the usage and management of donations for the purpose of supervision by the government, and make public the receipt, management and usage of donations for supervision by the general public.  The Law also provides that an NGO has to accept the corresponding legal responsibilities, if it changes at its own will the nature and usage of a donation or divert, misappropriate or embezzle donations.  When collecting donations, an NGO must truthfully tell the donors about the purpose and mission of the organization, the purpose of the collection and the performance of the organization.  It has to provide a legal and valid receipt for each donation.  An NGO has to give truthful replies to the donors’ enquiries about the usage and management of donations.  The newly released Regulations on the Management of Foundations provide that public donation foundation must use no less than 70% of its total income of the previous year in the public welfare undertakings identified in its charter, and the proportion for a non public donation foundation is no less than 8% of the balance of the fund of the previous year.  Staff salaries and the running costs of a foundation shall not exceed 10% of the total expenditure of the year.

According to international organizations, the activities and influence of NGOs should not be restrained to a narrow social field, such as satisfying people’s need for social exchanges, defending the interests of vulnerable groups or protecting the environment.  NGOs can influence the whole of society by advocating new views, exploring new directions, affecting the legislative, administrative and decision-making work of government, establishing political legitimacy, cultivating ways of life for citizens, laying down foundations for democracy, and providing a basis and supportive functions for the role of the market.  Furthermore, through NGOs, the government can provide more public services and benefits while reducing resource cost.  Therefore, international organizations hope to see NGOs active in the areas of human rights, democracy, environmental protection and poverty alleviation.   At the same time, they want them to be accountable to society, transparent to the public, and with greater depth and width of public involvement.  According to these international organizations, NGOs’ being responsible, transparent and participatory is something that should be directed towards all stakeholders and not only to government authorities.[4]

Multinational corporations and domestic enterprises realize that they and NGOs are strong in different areas.  They hope to improve their corporate image, enhance their reputation, facilitate relations with the government, construct a corporate culture and strengthen corporate cohesion through cooperation with famous NGOs.  Many enterprises regard charitable undertakings as effective soft advertisement.  From 9 to 11 November 2003, more than a dozen most influential public welfare organizations together with United Way International (UWI) and US-China Business Council organized a high-level forum in Beijing on multinational corporations and welfare undertakings.  Participants were from multinational companies, international institutions, domestic civil society organizations, government departments and the media.  A ‘Proposal’ signed by the delegates urged domestic civil society organizations to give a positive response to the call for an accountability mechanism, stronger governance and enhanced transparency, so as to obtain public trust and support, and also to build up their capacity through increased exchanges, dialogue and cooperation with enterprises.  At the meeting, the World Bank delegate, Austin Hu, pointed out that “non-governmental public welfare organizations need to strengthen institutional and capacity building, to establish a complete financial management system and to increase transparency and public trust before they can lay down a basis for trust and cooperation with enterprises.”[5]

In order to compete for scarce resources and satisfy the expectations or requirements of stakeholders, Chinese NGOs have also begun to explore accountability concepts, moral standards, self-disciplinary mechanisms and NGO sector culture.

From 28 to 30 October 2001, the China Foundation for Poverty Alleviation organized an ‘International Conference on NGO Poverty Reduction Policy’.  Participants from NGOs and academic circles exchanged views on self-discipline and peer supervision among Chinese public welfare organizations, on institutional ways to build up social trust for Chinese NPOs through self-discipline and social accountability, on self-discipline, external controls and legal regulation of NGOs, and other relevant topics.  The ‘Beijing Joint Declaration on Poverty Alleviation by Chinese NGOs’ issued at the meeting put forward principles such as not abusing social trust and hope, increasing transparency, gradually forming an NGO sector culture and code of conduct, establishing self-disciplinary mechanisms, exercising self governance, and maintaining industry integrity.

In December 2001, China NPO Network organized a forum on the self-discipline of NPOs.  Participants were from NPOs, academia, government, international organizations and the media.  They explored ways for Chinese NPOs to realize self-discipline on the basis of their practical experience, existing legislation and the social environment.  The forum put forward ‘Nine Principles of Self-Discipline for Chinese NPOs’ and encouraged participants to sign to reflect their adherence to the principles, which was positively responded to by the participants of the meeting.[6]

In November 2003, more than a dozen NGO leaders placed their signatures on a ‘Letter of Appeal for Accountability and Self-Discipline among Chinese NPOs’.  The document clearly stated the following: “NPOs for public welfare purposes undertake the mission of realizing social justice and equality and eliminating poverty and play an important role in communicating information and promoting exchanges between donors and beneficiaries.  Therefore, the accountability of these organizations and the relevant projects is the focus of government, enterprise and public attention.  Chinese NPO leaders are determined to promote the development of NPO accountability and self-discipline mechanisms.  We strongly call upon the formulation of accountability standards and a charter of self-discipline among Chinese NPOs.  We hope domestic and foreign NPOs will join our effort in this regard.”[7]  Issued at the same time was the ‘Accountability Standards for Chinese NPOs’.  This document stressed the non-religious, non-political and non-profit nature of NPOs, emphasized avoidance of conflict of interest by not promoting the private interests of stakeholders, and urged NPOs to share information and resources, to cooperate with, consult, support and assist one another and to set up necessary mechanisms.  It also stressed that  “the information and materials provided in fund-raising activities should be truthful, reliable, not misleading and consistent with the stated mission of the organization.”  The document emphasized the need for open, transparent, just and reasonable project assessment and autonomy.  It recommended fiscal transparency, respect of donors’ wishes, acceptance of independent audits, and the publishing of annual reports and true, accurate and timely financial statements for public supervision and enquiry.  It stressed the need for release of information and urges NPOs to answer openly public enquiries.  The idea of moral accountability is also raised, calling for the formulation of moral standards such as clean and honest performance, whole-heartedly serving public interest and the maintenance of due professionalism and expertise by the professionals and volunteers.[8]

 III. Internal Governance Structure

Since the internal governance structure of GONGOs is markedly different from that of grassroots NGOs, the paper will discuss them separately.  It has to be made clear that within both GONGOs and grassroots NGOs huge differences exist, with a small number of good performers and a majority of mediocre ones.  However, the small number of well performing NGOs have attracted enormous attention, resulting in a misunderstanding by the public of the overall situation.  They are not representative of all the NGOs.  What we are going to discuss here is general situation.

In the West, the most important internal governance mechanism of an NGO is the Board.  The Board represents social interests and holds decision-making power, thus holding the NGO responsible to the society.  However, the situation in China is different.  Generally speaking, a Board in its real sense does not exist, either in GONGOs or grassroots NGOs.  This phenomenon is a reflection of the unique NGOs administration system in China.

The Regulations on the Registration Management of Social Organizations issued on 25 October 1989 and the Regulations on the Management of Foundations effective as of 27 September 1988, established a dual administration system for NGOs.[9]  In 1998, the government issued new Regulations on the Registration Management of Social Organizations and Regulations on the Registration Management of Private Non-Enterprise Units.  Both entered into force on 25 October 1998.  A new Regulations on the Management of Foundations was published on 19 March 2004 and will be effective as of 1 June 2004.  However, these new regulations do not change the old administrative framework.  They only divide social organizations into social organizations and private non-enterprise units.

The dual administration system delegates major power to professional supervisory units.  Furthermore, it provides that only the Party or government departments or their authorized institutions can act as professional supervisory units, thereby placing all formal social organizations under direct government control.  According to the Regulations on the Registration Management of Social Organizations, the professional supervisory units should exercise a series of supervisory and administrative functions.  They include the following:

• reviewing preparations and applications for the establishment of social organizations, including the registration upon establishment, changes and de-registration;
• supervising and guiding social organizations to abide by the Constitution, laws, regulations and national policies and to conduct activities according to their charters;
• carrying out a preliminary review for the annual examination of social organizations;
• assisting registration authorities and other departments in investigating and dealing with unlawful acts; and
• together with other relevant departments guiding NGOs in clearing up their accounts. 

As a matter of fact, the functions of professional supervisory units are not limited to the above list.  The Regulations are very tactical in holding back some statements of the power of the authorities.  The Ministry of Civil Affairs authorities are more straightforward in this respect.  According to Shetuan Guanli Gongzuo (Administration of Social Organizations), a book edited by officials from the Ministry of Civil Affairs, the professional supervisory units administer the daily running of registered social organizations.  They should carry out regular education of leaders and staff of social organizations about the general situation and their tasks, making them familiar and compliant with national laws and policies.  They should review the elections of organizational leaders, Party work within the organization, and changes in the posts and salary of staff.  They should carry out reviews and administration over major activities including the holding of seminars, financial activities, receipt of donations and foreign-related activities.  They should review and provide opinions on the internal organizational changes and urge the organization to go through change or de-registration procedures at the original department of registration.  They should also facilitate social organizations to clear their equities and debts, provide certificates of debt repayment completion, and deal with other related matters.[10]

In short, the professional supervisory units of NGOs hold all the powers of the Board of an NGO in other countries.  As a result, the Boards of these GONGOs exist only in name.  Such a governance structure is abnormal and cannot ensure GONGOs are serving social interests.  In theory, a GONGO should be responsible to its professional supervisory unit.  In reality, they are often responsible only to the personal interests of the competent officials of the authority and the managers of the organizations.  Within such a governance structure, the managers are often appointed by the professional supervisory units.  The management team as a result is usually lacking in a sense of mission or capabilities and often acts arbitrarily.  Since most managers come from government department ands there is a lack of a sense of responsibility and enthusiasm, the organizational culture of GONGOs is more or less like that of a traditional ‘yamen’ (local government office), in which it is difficult to formulate a correct organizational mission and objectives on a consensus basis.  However, in order to survive and develop and in the face of market competition, GONGOs can respond to social needs, but only within the scope encouraged, allowed or at least acquiesced in by the government.  The project design and implementation process is often tarred by departmental or even individual interest.  The Secretary-Generals usually dictate the activities of GONGOs with no transparency, both within and outside the organizations, and even less with a sense of responsibility to society.

Grassroots NGOs are in a rather different situation.  Though unable to get favourable treatment from the government, they escape strict government control.

The Regulations on the Registration Management of Social Organizations provide that the establishment of a social organization must be reviewed and approved by its professional supervisory unit before it can apply to the registration department.  That is to say, a social organization can be founded only when there is a certain professional supervisory unit that is willing to act in that capacity.  The same Regulations also provide that there should not be more than one organization with the same functions in any one locality and that a social organization should not set up branches.  As a matter of fact, through a ‘conspiracy of power and law’ the NGOs that the government is not happy with cannot even register as a legal social organization or foundation.  In general, only GONGOs are able to obtain green lights for registration, whereas it is almost impossible for grassroots NGOs to register.  In this connection, the grassroots NGOs have to register as legal enterprises, affiliate to other formal social organizations, or conduct activities without registration.  In fact, at the same time as failing to prevent grassroots NGOs from obtaining legal person status, the existing laws also create troubles for NGOs and hidden perils for the development of the third sector as a whole.  On the other hand, it virtually implies ‘legal failure’, because the civil affairs departments, which should be responsible, cannot take up their responsibility because these organizations are not registered with them, while the industrial and commercial authorities cannot take it because it is not relevant to them, resulting in an administrative vacuum and administrative dislocation.[11]

Because of difficulties in registering as a legal social organization, many grassroots NGOs have had to register as enterprises and thereby face numerous troubles.  This is a special difficulty for grassroots NGOs in China.  Xie Lihua’s organization is a typical example.[12]  In 1996, Xie Lihua created the Migrant Women’s Club but was not successful in getting registration as a social organization.  The Club had to exist as an affiliated agency of the Rural Women Knowing All Magazine.  It was then integrated into the Cultural Development Center for Rural Women when that was established in 2001.  According to Xie Lihua, “the Cultural Development Center for Rural Women is an NGO.  Having not been able to register with the civil affairs department, we had to copy the practice of other NGOs and register at the Industrial and Commercial Bureau.  For a non-profit organization to register with the Industrial and Commercial Bureau creates numerous embarrassments and difficulties in our operation.”  The Center actually has two constitutions, one as a share-holding enterprise used for the Industry and Commerce registration and another of an NGO for the implementation of the actual work.  This  creates a lack of consistency.  The constitution used for the registration includes provisions about the board and the organizational structure, but these are only nominal for the Center, even though they have legal force.  The real board and organizational structure established according to the constitution of an NGO are not in actual practice protected by law, implying hidden legal problems.  NGOs that register as industrial and commercial entities cannot possibly enjoy preferential tax treatment.  According to current tax laws, the Cultural Development Centre for Rural Women must pay business tax, income tax, real estate tax, vehicle tax, education supplements and urban construction tax.  Xie Lihua once said, “the problems that we have encountered are the same problems that all NGOs that have registered with the industrial and commercial authorities have encountered.  The problems of registration with the industrial and commercial authorities simply must be solved”.  As a matter of fact, Xie did not touch upon a more serious issue.  If an NGO registers as an enterprise, legally the assets of the NGO belong to the shareholders when actually they should not.  Thus there is a moral risk.  On the one hand, donors worry about moral risks and feel reluctant to give large donations.  On the other, an enterprise constitution delegates too much power to the founder of the enterprise, allowing him or her the legal right to assume all powers within the organization, which is against the ideas and principles of an NGO.

A grassroots NGO is usually founded, organized and led by a leader, who has worked overseas, has been employed by an international organization, has certain overseas connections, or is an idealist who has high sense of responsibility and action.  Grassroots NGOs have clear missions, well understood within their organizations.  The organizational culture is usually rather pure.  They are able to make timely responses to the needs of society, but their scope of activity is very much influenced by their financial capacity.  Due to a lack of legitimacy, basically grassroots NGOs do not have much local fund-raising ability.  Overseas companies do not support them either, since they are not welcome by the government.  In this connection, almost all grassroots NGOs rely fully on funds from overseas NGOs, which consequently has a decisive bearing on the relevant NGOs’ project choice and even their survival and development.  This is why the successful NGOs and their leaders usually have an overseas background.  Since the supporting overseas NGOs place high requirements on their grantees, grassroots NGOs are relatively more responsible and transparent and thereby enjoy high legitimacy and public trust among overseas NGOs.

 IV. External Supervision Mechanism

An NGO’s internal governance structure is related to whether it is accountable, which refers to not deceiving others and to taking the initiative to fulfil due responsibilities or obligations.  Being responsible is an intentional pursuit of NGOs.  The external supervision of NGOs relates to accountability, which stresses the rights and mechanisms for stakeholders to hold NGOs accountable.  There are two types of accountability: positive and negative.  The former refers to after-the-fact investigation and punishment.  The latter refers to non-cooperation by stakeholders.

In China, existing positive accountability measures include management by Civil Affairs departments, control by the professional supervisory units, government audits, independent audits, supervision by donors, beneficiaries, media and the general public, self-discipline, supervision by specialized NGOs, regular issuance of financial statements, and surveys of public opinion.  Generally speaking, management or administration by the Civil Affairs departments or professional supervisory units is either too relaxed or too strict.  Auditing by the government or by independent agencies is usually a formality.  Due to lack of professionalism on the part of independent auditing agencies, annual reports published by NGOs are not very trustworthy.  Beneficiaries are usually not able to supervise the activities of the NGOs.  A self-disciplinary mechanism among NGOs does not exist, and there are no NGOs specialized in consultancy, review and supervision.  In recent years, the media, the Internet in particular, have played a more and more powerful supervisory role.  It is also notable that the judicial departments have begun supervising activities of NGOs.

Three headline-making events illustrate this.  First, a former staff member of the China Youth Development Foundation (CYDF) accused the organization of making losses in investments, non-compliance with its constitution, and corruption among its leaders.  Second, the American Mothers, Inc, sued the Lijiang Mothers Association for using donations against the wish of donors and falsifying financial records.  Third, the ‘victims’ accused Dong Yuge, Head Mistress of Shandong Huanghe Orphanage of fraud.

The reputation of the CYDF suffered severely under the intense coverage and attack from the mass media, and especially from the internet.  The judiciary also played a role.  On 29 October 2002, a final verdict was made by the Yunnan Provincial High Court that the Lijiang Mothers Association should return to the American Mothers, Inc, the RMB 907,890 yuan that had not been used according to the wishes of the donor.[13]  On 5 April 2002, the Mudan District People’s Court, Heze, Shandong Province, sentenced Dong Yuge to an 11-year imprisonment with a fine of 50,000 yuan and ordered the return of the RMB 334,800 illegal gains.[14]  In the CYDF case, the judiciary did not intervene but the State Audit Administration and the Disciplinary Committee for Departments Directly under the Party Central Committee carried out strict scrutiny and investigation.  After that, the CYDF conducted a comprehensive and systematic reform of its governance structure and management system.  Important reform measures included the establishment of a “real board”.  The three cases revealed that the annual examination by the Civil Affairs departments, regulation by the professional supervisory unit and government and independent audits can play little or no preventive roles.  As a matter of fact, in China, most NGOs can do anything they want.  They may enjoy privileges without undertaking any social responsibilities.  At junctures critical to their survival, the professional supervisory units of GONGOs may even use administrative power to intervene in supervision from the outside, since to protect their GONGO is to protect themselves.

The three cases also reveal a basic model of “successful external supervision” under the present circumstances, that is, whistle-blowing by insiders, media coverage, government or judicial intervention, and perpetrators being held accountable either by losing their reputation or by being punished by law.

Though NGOs have been in frequent conflict with their stakeholders, only a few of these conflicts are made public, even less brought to court.  Most of the conflicts ended with termination of cooperation.  However, that does not mean that NGOs can easily escape punishment.  They have to pay heavily in terms of social legitimacy.[15]  In the intensely competitive market of public welfare, the loss of social legitimacy is tantamount to the loss of resources for survival and development.  In this connection, in today’s China, competition for donations constitutes a major mechanism of negative accountability.

NGOs in the form of an enterprise can also survive though without legal or administrative legitimacy, as long as they have social legitimacy and do not infringe upon any political taboos.  They have to be positive and upright in improving their services and delivery ability so as to get donations.  GONGOs all need social legitimacy if they want to obtain resources from outside of the government.  Project Hope is an example here.  Grassroots organizations that register as industrial or commercial entities use two constitutions also for social legitimacy purposes.  Usually the founders of such organizations are already famous activists before their organizations were created and are acknowledged by their peers and international organizations.  Their reputation constitutes the initial social legitimacy of the newly created organization.  The performance of the NGO, if consistent with the expectation of the stakeholders, will consolidate and enhance the social legitimacy of the organization and thereby facilitate it gaining further support to sustain its development.

Since the government does not provide any financial resources, legitimacy in the legal sense is only a protective resource.  Financial resources for further development can only by asking for funds from the public.  Therefore, Chinese grassroots NGOs, as well as a majority of GONGOs, have to gain social recognition in order to survive.  In short, they have no way to escape from negative accountability.

 V. Background or Macro Environment

NGOs do not exist in a vacuum.  The national polity, legal framework, relevant policies, public demand, and available resources, as well as overseas funds, knowledge and personnel exchanges all have strong influence on NGOs’ governance.  In this connection, to understand the governance situation of NGOs in China, one must understand the economic, social and political conditions of China and the meanings of reform and opening-up.

The reform has broken the original mechanism of supply of public goods.  The new mechanism is not yet in place, while the demand for public goods is sharply increasing.  In this situation of a big gap between supply and demand, there is a dire need for NGOs.  However, available local resources are very limited, as shown in lack of knowledge of NGOs.  Few individuals and enterprises are ready to provide financial support for NGOs, there is no culture supportive of NGOs, and there is an extreme shortage of professionals and volunteers.  Meanwhile, the mass media, which is needed to mobilize communities, are in the hands of the government.  There are also not enough management professionals for such organizations, nor is there adequate supervision.

More than twenty years of reform and opening up have made today’s China enormously different from that of the Mao Zedong era.  A market economy is replacing a planned one.  Authoritarianism has replaced totalitarianism, with political control relaxing and greater diversity of thinking.  With economic autonomy and private life of citizens no longer controlled by the government, there is basic autonomy in the “private sphere”.  However, the state still has the desire and ability to exercise strict control over the public sphere.  Consequently what is replacing the old state dominant system is not social autonomy but rather a new state dominant system, which can be called a “structure of control by category”.

Different types of organizations’ ability to challenge the political power of the state varies.  If we conceive of them as a series of concentric circles, with the organizations that have the strongest capacity to challenge the political power of the state at the center, then political opposition organizations would be at the core.  The functional organizations such as the labour unions, the women’s federation, the Communist Youth League and the Association of Industry and Commerce would be the next.  The next circles would be the important social service organizations that provide social services needed by both the government and the population, such as trade associations, research societies, charity organizations and religious organizations.  Less important social service organizations that provide services needed by the public include environmental protection organizations, hometown associations, alumni organizations and campus interest groups come next.  The government adopts different strategies towards these different organizations according to its political relations with them.  It firmly “bans” political opposition organizations, integrates the functional organizations into its own organizational structure, exercises indirect control the dual management system) over important social service organizations, while allowing the existence of small independent groups of this type, and conducts very relaxed management of less important social service providers.  In general, the social structural change of the Chinese mainland since reform and opening up can be seen as part of the process for the state to establish this “structure of control by category” described above, that is, a process through which the state has reshaped its mechanisms of social control.  To be exact, it is now a structure of comprehensive social control by the state using non-governmental ways in the new economic environment.  It is fair to say that Chinese NGOs are “non-governmental organizations under the leadership of the government”.

The limited areas of NGO activities reflect the effects of the structure of control by category.  At present, NGOs are very active in education, public health, environmental protection, legal assistance and support for vulnerable groups.  They also make some contribution to research, exploration, advocacy, conceptual change and institutional innovations.  They have also forcefully promoted opening up to the outside world.  Environmental protection, women’s rights and industry associations are very active in international exchanges.  However, some areas have always been shut to NGOs.  The government adopts a rather utilitarian attitude towards the NGOs.  On the one hand, it hopes to see them play a complementary role.  On the other, it restricts activities that it is not happy with.  In this connection, the NGOs all observe an iron law; they must not offend the strong government.  The NGOs know very well that, if the government is offended, they will achieve nothing, the organizations may be banned and the leaders may be jailed.  In this sense, all NGOs are very self-disciplined.

It must be pointed out that, the facts are not what some researchers conclude or expect, that NGOs can be a positive force to disintegrate dictatorship and promote democracy and that civil society resists the state.  In China, NGOs play a dual role of, that of maintaining government authority and that of enhancing the autonomous capacity of citizens at the same time.  Undoubtedly, the development of NGOs will exert a positive influence on Chinese society.  It is still impractical to expect NGOs to change the Chinese political and social structure in the near term.  In today’s China, it is political evolution that determines the fate of NGOs rather than NGOs development that influences political development.

The opening-up policy has exposed China to overseas influence, which is significant for the development of Chinese NGOs.  Without enormous influence from abroad, the NGOs would not be what they are today.  On the one hand, overseas NGOs are directly involved in the activities in China.  On the other, they provide a driving force, opportunities, pressure and resources.  At the beginning, the establishment of many GONGOs was intended to facilitate exchanges with outside China.  The establishment of NGOs by government was also the result of learning from foreign experience.  For the Chinese public, government, enterprises and the NGOs themselves, the knowledge of NGOs, including their value, functions, governance structure, mode of management, project operation, fund-raising, sense of responsibility, organizational culture, supervision, review, training, consultancy and research methods, has come from overseas.  Even personnel in this area are from overseas.  Even today a great majority of grassroots NGOs have not got beyond the period of ‘nursing’, and their ‘nurses’ are overseas NGOs.

In the past two decades, overseas influence has been increasing with each passing day.  It will further strengthen.  Andrew Watson pointed out the opportunities and challenges for NGOs brought about by China’s accession to the WTO.  First, a change of government functions will produce corresponding changes on the part of the NGOs.  Second, more and more enterprises coming to China and developing their own charitable undertakings will both provide opportunities for Chinese NGOs and bring higher requirements for their work ability, management system, sense of social responsibility and transparency.  Third, international NGOs and NPOs will also develop themselves in China, providing cooperation opportunities for Chinese NGOs and intensifying competition, for talented people in particular.  Fourth, with economic growth and increased competition, workers have to face employment risks and farmers have to adjust their production structure and some have to migrate to the cities for completely new lives.  The government and the NGOs must address all of these issues together.  Fifth, Chinese NGOs need a more rational and improved legal framework, which requires joint efforts by Chinese NGOs and other organizations to achieve.  According to Andrew Watson, as various NGOs and NPOs are playing more and more roles in the world, Chinese NGOs must think over what role they are going to play in the international arena.[16]

 VI. Basic Strategies to Improve Governance Mechanisms

How to improve the governance of Chinese NGOs is a very important question.  If the question is to be answered, the starting point must be based on reality rather than on empty idealism or prescriptions based on misuse of Western social experience.  While recognizing that serious problems exist and huge improvement is direly needed in almost all aspects of NGOs’ governance, what we want to address here are the most important and most urgent questions.

The most serious problem is the lack of a rational legal framework.  As a result, citizens, vulnerable groups in particular, are not able to realize their rights of association fully, and some other rights provided by law (such as preferential tax treatment) are absent.[17]  A further consequence is that NGOs do not have sound internal governance.  GONGOs lack autonomy and are heavily dependent on their professional supervisory units.  Grassroots NGOs cannot obtain proper legal person status and exist as enterprise legal persons, which leads to conflict between legal legitimacy and social legitimacy.   Additional consequence also includes irrational government intervention rendering effective external supervision impossible.  Good governance of NGOs requires boards responsible to public interests, effective external supervision and a sound legal environment.  However, the question of legal environment cannot be addressed in a short time or by the NGOs themselves.  The fate of NGOs is closely linked to the macro political environment, and the direction and results of political reform are dependent on many other factors.

Nonetheless, NGOs should not passively wait for the external environment to improve.  They should on the one hand cooperate with other players to facilitate improvement of the legal environment and on the other improve their own internal governance.

Consensus building should be the primary task.  What are NGOs?  What purposes do they serve?  Where does their legitimacy come from?  Who are they responsible to?  What responsibilities do they have towards the stakeholders?  What aspects of their behaviours must be accounted for and how?  How should NGOs respond to criticisms?  The NGOs need to reflect over these questions and form consensus on the answers.  NGOs must have ideals and objectives and demonstrate sympathy, sense of responsibility, humanism and altruism.  An NGO’s projects and activities should be based on good values, which are embodied in the vision, mission and strategic objectives of the organization.  NGOs must not stop at following the chosen values and moral principles but should take a step further to extend the values and moral principles to all stakeholders.

It is also important to establish a social consultation mechanism through meetings, discussions, the Internet, magazines and other media so as to build a common understanding of the good governance of NGOs and to take concrete and effective measures on that basis.  To address the registration problem, specific programmes and agencies can be developed to carry out identification and accountability assessment.  They can also help introduce common moral standards, supervise their implementation, and serve as an important force to develop industry culture and self-discipline.  To this end, it is necessary for organizations of nationwide influence to promote the development of moral standards and conduct extensive international cooperation.  In this regard, the cooperation between the China NPO Network and the McClellan Foundation is exemplary.

Finally it is necessary to set up a mechanism of extensive participation.  NGOs not only need recognition by law but also need the support of all stakeholders, and at the very least of the donors.  NGOs must pay attention to their social legitimacy and in this connection need to increase transparency and open up their decision-making processes so that stakeholders can really take part in the making of important decisions.  Public opinion surveys is another way of involving the public.  In short, donors, beneficiaries, collaborators, the media, the general public, independent auditors and the government all need to be involved in the management of NGOs.  Such participatory mechanisms by these groups constitutes supervision of NGO activities.  Experience also suggests that self-discipline alone is not enough, and without effective external supervision it is not possible for NGOs to develop healthily.  Unswerving and strict external supervision can effectively promote NGOs to do what they should do and fulfill their missions.  This is a basic rule that has been proven at all times and in all countries.

[1] For our analysis, we divide the governance mechanisms for NGO’s into internal and external.  The ‘internal governance mechanisms’ include the organizational mission, culture, board and the general internal management system.  ‘External governance mechanisms’ can be both positive and negative.  The former includes administration by the Ministry of Civil Affairs departments, control by the professional supervisory organizations, government audits, independent audits, supervision by donors or stakeholders, public supervision, sector self-regulation, supervision by specialized NGOs, publication of periodic financial reports, surveys of public opinion and so forth.  The latter includes such things as ‘cessation of cooperation’, which implies a loss of ‘social legitimacy’.

[2] The stakeholders in NGOs include the government, international organizations, donors (multinational companies, domestic enterprises and individuals), the beneficiaries, research groups, the media, the general public and so forth.

[3] The Chinese Government divides civil society organizations into three categories: social organization, foundation and private non-enterprise entity.  Private non-enterprise entity is roughly equivalent to an NPO and the other two types are equivalent to NGOs.  The 2002 Statistics and Report on the Civil Affairs Undertakings issued by the Ministry of Civil Affairs included the following figures.  At the end of 2002, there were 133,000 registered social organizations in China, among which 1,712 engaged in activities throughout the country or across provinces, 20,069 were active within a single province, 52,386 existed within prefectures, and 15 were foreign chambers of commerce.  There were 1,268 foundations and 111,000 private non-enterprise entities registered at civil affairs authorities.  Apart from the above-mentioned organizations that have undergone formal registration, large number of informal organizations exists.  According to a report by Tan Ailing, an official at the Ministry of Civil Affairs, “some social organizations are not registered with the Ministry of Civil Affairs” and “it is estimated that registered NGOs only account for one fifth of the total number of such organizations.” (Tan Ailing, ‘Xiuding san da tiaoli banfa guifan wo guo NGOs de weilai, fang Minzheng Bu Minjian Zuzhi Guanliju Fu Juzhang Li Yong’ (Amending the Three Regulations and Measures to Regulate the Future of NGOs in China, an Interview with Li Yong, Deputy Director General, Bureau of Civil Organizations, Ministry of Civil Affairs), Ershiyi Shiji Jingji Baodao (21^st Century Economic Reports), 21 May 2003.

[4] Before 1989, the West had placed their hope for China’s democratisation on reformists within the Chinese government.  The hope was broken by the Tian’anmen incident.  Some people discovered “civil society resisting the state” in the drastic changes in Eastern Europe and the Tian’anmen incident, which brought them new hope.  As a result, the West turned to expect bottom up changes, the best tools of which are NGOs.  In the eyes of Western governments and international organizations dominated by developed countries, NGOs are the main tools to promote democracy, human rights, market mechanisms or bottom-up peaceful evolution.

[5] Austin Hu, Zai kuaguo gongsi yu gongyi shiye gaoji luntan shang de jianghua (Speech at the Senior Forum on Multinational Corporations and Welfare Undertakings), 9 November 2003.  Austin Hu, Deputy Chief of Mission, the World Bank Office Beijing.

[6] Shang Yusheng & Cui Yu, ‘Zhongguo NPO Chengxin Fazhan Baogao’ (On Accountability Building of Chinese NPOs), NPO Tansuo (NPO Exploration)，trial issue, December 2003, pp. 17-21.

[7] Yan Mingfu et al, ‘Zhongguo feiyingli zuzhi chengxin he hangye zilu huyushu’ (Letter of Appeal for Accountability and Self-Discipline among Chinese NPOs), NPO Tansuo (NPO Exploration), trial issue, December 2003, p. 54.

[8] ‘Zhongguo feiyingli zuzhi gongxin li biaozhun’ (Public Trust Standards for Chinese NPOs), NPO Tansuo (NPO Exploration), December 2003, back cover.

[9] The so-called ‘dual administration system’ refers to registration of NGOs with registration management authorities under the Ministry of Civil Affairs and with a professional supervisory unit responsible for oversight of their professional work.

[10] Wu Zhongze & Chen Jinluo eds. Shetuan Guanli Gongzuo (Administration of Social Organizations), China Social Press, 1996, p. 31.

[11] Xie Lihua, ‘Gongshang zhuce NGO mianlin de kunjing, cong Nong Jia Nü Wenhua Fazhan Zhongxin tanqi’ (The dilemma of NGOs registered at the Industrial and Commercial Bureau, a case study of Rural Women Knowing All Cultural Development Center), Yanjiu Baogao Zhuankan (Special Journal of Research Reports), published by China NPO Network, No. 16, July 2002, pp. 14-16.

[12] Ibid.

[13] Xian aixin yinfa juanzeng jiufen an (Charitable Donation Causes Conflict), www.yn.xinhuanet.com, 11 January 2003.

[14] Dong Xueqing, Min ban gueryuan guanbi jieti, cishan mama wei he chengle zhapianfan? (Private orphanage closed, why did a charity mother become a swindler?) www.news.xinhuanet.com, 10 June 2002; Dong Yuge xianxiang tan xi (Analysis of the Dong Yuge phenomenon), www.xinhua.sd.cn, 31 May 2002.

[15] Gao Bingzhong has written quite insightfully about the legitimacy of NGOs.  According to him:

“The basis of legitimacy can be either a legal procedure, a certain social value or various precedents followed by a community.  Legitimacy is reflected as recognition of higher levels of authority from below or, under certain conditions, by peers at the same level.  When “recognition” is the main index in analysing the legitimacy of a social organization, the subjects expressing recognition can be put into three categories: the state, the government and their representatives; various enterprises, public institutions and social organizations; and individual citizens.  Recognition by the state and the government is linked to the agreement or authorization for the social organization to carry out activities.  Recognition by enterprises, public institutions and other social organizations is linked to cooperation and the provision of resources.  Recognition by individuals is linked to their participation.  The legitimacy conferred upon an NGO by the three subjects constitutes the basis for the organization to carry out public activities.

In order to analyse the composite legitimacy of social organizations, legitimacy can be broken down into social legitimacy, legal legitimacy, political legitimacy and administrative legitimacy.  Social legitimacy refers to legitimacy gained because of consistency with cultural traditions, social customs and other non-governmental (civil society) standards.  Legal legitimacy is gained upon fulfilling of legal provisions.  Political legitimacy refers to a social organization being recognized as being consistent with national values or ideologies.  Administrative legitimacy is related to observance of rules and procedures established by the administrative departments and their authorized agents.  Given the particular importance of administrative departments and their officials in the Chinese legal and social systems, administrative legitimacy is extremely necessary.  In theory, a social organization needs to gain legitimacy in the above-mentioned four areas.  In reality, it may enjoy legitimacy in only one area or in all four areas.  That is to say, some organizations have only got limited legitimacy while others have gained relatively comprehensive legitimacy.  In the past nearly twenty years, the requirements on social organizations from the different areas listed above have varied, and the degree of dependence by NGOs on these different areas have also changed in the course of foundation and development.”  Gao Bingzhong, ‘Shehui Tuanti de xingqi ji qi hefaxing wenti’ (The Rise of social organizations and their legitimacy), Kang Xiaoguang ed. Zhongguo Disan Bumen Yanjiu Nianjian 2000 Nian: Chu Yu Shizi Lukou de Zhongguo Shetuan (The Research Yearbook on the Third Sector in 2000：Chinese Social Organizations at the Crossroads), Tianjin People’s Press, 2001, pp. 75-91.

[16] Andrew Watson (Hua Ande), ‘ Jiaru WTO zhihou, Zhongguo de NPO ruhe shiying guoji guize?’ (How can Chinese NPOs adapt to international standards upon China’s entry into the WTO?) Yanjiu Baogao Zhuankan (Journal of Research Reports), published by the China NPO Network, No. 14, March 2002, pp. 11-13.  Andrew Watson is Representative of the Ford Foundation Beijing Office.

[17] The Provisional Regulations on Enterprise Income Tax (effective as of 1 January 1994) provide that “the amount of donations by a taxpayer to public welfare or disaster relief can be deducted from taxable income at a level equal to or less than 3% of the taxpayer’s taxable income of a specific year”.  The Regulations on Implementation of the Law on Personal Income Tax (effective as of 1 January 1994) provide that the amount donated by an individual to education and other public welfare undertakings should be deducted from that individual’s taxable income up to the level of 30% of the tax to be paid.  The Individual Income Tax Law (implemented from 30 August 1999) stipulates that “according to relevant orders of the State Council, donations to educational causes and public welfare can be deducted from the tax payable”.  The Welfare Donations Law (effective as of 1 September 1999) provides the following preferential tax treatments for donors.  “Corporate donors to public welfare may according to law enjoy preferential treatment for enterprise income tax.  Natural persons and self-employed people, if donating to public welfare undertakings, may enjoy preferential treatment in personal income tax.  Overseas in-kind donations to public welfare or non-profitable organizations for public welfare purposes may enjoy reduction or exemption of import tax and import VAT.  Projects supported by donations should be assisted and favourably treated by the relevant local governments.  However, the above-mentioned preferential tax treatments for NGOs provided by laws and regulations are not always realized.  A donor’s demand for tax exemption using a receipt issued by NGOs is usually ignored by the tax authorities, which will agree to a reduction or exemption only when the donor’s demand is supported by special consideration from authorities with real power.  Generally speaking, the current practice is review and approval on a case-by-case basis.  Ironically, NGOs existing in the form of enterprise legal person are always able to avoid or evade tax by claiming zero profit or by asking for special favours through advocating their missions to the tax collectors.

[2] Dr. Feng Li, Project Officer, China NPO Network.

(Courtesy of Kang Xiaoguang. Copy right with Kang Xiaoguang)