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)

Chris Stone. Director of the Hauser Center at the CFC Ceremony

China foundation Center was inaugurated on July 8 of 2010. A brainchild of some of the visionaries in the philanthropic field in China, such as China’s best known philanthropic figure, Xu Yongguang, who created the Hope Project two decades ago which has become the best known philanthropic brand in China, and Shang Yusheng, who has been referred to as the Father of Accountability for nonprofits in China, its opening ceremony has attracted the attention and support of best known figures in the field of philanthropy of China. Among the almost Chinese-Philanthropy-Who-is-Who guest and team list, there was Wang Zhenyao, who has recently resigned the post in charge of China’s charity and philanthropy at the Ministry of Civil Affairs to create a philanthropy institute at Beijing Normal University, He Daofeng, the legendary leader of the China Poverty Alleviate Foundation who has established a an example for a how a GONGO becomes entrepreneurial, Zhuang Ailing founder of one of the most active support organizations, Yuan Yue, the famous public speaker on philanthropy and a practitioner of philanthropy as a successful business entrepreneur. The most prominent international players in this field were also present. They included the Ford Foundations’s first China Representative, Peter Geithner, China Representative of Gates Foundation Ray Ipp, China Representative of Ford Foundation John Fitzgerald, President of the Foundation Center in the U.S. Brad Smith, and Director of the Hauser Center at Harvard University, Christopher Stone.

In China, if you have the right people on board, that almost means half of the success. However, the fact that these groups of important people are giving their support somehow testified to the significance of this initiative.

From the speeches by the guests at the Inaugural Ceremony as well as the Round Table discussions, this initiative has been regarded as timely, visionary and smart.

As symbolized by its logo–a sandglass with golden sands (which I heard is the idea of Xu Yongguang), transparency and dispersion of fortune is the theme for the CFC.

Theme One: Giving (Dispersion of Fortune). As a grassroots initiative for the private foundation community in China, the CFC highlighted the fundamental motivation behind a foundation: giving. To the increasing number of wealthy individuals in China, setting up foundations to give to charitable purposes has not yet been a commonly considered thing to do. The creation of the CFC represents a milestone in the evolution of the private foundation community in China, and makes it almost a default norm for the rich to consider “giving”: If you have not set up a foundation or have not given big, you are out: See your peers are already exploring how to give better.

Theme Two: Transparency. Aspiring to become a portal to disclose detailed financial and program information of all foundations (and nonprofits) in China, the operation of the CFC will trigger a chain reaction that changes the fundamental behavior of philanthropy in China.

First, Chinese foundations, especially the public fundraising foundations most of which are GONGOs, are under the pressure to comply and disclose their information too. This includes both their financials and their programs. Some major GONGOs like the China Charity Federation, China Red Cross Foundation, are the government designated legal recipients of public donations from home and abroad in times of disaster. During the Wenchuan Earthquake period for instance, there were up to $8 billion donations and over 90% went to the GONGOs. For the Qinghua earthquake, the government issued an order to have these foundations transfer funds raised to local Qinghua government. When information disclosure becomes a norm for foundations, GONGOs will be under the pressure to account for the funds raised.

Secondly, as being empowered with information to make comparisons among foundations, the Chinese public will learn to ask for accountability for their donation. According to a survey conducted by the China Youth Daily leading up to the launch of the CFC, only 26% surveyed public will try to understand the usage of their donations. Over 50% said that they will not try to find out about it. The CFC information will no doubt help the public to learn to give smarter.

Thirdly, for the foundations, when giving an opportunity to showcase their internal programs, another pressure is to put up a better show. The ensuing questions that they have to think all the time will also include: are you doing strategic philanthropy; are your programs innovative.

A successful CFC will also provide the burgeoning Chinese civil society a good leverage to balance the government influence in this field. In the landscape of Chinese foundations, government backed foundations are generally the super big ones. They have the monopoly in collecting public donations, especially in time of disaster. They are generally also in a much competitive position to take business donations because the ties with the government and more publicity. The private foundation community establishing the rule of game for foundations is a very smart move to try to influence those foundations coming from the old system.

However, there are some reservations in the field about the future of the CFC. The government had earlier made an effort to build a similar information center on foundations, but did not succeed due to various difficulties. If the government could not do it, how can the CFC succeed? If the government takes up the work again, where will the CFC stands? Then, to what degree will the CFC have the power to solicit data from the foundations?

The power and influence of the CFC lie more in than just a complete set of data. It has to learn to use the data smartly, converting data to information. As Wang Zhenyao pointed out in his speech, we should learn to use data to make a case. We hope that the CFC will use data to speak loud and revolutionize the practice of the foundations and nonprofit field in China.

For more information of the event, see http://gongyi.qq.com/zt2010/jijinhui/.

(Xing)

In 1999, Hu Manli, founder of China Green Shade Children’s Village (CGSCV), went to Lijiang, Yunnan Province. Hu rose to fame for adopting several hundred orphans and was reputed as “Mother of China”. For this trip, she was representing United Moms Charity Association (UMCA), an American charity organization headed by Zhang Chunhua, to build orphan schools. Over the past seven years, Hu was repeatedly questioned by Zhang and others about her management of the orphan schools and use of donations. The war between the “United Moms” (UMCA) and the “Mother of China” spanned seven years.

“For these many years, Hu Manli has embezzled a lot of money from donations. We’ll stop her.” Zhang Chunhua, who’s Chinese American, murmured while reading the official documents with a magnifier.

Hu Manli had been a symbol of grass-root philanthropy in China. This middle-aged woman was known for her commitment to Chinese orphans and was named “Mother of China” in public-interest ads broadcast on CCTV. Seven years ago, however, her reputation was overturned by Zhang Chunhua, who entrusted her to build orphan schools in Lijiang.

Zhang was president of UMCA based in the United States. UMCA once helped Hu set up Lijiang United Moms Charity Association and entrusted her to build Lijiang National Orphan School. Over the past seven years, however, after Zhang discovered Hu’s misconducts – embezzling donations for board expenses and education as well as muddling up the books, she started to disclose Hu’s misdeeds. We also held doubts toward Hu’s charity after participating in the investigations after 2001.

Finally, Zhang received the document from the Lijiang government. It said that the city government would take over Lijiang National Orphan School starting April 1. For some reasons the takeover was postponed, but officials from the city government stated that “(the government) is destined to take over the school in a couple of days”, and would ensure that “the school operates normally, the donations made good use of, and the city government be responsible for all expenses if donations are unavailable”. Such determination to take over the orphan school resulted from the previous year’s audit of Hu’s charity. The audit looked into the financial revenues and expenditure of the orphan school since its establishment and till August 31, 2006.

The audit revealed: Hu faked financial accounts and make the around 330,000 yuan (approximately $48,316) of public donations appear to be her personal donation; withdrew about 100,000 yuan (approximately $14,641) from orphans’ personal accounts with copies of passbooks; evade over 430,000 yuan (approximately $62,958) from fixed assets check; Hu also bought around 280,000 yuan (approximately $40,996) commercial insurance for over ten orphans and listed it as one-time expense of the school. However, she left out the bonuses from the insurance accounts and hind the fact the premium for the insurance will be fully refund in five years; the revenues of the computer services department were also unstated. The audit also revealed that illegal receipts, in the form of general receipt, payment orders, and merchandise transfer slips, amounted to 420,000 yuan (approximately $61,493), among which up to 170,000 yuan (approximately $24,890) was stated receipts of consecutive numbers from one seller. “Such a big amount was stated on consecutive receipts, mostly likely a result of accounting fraud before the audit.” Zhang Chunhua proved it with another evidence she discovered. Comparing the 2006 audit report to the one issued by the Lijiang Audit Bureau in 2000, an additional 100,000 yuan (approximately $14,641) in the 1999 and 420,000 yuan (approximately $61,493) in the 2000 board expenses were found during the 2006 audit.

One official from the city government who was handling the incident believed that the audit still understated the problems. According to the law, the financial accounts audited were voluntarily presented by Hu. “Hu Manli is the only decision maker in the school, not supervised by anybody. Even Chen Bin, the accountant, was an orphan brought up by her. We never know what she made up before the audit. But the report already revealed these many problems.”

The audit bureau also has no right to investigate into Hu’s personal assets. We knew in 2002 that Hu owns a luxurious house occupying over 320 square meters and worth of over 500,000 yuan (approximately $73,206) in Lijiang. We also know from somebody who once lived with Hu that she purchased another two houses worth of around 400,000 yuan (approximately $58,565) under the name of her mother Wang Fengqin and her adopted son Chen Bin. She also sent her daughter Gui Tiantian to study in New Zealand high school. Her daughter is about to graduate from college now.

Hu Manli, however, took on a different image in front of orphans. Zhou Hong, who has already left the orphan school, told us “Hu said her life was worthless. She showed us her clothes full of patches.” Hu would then cry saying that she set up the orphan school with donations from her friends for her brain tumor. “We’re asked to pay homage to her before every meal, saying that she’s more than our natural mothers and how she devoted all her life to us. Now I feel disgusted when I think about that.”

(Translated by Stella Zhou of Harvard University. © Hauser Center at Harvard. )

Deng Ke, Southern Weekend Reporter

 ·         In the Yuechen District of Zhaoxing City, Zhejiang Province, the largest donor to the newly established Charity Foundation will soon be appointed as its Chair. This has caused heated debate throughout Zhaoxing.

• In Wenzhou City of Zhejiang Province, the head of the Luchen District Charity Federation is an entrepreneur while the head of the Wenzhou City Charity Federation is a retired city official. There have been monumental differences between their respective fates and job progress.
• The person in the leadership position for the so-called “Third Sector” Charity Federation not only decides its direction of development, but also, to some extent, its entire fate. It still seems very difficult for these third sector organizations to develop into the truly nongovernmental and independent agencies described by academic scholars.

 “Buying Power” versus “Doing Good”

 “Since it’s a nongovernmental organization, why not use nongovernmental forms of management?” asked Wang Jiaxing, the Secretary of Zhaoxing City Committee. In front of him sat Huang Weiying, Chair of the Yuechen District Department of Civil Affairs, who had come to report on the establishment of Yuechen District’s new Charity Federation.

 “I didn’t expect that Wang would suggest this new idea,” Huang Weiying said, “The creation of the new charity federation actually goes back to last year. Although Zhaoxing is an economically developed region, Yuechen District is an even richer area. But we discovered that there were over 5,000 residents living in dire circumstances, and thus decided to establish a Charity Federation that could raise money towards supporting and helping these communities.”

 The custom in China has always been to appoint current or recently retired governmental officials as leaders of Charity Federations, who then controls the use of its funds.

 Secretary Huang said: “Originally we were planning to operate in the customary way, to invite a governmental official to take the lead of the new federation. But when we reported to the District, the head of the District suggested a new approach: a nongovernmental organization should operate using a nongovernmental governance approach.”

 The District head didn’t actually specify what he meant by such a nongovernmental governance approach. As soon as she came back from meeting with Wang, Huang and her colleagues began discussing this matter.

 Since it is to be a nongovernmental approach, the leader must not be a governmental affiliate but rather someone from civil society. What kind of person, then, should hold such a position? The most fundamental requirement is that he or she has a passion for the doing good, but the most direct way to express this passion is possibly through how much money he or she is willing and eager to donate to public causes. Thus, a bold idea of “whoever donates the most money will assume leadership” was proposed.

 Yuechen District Deputy Secretary Wang Wei said, “The ‘whoever donates the most money will assume leadership’ idea is merely a simplistic one, and in practical implementation there should also be other requirements besides looking at the amount of the candidates’ donations. The Federation Founding Committee has outlined three main criteria: the first is capital potential, used to measure their contribution; the second is passion for a career in serving society, used to evaluate the candidate’s character; and the third is willingness to abide by the ‘Yuechen District Charity Federation Constitution, used to finalize a plan of action.

 Wang Wei said, “Using these three criteria, we hope to select the candidate with the most character and wealth from civil society to assume the Charity Federation’s leadership position.”

 In February of this year, the Yuechen District Charity Federation Founding Committee issued a “Public Announcement Address to Yuechen District Residents.” This address outlined the decision for a new mode of management in the new Charity Federation, including the three-tier combination of nongovernmental governance, governmental assistance, and civil society participation. The February 23 issue of “Zhaoxing Nightly News” featured this story in its headlines. The report read: “For many years, the leadership of each area’s Charity Federation has been assumed by governmental officials. The newly established Yuechen District Charity Federation has announced its decision to adopt a completely new style of management: to have the largest donors assume all positions of leadership. This is the very first example in China of directly using donation contributions to decide leadership roles.”

 This news immediately sparked a strong reaction among Zhaoxing residents, with people taking polarized positions. One reader wrote to the newspaper claiming that this method is basically “selling power,” and is an exchange between position and money which “taints the sanctity of a career in serving the public good.” Other people expressed the view that since the Charity Federation was a nongovernmental organization in the first place, its leaders can’t be classified as officials, and thus whoever shows more passion for the organization and is willing to donate more should be able to take the lead. This method, according to these readers, seemed to essentially justify the original role of a Charity Federation, and is a completely different matter from “selling power.”

Wang Jianqing, a member on the Charity Federation’s founding committee, said, “The debate during this period of time was very heated, and we felt a lot of pressure as well. But gradually, people’s opinions began to converge, and most people saw the aptness of the approach.”

The March 18^th issue of “Zhaoxing Nightly News” presented an entire section devoted to nine different reader responses under the title “Let’s Discuss ‘Whoever Donates the Most Money will Assume Leadership’.” In these reader responses, it seemed that the original proposal was gaining ground. One reader even called this “a transformational” new change.

Awaiting “Transparent Operation”

 This actually shouldn’t be considered anything transformative or new, as we are basically doing what all Charity Federations should already have been doing in the first place. In the future, it probably won’t just be Charity Federations, but other nonprofit organizations might steer in this direction as well.” Wang Wei of the Yuechen District Department of Civil Affairs said.

 According to Wang Wei, use of Charity Federation funds is often unclear to many donors when under the direction of governmental officials. “Nongovernmental governance” has the benefit of having the donor himself take direction of the charity’s funds, thus increasing the transparency of the operation. Where funds are applied would be clearer to everyone, and can be termed “Operation Sunshine.” This management style should further reinforce the purpose of charitable work and increase the public’s confidence in this field, aligning with international methods.

 The federation founding committee began fundraising on February 20^th, and as of April 8^th they have collected over 4,260,000 RMB, with the single largest donation amounting to 120,000 RMB. According to a staffer from the Department of Civil Affairs, the donor of this largest donation is an entrepreneur, who has always been a supporter of charitable work. Previously, she has already donated almost six to seven million RMB to various nonprofit organizations, and at this time it is very likely for her to be appointed the head of the new Charity Federation.

 The donors who have donated over 100,000 RMB also include three local banks. A member on the fundraising committee said, “According to our rules, ‘whoever donates the most assumes leadership’ considers mainly personal contributions as well as one’s company contributions.

 After Yuechen District publicly declared the new nongovernmental management approach for the new Charity Federation, the situation many feared of entrepreneurs “fighting with money to assume power” didn’t actually happen. Wang Wei said, “Entrepreneurs who contribute money are not doing so for the power or the position, but are only doing it to contribute to charitable work.” But according to another committee member, there is a still a long way to go before China can truly claim to have cultivated basic volunteerism and philanthropy among the general public.  

 A resident of the city described how every new change must carry with it new concerns and considerations. For example, under this new model, what should be the official relationship between charity federations and governmental agencies? Along with the benefits offered by the new governance model, are there some difficulties and challenges that must be tackled as well? A reality that must be faced here is that China is and has always been a “politicized” country, and political forces usually pervade and overcome other forces. If the leader of a nonprofit organization were a government affiliate, it would be much easier and more effective for him to fundraise among businesses than someone who was not a government affiliate. Under these circumstances, would it be possible that giving up its political affiliations and embracing nongovernmental methods would actually hinder their progress and development?  An official from the Department of Civil Affairs said, “We also thought of this concern, which is why in our new constitution, we immediately added ‘governmental assistance’ right after ‘nongovernmental management,’ realizing that under certain circumstances, the government still needs to step in to help.”

 He conceded that if the government wasn’t involved at all in certain situations, fundraising would have its share of challenges. The fact that Yuechen District was able to raise as much as four million RMB in a little over a month owes a lot to government support as well.

 Our understanding is that the fundraising stage of Yuechen District Charity Federation is nearing its end, and an official establishment ceremony is under planning.

 “Government Approach”: Annual Fundraised Amount of 40 million RMB

 Around the same time that the Yuechen District Charity Federation was running its fundraising campaign, another rich and well-developed area of Zhejiang Province, Wenzhou city, also established its own new charity federation on April 3rd. In stark contrast to Yuechen District, the leadership appointment followed a strict traditional “governmental approach”, with the city’s highest official assuming leadership. This city official had once been the Minister of the Wenzhou Municipal Committee as well as the Standing Deputy Director of City Council. Because many officials currently in office throughout Wenzhou had been appointed by him, he still holds much influence among government officials despite being retired from office.

 Since Wenzhou City Charity Federation began fundraising in December of 2000, it has raised almost forty million RMB total in one year. The person in charge of this effort remarked proudly, “such an efficiency and scale of our fundraising efforts is rarely seen among fellow charity federations.” According to him, Wenzhou Charity Federation is second only to Ningbo’s in all of Zhejiang province in terms of funding, “Ningbo has fundraised almost sixty million RMB, but they had started in 1997 whereas we’ve only done it for a little more than one year.”

 An inside source remarked that the efficiency and speed of Wenzhou Charity Federation’s fundraising efforts is certainly impressive, but it is clear that political ties are largely responsible for this. In February 9^th of this year, the federation launched the “2002 Wenzhou Charity Giving Day.” This campaign encouraged people from all levels in local governmental departments and private businesses to contribute to the cause, “leaving no one behind.” Furthermore, the campaign announcement even had a schedule of which days certain departments were most encouraged to contribute. For example March 5^th was for the City Planning Commission, March 6^th was for the Municipal and Economic Trade Commission, and March 7^th was for the Department of Education etc.

 The city mayor of Wenzhou City made an appearance himself for this campaign, personally carrying a donation bin around to many businesses, covering over ten businesses in one day and raising 1.36 million RMB as well as 50,000 RMB worth in valuables.

 What is especially interesting is that the Wenzhou City Charity Federation actually received permission from the city to grant local residence permits in exchange for donations. The policy outlined that migrants from beyond the city limits who owned property of at least 60 square meters, and who also donated more than 150,000 RMB towards the local charity federation, would be able to obtain the city residence permit.

 This policy gave migrants a new welcomed method for establishing legal residence in the city, while at the same time providing a monetary source for the charity. A source from the charity federation said, “Since this policy has been in effect, a total of 598 people have donated to the federation, with funds totaling 89,750,000 RMB. Later, the police department issued a notice, claiming this policy to be condoning the sale of resident permits, and thus prohibited such an exchange.” According to this source, if it wasn’t for the police notice, they could have raised even more funds this way.

 The Wenzhou City Charity Federation grew very quickly under its strong governmental affiliation. A source from the charity told us, “when the charity sector is just starting out and when most people still lack understanding of this new phenomenon, it is important for the government to take the lead in supporting these charities.” Last year, at the Second Annual Charity Work Experience Exchange and Training Conference in Zhejiang Province, representatives from Wenzhou City described their experiences in precisely this area.

 Recently, Wenzhou Charity Federation had set its next ambitious goal: “to fundraise up to 100 million RMB by the year 2015.”

 The Struggle between the Two Approache

 Besides the Wenzhou Charity Federation, there is another charity federation registered in Luchen District in the same city, which had been established in October of 1998. The most unique aspect of this particular charity federation is that its leader is actually an entrepreneur, possibly the first entrepreneur to lead a charity federation in all of China.

 His name is Ceng Laoguang, and he is the CEO of Wenzhou Huawei Electronics Company. According to Ceng, he has always had a strong interest in charitable work, and at the time that Luchen District Charity Federation was being established, the District official approached him and invited him to take the lead, which he immediately agreed upon. In its three years of operation, the Luchen District Charity Federation has fundraised over 6 million RMB.

  When we compare the charity federations in Luchen District and in Wenzhou City, we can see a clear difference between the two. One is operated using the nongovernmental approach whereas the other is very tied to the government. It seems that the Luchen District Charity Federation, which operates with the nongovernmental approach, should be more in line with the basic purpose of charity federations. But in actuality, the “government-run” charity has raised forty million RMB in one year while the nongovernmental charity has only garnered six million RMB in three years. This difference cannot merely be explained by the difference in their city versus district levels, because both are located within the heart of Wenzhou. Their differences in fundraising performance, then, must also be attributed to their different approaches in management style.

 This phenomenon seemed to have stimulated a new controversial theory: although the governmental approach doesn’t align well with the message and purpose of charitable work, this affiliation does expedite the fundraising process and improves the efficacy of fundraising efforts. On the other hand, even though nonprofit governance aligns better with the message of charitable work, this type of operation actually slows down fundraising efforts.

 Is it possible that the so-called “nongovernmental approach” to management may not be able to applied very well in China, simply because its years of established government-centric traditions and values necessitate the involvement of government?

 One researcher noted that the success of the governmental management approach in helping charity federations fundraise depends upon the general influence of the government on society and on businesses. When the government has a larger influence, then having governmental affiliation would certainly help charities succeed in raising money from the public and from businesses. However, we now seem to be moving towards a world in which the influence of the government is gradually decreasing, and we are approaching more of a “small government, large civil society” type of power dynamic. This certainly would begin to threaten the dominance of the current government-centric approach.  

 At the same time, the government approach also has its major flaws. Charity work might actually be in conflict with government affairs. While charity workers should aim to promote volunteerism, government officials are, to some extent, mandated to order that people abide by the law. If the influence of the government is overused in fundraising campaigns, many people might start to resent charity work, and thus the effort of promoting volunteerism would be lost.

 One of workers in Luchen District Charity Federation once described to a reporter her experience of being “pestered.” The two times that she had gone to a bank for business matters, workers at the bank immediately circled around her once they found out she was working for a charity in order to complain about the charity’s unreasonable demands. She later found out that when Wenzhou City Charity Federation had been fundraising at this bank, the bank automatically deducted 100 RMB from each worker’s salary to add to the bank’s contribution. Many of the workers felt like this was an abuse of power, and all tried to take out their anger on her despite not knowing exactly which charity she was working for.

 A Wenzhou City Charity Federation representative also described that the last time the charity met with the city government, where some officials complained about the excessive support the government has given to local charities.

 From the two points above, it seems that the governmental approach may not necessarily be the right direction for charity federations. If charity federations truly aspired to improve its own efficacy and efficiency without the reliance on governmental support, then they not only have to transform from within, but also have to limit the affiliations they have with the government. In other words, if charity federations don’t completely separate themselves from the government, then their journey towards achieving independence will be a difficult one.

One researcher claims the “whoever donates more should assume leadership” approach is actually a step in the right direction for charities. As to how far this step can go really depends on how much charities can change and improve in the ways outlined above.

 Other scholars have also noted that throughout these years, the identity of charity federations has become murky due to the strong presence of the government. In the more economically developed regions of Zhaoxing, Wenzhou etc., active civil society participation has improved in conjunction with its economic improvement. It would do wonders for civil society’s goal of advancing the good will should the government have the foresight to gradually remove itself from these areas, and give more room for civil society to take charge.

 (Translated by Tina Tan of Harvard University. © Hauser Center at Harvard. )  

by Meg Davis

Since March 2010, we’ve received a flurry of calls and emails from reporters, donors and lawyers asking about the new regulations on NGOs in China. Here’s our take on the regulations that have been causing trans-Pacific headaches, and a few thoughts on what this means for Chinese NGOs in the future.

First, a review of some of the basics in regards to nonprofits in China (for more details, see our report on restrictions on AIDS NGOs in Asia or the HRW report, which I actually wrote also, on NGOs in China). China permits NGOs to register as nonprofits only with the sponsorship of a government agency. This gives the government agency control over the activities of the NGO, which is why many outside observers call these registered NGOs “Government-organized NGOs” or GONGOs. Because of the restrictions, many small and independent NGOs in China use a legal loophole to register as commercial enterprises, meaning that they are required to pay taxes.

The new regulations have hit these little grassroots groups, and foreign organizations working in China, especially hard. Here’s why.

The Wire Transfer Regs

In March and April 2010, news hit the wires about new regulations on foreign wire transfers to Chinese “domestic enterprises”. Since it’s the flurry of new little grassroots nonprofits that receive overseas funding lack the capacity to meet these new requirements, the regs have hit them especially hard.

The regulations, actually just a circular published by the State Administration of Foreign Exchange (SAFE), has the following requirements for domestic enterprises that receive donations from overseas institutions:

- Chinese organizations have to open up new, special bank accounts

purely for the purpose of receiving foreign donations;

- In order to open up these bank accounts, organizations need to

provide an application, a copy of their business license, a notarized contract with the overseas donor explaining the purpose of the donation, documents proving that the overseas donor is legally registered in its home country, and (possibly) “other required materials” if the notary deems the above documents to be insufficient;

- Religious organizations receiving more than 1 million RMB in

donations need to have documents showing the approval of the State Religious Affairs Bureau — and in some cases, also the approval of the local government; and

- Banks are required to report “suspicious donations” to SAFE.

On the face of it, this is not too tough. Chinese organizations already had to show banks a copy of their contract with the overseas donor in order to receive wire transfers from foreign donors. But in practice, weak implementation of the new regs has caused the whole system of foreign support for Chinese NGOs to break down in many areas. It’s not clear when, if ever, things will be fixed; before they are, some small groups may suffer so much from the months without funds that they have to shut down entirely.

What Could Possibly Go Wrong?

The first problem has been understandable, from a certain perspective.

Banks are by nature conservative institutions, and no bank wants to be the first to implement the new rules; as the saying goes, the nail that sticks up gets hammered down. Thus, the Global Times reports, “Two months since the regulation came into effect, banks, notary service providers and non-profit outfits are in the dark about how to get a donation agreement ‘notarized’” – and even if they know how to do it, they may be reluctant to follow through.

This leads directly to the second problem: the outlandish process of getting contracts notarized. The circular does not explain this, but in order to obtain the notarization of the contract between donor and grantee, both the donor and the grantee are required to have representatives physically present at the notarization office in person.

How many international donors have representatives in China, ready and able to show up at a notarization office at any time? Let alone staff poised to visit multiple notarization offices around the country, in every town where the donor funds local NGOs? Very few. Not to mention that the notarization offices, we have heard, are often not exactly models of Confucian bureaucracy, and so NGOs have to go back and forth on multiple visits to the notary office, which may be located in another town from the NGO.

This notarization morass leads us to the third problem: requiring this many bureaucrats to stamp this many documents in China simply provides endless opportunity for lethargy, incompetence, red tape, corruption, and plain old meanness if you’re unlucky enough to run into the wrong person across the desk.

To sum up, the wire transfer regs are onerous, but they’re not a sweeping shutdown of all NGOs. The fact that most independent NGOs can only register as commercial enterprises and pay taxes has long left them vulnerable: if the government was serious about conducting a clean sweep of NGOs, they could probably use those regulations to shut the whole sector down in about a week. But that, of course, might actually result in an international outcry.

Creating a chill that shuts some NGOs down, allows others NGOs to survive but limits the overall growth of the sector — and without sparking an international outcry — is a more complex maneuver, and the new foreign exchange regulations accomplish this delicate feat quite neatly. All they do is to create a few minimal bureaucratic hurdles, and then let nature — or in this case, the world’s oldest and grandest bureaucracy — take its due course. The end result is likely to be that a few NGOs will collapse, a few with good government connections will manage to get the new foreign exchange accounts set up, a few donors will throw up their hands and quit funding Chinese NGOs, and a lot of new organizations will never get off the ground…

Meg Davis is the founder and executive director of Asia Catalyst.

Also see post “Chinese Government Promulgated Regulation Regarding Donations from and to Overseas.”

May 10, 2010

I’ve generally been an optimist about the future of NGOs in China, but recent events have gotten me thinking otherwise. In the last few months, we’ve witnessed the Oxfam Hong Kong incident, the SAFE regulations on foreign donations, the closing down of NGOCN’s website, the Beijing University Women’s Legal Aid Center’s losing its Beijing University affiliation, and just today, the news that China’s leading AIDS activist, Wan Yanhai, has left China for the U.S. because he was being harassed by multiple government departments. So what does this all mean?

First of all, let’s get some perspective on these events. Last year (2009), Xu Zhiyong’s legal aid NGO, Gongmeng, was closed down on tax evasion charges, and Yirenping, an anti-discrimination legal aid NGO founded by Lu Jun was raided. The Olympic year saw the Sichuan earthquake, a coming out event for Chinese NGOs which played a visible role in the earthquake relief. The year prior (2007) saw the closure of an Lu Jun’s support group for Hep B carriers, a magazine called Minjian that published stories of NGO development projects, and most notably Nick Young’s China Development Brief.

In addition, the last few years has seen significant growth in grassroots NGOs, persistent rumors of revisions to the NGO registration and management regulations, a new Charity Law, and easing of the registration and management procedures for private foundations.

In short, what we have here is a mixed bag. Some bad news, and some good news. How do we make sense of all this? A few possible explanations come to mind.

One explanation is that the government is of different minds about NGOs and is trying to figure out how to best manage (codeword for control) them. The Chinese government is a very diverse, not always unified collection of agencies and individuals. The Civil Affairs department is only one of the agencies charged with supervising NGOs. In fact, there are hundreds of thousands of NGOs in China that are not registered with Civil Affairs and thus not under their supervision. Because many NGOs are registered as businesses, the Commercial and Industrial department also plays a role, as do tax authorities, and now apparently so does the State Administration of Foreign Exchange (SAFE). And last but not least, there are the security people. It’s not clear to what extent there is a coordinated campaign among all these agencies to regulate NGOs. Civil Affairs seems to be the most supportive. They are encouraging various experiments around the country to make NGO registration easier, and they support a change in the NGO regulations that would make it easier for NGOs to register with Civil Affairs. But other agencies seem to just be interested in controlling NGOs, and not figuring out a way to regulate them in ways that would improve the effectiveness and transparency of NGO work.

If this explanation is right, then we’ll see authorities continue to adopt an ad hoc approach to regulating/controlling NGOs, and continued swings in the government’s attitude to NGOs. We’ll also see further delays in the much-anticipated NGO legislation as debates and deadlock over the value of NGOs continue in policymaking circles.

Another explanation is that government leaders have arrived at a consensus about how to deal with NGOs, and that consensus is not to liberalize the environment or find a smarter way to regulate them, but to continue restricting their development. This means tightening an already restrictive regulatory environment, and cracking down on “illegal” NGOs that are engaged in advocacy and sensitive issues such as migrant worker rights, and are particularly open to foreign influences. What seems to be new here is the way in which the government is cracking down on NGOs. They are doing so not by closing down NGOs as they did with China Development Brief, but by harassing them for improper finances, or fire codes, or not properly registering their website. But they are not doing this across the board, but only targeting selected NGOs. A form of “salami tactics” or “death by a thousand cuts”.

If this explanation is correct, then recent events represent the start of a chilling trend. It means we won’t see revised NGO regulations come out, or if they do come out, they will reaffirm the status quo or be even more restrictive.

Still another explanation is a combination of the previous two explanations. That is, authorities have arrived at a consensus but that consensus represents a compromise whereby certain sectors are encouraged, but NGOs with more foreign connections or engaged in more sensitive work are targeted for harassment.

If this explanation is right, then we should see the revised NGO regulations, and other related legislation, coming out soon. Those revisions will probably represent a gradual change, e.g. liberalization, and their content will give us a better idea of what sectors are being encouraged.

Which of these explanations is closer to the mark of course requires an understanding of what is going on in high-level decision making circles. Unfortunately, that arena is a black box that we can only speculate about.

At this point, I favor the first explanation because I don’t see a consistent line or approach toward NGOs which suggests there is still debate and deadlock over just how to regulate this growing sector. But I may change my view as I get more information. Stay tuned!

( http://ngochina.blogspot.com/2010/05/why-chill-in-air-for-ngos.html  )

Is a lack of transparency driving a wedge between charities and donors, and undermining the charitable spirit? Zhang Yuchen in Beijing reports.

Do you know where your money goes when you donate to charity?

Studies show that many people who support worthy causes in China admit they have absolutely no idea how or where the money is being spent.

As the country has no law requiring aid groups to publish monthly or even annual accounts, experts say the vast majority of donors are in the dark about where funds go due to basic lack of transparency in the sector.

“Charitable organizations seldom respond to donors’ requests for information about financial reports so few donors have a clear understanding of what their money is used for and what effects it brings about,” said Deng Guosheng, an associate professor at Tsinghua University’s school of public policy and management.

The situation has resulted in serious problems when it comes to supervising grassroots charities and non-governmental organizations (NGOs), and threatens to undermine the growing charitable spirit among the Chinese, he said.

Following the 2008 earthquake in Sichuan province, the nation raised record amounts of money to help survivors. Those records have since been broken following the disaster in Qinghai province in April. So amazing was the response that media analysts suggest the disaster triggered an explosion in compassion, which has continued to spread throughout the country.

The amounts being donated have also steadily increased year on year over the last decade, official figures show.

China received 107 billion yuan in donations from home and abroad in 2008, more than three times the amount in 2007, according to the Blue Book on Charity Donation Development in China (2003-07), an independent report sponsored by China Philanthropy Times. For the first time, the money given by individuals on the mainland surpassed donations from corporations – 54 billion yuan ($7.9 billion) given by individuals, compared to 34 billion yuan by corporations.

However, in a recent survey of people who donated to the Sichuan relief efforts, Deng found that less than 5 percent of the 1,684 who responded know exactly how the money is being spent, while more than 60 percent had little or no idea. (Authorities have published financial accounts during the ongoing reconstruction of Sichuan.)

The trend is also typical among people who give regularly to many Chinese charities, said the professor, who added that although the public is growing more aware of how they work, the overall disclosure of information is far from sufficient.

Trust is fundamental to how most charities are run in other nations but “getting all charities in China to be 100-percent transparent has proved virtually impossible”, said Deng, who also works in the university’s NGO Research Center.

About 410,000 charitable organizations were registered to operate by the end of 2008, while another 760,000 were running but still waiting for official documentation, said a report in the Blue Book of Philanthropy 2009, an independent academic evaluation of China’s charity sector.

Very few publish any kind of annual progress or spending reports, and donors rarely think to ask for them, say analysts.

“A lack of professional management, transparency and trust are major problems facing the charity sector in China,” said Yang Tuan, a professor at the Chinese Academy of Social Sciences’ institute of sociology, who co-authored the Blue Book of Philanthropy 2009. “The fact that there is no charity association is the biggest problem, though. There is simply no co-operation that allows these groups to confront and overcome common obstacles, as well as provide mutual supervision.”

Fund-raising problems

China’s first and, as yet, only regulations for charitable NGOs were implemented in 2004 and apply just to the administration of foundations. A draft of the new Charity Law, which is expected to contain stricter legislation over fund management, was submitted to the State Council last year.

Under the current rules, NGOs have to be affiliated with a government department before they can register with the Ministry of Civil Affairs.

Finding one is no easy task, however, and there are some 250,000 grassroots groups that are instead being run illegally with business licenses, the Blue Book of Philanthropy 2009 says.

“Also, only foundations that are affiliated with a government department or have ties with an authority enjoy the luxury of being allowed to raise money in public,” said Deng. “Grassroots organizations always suffer a chronic shortage in donations.”

Of the 943 foundations registered in China that can legally raise funds in public, 83 are government-owned NGOs (otherwise known as GONGOs), said the professor.

Collecting money from the public without the proper authority is illegal and can lead to serious consequences for charity organizers, and the groups will automatically be shut down.

“This is a concern for many of my friends who work for grassroots NGOs,” said Guang Pu, the 30-year-old director of One Heart, a legally registered non-profit orphanage in Xiamen, Fujian province, that publishes monthly financial reports for donors. “The rules effectively stop a lot of grassroots charities from raising awareness of their cause and soliciting public donations.”

The lack of clear governance has led to conflicts between charity organizers and donors.

Sun Village, one of China’s first charities for children of convicts in Beijing, has been well supported for many years, including by several multinational companies.

However, complaints in recent years by donors over its opaque spending habits have cast doubts over its reputation.

The village director, Zhang Shuqin, denied the claims and feels she was unfairly criticized in press. She blamed the charity’s difficulties on the fact that it lost its affiliation with the government in 2003.

When Sun Village lost its link to the local authority, “I begged more than 10 other departments to help us”, said Zhang, who launched Beijing Sun Village Children Education Consultancy in 2003. As none agreed, she opted to register the organization as a business with the capital’s administration for industry and commerce – make it illegal for the village to raise funds publicly.

“My company got involved (with Sun Village) years ago but we’ve started to feel more and more uncomfortable (about its management) in recent years,” said a Beijing-based communications director for a multinational corporation who did not want to be identified. “We’ve usually helped by donating food for the children but recently we’ve continually received calls asking the cash donations, without any explanation of how the money will be used.”

However, the school’s director argues that her critics do not understand how hard it is to run a charity in China.

“Why do (the people criticizing me) not recognize the hardship I’ve been through?” said Zhang, a fast-talking woman who has also been accused of being too aggressive. “I don’t think they have any right to say anything about me or Sun Village.

“We cannot get (affiliated), so why do (donors) think I should publicize our financial records?” she added, before offering to show China Daily the charity’s accounts. “The privacy of the convicts’ children is the only reason why I am reluctant to make my financial report transparent to the public. Issues related to people in jail is very sensitive in China and I don’t want the children to be hurt to any extent.”

Most charities do not offer detailed information about donations and spending unless donors specifically ask to see some, say analysts. The Beijing communications director admitted her company had never formally requested any financial reports from Sun Village.

Regularly publishing accounts can actually be a heavy financial burden for charity minnows.

Dandelion School, a charitable education project targeting the children of migrant workers in Beijing, is consistently praised for its transparency. Yet due to the extra cost of distributing its accounts, the group can only keep donors updated on the specific projects they contribute to.

“That costs less than posting the whole package, such as how the money was spent and what kind of effects it has had,” said Clare Pearson, chief editor of Charitarian, the only English-language philanthropy magazine published in China.

The accounting can also be complicated by the fact charitable NGOs also rely on donations to cover running costs. This can be difficult to break down for people not working in the charity sector, explained Deng.

“The public in China isn’t really familiar with how NGOs are managed and often don’t recognize that the costs of running a charity – people’s wages, transport, etc – often comes from donations,” said the professor. He estimated that, depending on the size of the charity, about 5 to 20 percent of the money raised goes towards administrative costs.

However, grassroots NGOs often do not allocate enough funds towards its management, which can also contribute to the slow disclosure of information to donors, said Li Dajun, program manager for the China Social Research Center affiliated with Peking University.

“They are so busy looking for fund-raising opportunities (to support their cause) that they leave little room for their own development as a charity,” said Li, who worked with several NGOs between 2003 and 2007.

“Ultimately, if trust is built (between a charity and its donors), few will doubt how the money is spent,” added Pearson, who is also a corporate social responsibility manager for the international law firm DLA Piper.

Selection process

Carefully selecting a charity that is run by professionals is key to ensuring any donation will be spent correctly and efficiently.

“Sometimes, when people decide to find a charity to support, their eyes are always caught by the famous or popular ones, although neither of these qualities guarantee professionalism or qualifications,” said Deng at Tsinghua University.

As the charity sector continues to develop, so too does the experience of those working in it. However, the current demand for human resources at NGOs far outweighs supply.

“The first generation of China’s NGO founders knows less about managing charities, so they have stuck to the tradition of being family run and giving relatives jobs in the organization, which creates more suspicion,” said a publicity expert who has studied the development of NGOs in China for more than a decade ago but did not want to be identified.

Sun Village is one of those organizations that have been accused of being “family run” and media reports claimed Zhang employs two daughters and a son-in-law to manage the school.

However, the under-fire director fiercely rejected the allegation, saying: “I have hired professional personnel to work at the village.”

To increase the level of trust in charities, many experts argue they should be made independent of government departments.

“Charity should be independent from authority, while transparency should be realized through social supervision, not regulations,” said Deng, who added that many of the problems charitable NGOs face are caused by the complex registration process.

“The easiest way (to boost the sector and ensure transparency) is to allow more room for these organizations to register. Only by doing this can more charities get the chance to impact society.”

(From http://www.chinadaily.com.cn/cndy/2010-05/27/content_9897275.htm )

Upon Huizeren online hang three slogans: “Equality for all, and all due respect for diversity”, “Your help for others is for yourself as it digs out another side of you”, “Let your life change that of others”. All these resounding mottos come down to one word—humanism. In this context, “humanism” can be outlined as centring around people based on their mental and occupational needs to improve service efficiency. The biggest discovery of my visit to Huizeren is its human-centred principle.

Zhai Yan，an easy-going volunteer trainer, is the executive director of Huizeren. During the interview her silver tones, clear-cut logics and far-stretched vision gripped me tight inside.

Huizeren has a clear priority task—structuring a complete volunteer training system, or in other words, extending training service of all kind to NPO members and volunteers. Actually, such organisations are rare in China and as far as current statistics show, there are no courses on civic education at any education institution. “Teach yourself before teaching others because no one is expert from the beginning,” Zhai put it this way.

In 2003 when SARS waged the dreadful war against the country, Huizeren was set up against the tide. Unlike its NPO counterparts, Huizeren did not hassle with directly confronting the disease. Instead, it adhered to its own judgement—volunteer training and research into NPO mechanism in China.

Despite ups and downs and pressure from all aspects, Huizeren has worked out a seamless system of training courses composed of three layers—“volunteer service concept and basic skills” for volunteers, “volunteer administration and project management” for mid-level managers and “leadership and organisation administration” for top brass. These three courses are so intertwined that they wield separate cells within the organisation into an organic circle. For example, managers that attend volunteer administration courses may affect and teach their volunteer staff (There are over 200 professional volunteer trainers, most of them from colleges and NPOs).

Huizeren has positioned three core services—training, mechanism construction, research and publicity. Guided by such orientations, Huizeren is now clearer about what it is supposed to do at crisis. The best evidence is the recent Wenchuan Earthquake when Huizeren did not rush to forefront but directed its attention to what capabilities were needed in the rescue as well as reconstruction process. By doing that, they insisted, different NPOs could appear where they were most needed. “Currently few organisations can remain sober and independent to supervise the rescue and put forth valuable proposals. They don’t know what their role really is,” said Zhai.

Usually on heels of a catastrophe, a spate of new NPOs would spring up, vying to have place in history. However, as Zhai criticised, everything is twofold. When disasters fall, civic consciousness may be evoked in some people, urging them to voluntarily scrape up an NPO-like rescue team, which is by all measures praiseworthy. But such makeshift gatherings would not sustain. The real sustainable model should be tolerant in the first place, acknowledging the existence of other organisations such as those serving the disadvantaged, the marginalized, AIDS carriers, the homosexual, the disabled and the divorced. Without the diversity of volunteer service, citizens are deprived of rights to choose. And this diversity means everything to Huizeren, a training body built on NPO eco-circle: the more NPOs, the more clients. In this sense, the quake crisis is nonetheless a chance for Huizeren.

But the overheated NPO fever is not immune to side effects. The bubble will be pricked once the fever cools down. Therefore, constant passion, rather than fever, determines the lifespan of an NPO. “That’s what Huizeren is obliged to do—studying varieties of cases and then summing up an empirical guideline for all NPOs,” said Zhai with excitement. As she introduced, rescue work is a grinding test of physical and mental strength. At the time of mental disturbance, men tend to blow it up while women would rather keep silent. As most NPOs are struggling to help others, Huizeren is thinking about how to help them.

Since volunteer culture and volunteer training mechanism have not taken root in China, the ambition always hits the wall to put all volunteers in the right place. A more reliable model lies in the concept of “civic society” where government indirectly rules the society. In this society, enterprises are the first option; they roll out products based on market rules. People that cannot afford market products could appeal to non-profit organisations. Government only plays a coordinator role between profit and non-profit sectors by issuing policies and organising procurement.

If we compare Huizeren to an enterprise in the profit sector, it provides raw materials for the consumer product suppliers (in this analogy NPOs). Its performance is heavyweight to both NPOs and the public. It is the “hero behind the scene”.

The hero now has its long-term plan—three-year “Western V” projects and a five-year inter-provincial project. “Western V” projects, renewed every three years, are aimed at helping citizens in poor areas, especially West China, set up their own NPOs. The inter-provincial project, with duration of five years, is launched to back programmes of training poverty-relieving volunteers across five provinces.

It was nearly six o’clock at the close of the interview. Yet Zhai Yan, given no time to think of supper, had to hurry on to a conference discussing Huizeren’s training service in the 2008 Olympic Games. She’s always been on the run. As she put it in her essay Doing NPO with Faith, “it is our faith or value judgement that decides who we are, and ignites our sense of commitment.”

Why doing NPO? Nothing but driven by faith!

(From NPO Media: http://npomedia.org/en/2008/07 )

(China Elections and Governance has abridged and translated this article on the evolving relationship between Chinese NGOs and the government. It appeared in Nanfeng Chuang Magazine on May 10, 2010. The article focuses on the Chinese Foundation YouChange (China Social Entrepreneurship Foundation 友成）, which has been working closely with the municipal government of Mianzhu to fund and coordinate earthquake recovery efforts, highlighting both the benefits and drawbacks of this cooperation)

Pulished:  May 10, 2010

“It costs a lot to establish an organization. Mianzhu municipal government helped us with work place and basic administrative expenses. They are well-financed,” said Zhai Yan, director of YouChange Volunteer Support Center. “Volunteers assist the government; this is equivalent to working for the government free. So the government should bear the cost.”

YouChange is a Beijing-based, non-profit charitable organization with independent legal status and is officially registered at the Ministry of Civil Affairs. In August 2008, about three months after the 8-magnitude earthquake hit Wenchuan and neighboring areas, YouChange and the Mianzhu government co-founded a program for integrating social resources to help with earthquake relief and recovery.

The program is mainly financed by YouChange, which is also responsible for recruiting and assigning volunteers, while the Administrative Service Center of the Mianzhu government is lead management unit.

“The program has contributed a lot to the earthquake relief and recovery efforts. Although there are only six workers, they have contributed many resources. On average, each worker has helped to introduce 10 million yuan to the stricken area in Mianzhu,” said Peng Zhebin, deputy secretary-general of the Mianzhu municipal government.

It seems that YouChange and the government are still in their honeymoon phase. However, it’s a mismatched, bittersweet marriage.

When the program was established, no government agency wanted to be the lead management unit. It was said that some NGOs, backed by overseas forces, used aid as a pretext for anti-state and anti-government activities. Thus, taking over the platform became a hot potato, as it falls to the head management unit to prevent such organizations from entering Mianzhu. It’s a tough job.

As the program was about to die on the vine, Deputy Secretary-General Peng came forward to take over.  He said one shouldn’t stop eating for fear of choking.

Now, local officials are excited about the program’s achievements – from August 2008 to March 2010, it directly absorbed a total of 10 million yuan worth of funds and materials, as well as 2 billion yuan indirectly.

This demonstrated that earthquake relief and recovery is outside the confines of the government’s capability, especially in poor areas. The government is in need of additional aids.

Some top leaders in the central government also hold a positive attitude toward NGO involvement in supporting the poor. Besides YouChange, Oxfam Hong Kong was introduced to Sichuan Province by the State Council Leading Group Office of Alleviation and Development last year. Two counties separately received 1 million yuan each year from Oxfam Hong Kong, and the county governments also provide supportive poverty relief funds. The local authorities want to explore a new anti-poverty model through the cooperation between government agencies and NGOs.

“It’s a challenge for the government – how to deal with NGOs and build sound relations with them. We do not have prior practical experience,” said Zhu Xiaofang, deputy director of the Administrative Service Center of Mianzhu. “After the earthquake, the government was awakened to the necessity of NGOs.”

In Mianzhu, volunteers working for the project report directly to the governmental Administrative Service Center, and Deputy Secretary-General Peng is in charge of examining and approving their aid plans. Each volunteer needs to sign a tripartite agreement with YouChange and the Administrative Service Center.

According to Zhai, as these volunteers are not registered with any government agencies, their private aid activities would be illegal without government sanction. The tripartite agreement lends legality to their activities.

“It would be hard to operate projects here without the government’s support. It’s a good cooperation model,” said Zhai. For NGOs, the benefit of integrating with the government is that such cooperation can lessen the difficulty of entering certain areas. “There are some places where you are hardly allowed to enter,” said Zhai.

The attitude of local officials toward NGOs has changed a great deal since the 2008 earthquake. Officials admitted that the government could not uncover all of the problems that arise in relief and recovery efforts, that NGOs could serve as a supplemental force, and that NGOs do contribute a lot. The governmental authority no longer rejects NGOs, and relations between the two are “very harmonious” now.

This is in part because the government is certain that the “bad” NGOs have been removed, and that those that remain are reliable.

When a branch volunteer station of the program was set up in January in Bazhong, Sichuan Province, all important officials in Bazhong attended the opening ceremony, and the event made headlines in the local Party newspaper. The government allocated government office space for the station.

When Zhai and her group visited Sichuan on a survey trip in March and April, local officials at all levels treated them as honored guests.  Officials presented different difficulties and needs, expecting that YouChange could lend a hand.

“A little spark kindles a great fire; YouChange’s participation could encourage more social forces to help the poor,” said Zhang Min, deputy secretary-general of Bazhong Municipal Committee of the CPC. “YouChange is a newcomer without administrative functions. Working in the government building will increase its credibility and influence.”

However, each side just takes what it needs. In Mianzhu, the government has made the program resemble an official agency in less than one year. Every volunteer has to wear a card made by the municipal government, and volunteers are a treated like local officials when they travel to counties and villages.

When it comes to characterizing the nature of the program, YouChange calls it a subordinate sector of YouChange, while the Administrative Service Center insists that the program belongs to the government and that YouChange is just a main supporter.

According to Peng, although the program has brought 2 billion yuan worth of funds and materials into Mianzhu, the achievement is not that of YouChange, but should rather be credited to the local Party committee and government, since the program is headed by the governmental authority.

The Local Youth League Committee and the Ministry of Civil Affairs also want a piece of the action. “When the MCA came, they said the program fell within their domain, and when the local Youth League Committee came, they said the program should be the committee’s duty. The program has helped these department a lot.  It’s my contribution, but these department could also take the credit for their work,” Peng sighs.

Now these departments are trying to integrate their other projects with the relief program. “You can never see such close cooperation between NGOs and the government in other places. Now we have deeply merged with the government,” said Tang Rong, a major executive of the program.

However, merging so deeply with the government can damage an NGO’s  independence. Almost all the program volunteers are also employees in government departments and institutions.

Zhai felt ambivalent about the current situation. “Now, our branch volunteer stations are actually working for the government,” said Zhai. “We are totally integrated into the government. It’s out of order. The two sides are inseparable.”

But Zhai’s colleague Tang holds a different opinion. “We should fulfill not only YouChange’s requirements, but also the government’s. We should do whatever the government asks us to do,” said Tang.

The government is obviously the stronger party in such cooperation. Government management is the prerequisite for NGO development. YouChange cannot set up branches independently; the only way is to establish subordinate volunteer stations registered at certain government agencies.

Under such circumstances, these government-backed NGOs are likely to become another government agency. Zhai used to criticize some volunteers for just sitting in the office, rarely traveling to grass-roots units to discover potential demands.

After her survey and investigation in Sichuan, Zhai found that only if a NGO sends its own team to assess demands in grassroots units, and then initiates an independent project, can the NGO avoid being absorbed by the government.

“Our volunteer stations have no ‘roots.’ Our service objective is unclear. Some said the objective is to serve grassroots residents and farmers, but it’s just too vague a group,” said Zhai. “Some other NGOs, like Oxfam Hong Kong, projectized their operations, and their service objective is clear. Their volunteers follow certain projects,” and do not act under the orders of the government

(See the original Chinese article at: http://www.022net.com/2010/5-11/442428212632326.html )

By CARA ANNA (AP) , March 12, 2010

BEIJING — China has surprised thousands of aid groups by stepping in to regulate overseas donations for the first time, complicating efforts to get money from supporters in the United States and elsewhere. Some groups warned that losing the support could force many to shut down.

China’s leaders have only recently realized that outside help is needed on deep social welfare problems, but they worry the work of independent activist groups could turn political. Groups must find a government partner to register as a nonprofit. Many that want to stay independent have set up as a tax-paying business instead.

“I think the new rules will regulate us to death,” said AIDS activist Wan Yanhai, who runs a Beijing-based aid group.

As of this month, China-based aid groups — but not those connected with the government — must show proof that overseas nonprofit donor groups are registered in their home countries. The groups, also known as nongovernmental organizations or NGOs, must strictly follow detailed agreements with foreign donors and not use the money in other ways.

Religious groups also need approval from the State Religious Affairs Bureau for any donation that exceeds 1 million yuan ($146,000).

“I think it’s inevitable that they were going to start tightening the noose on NGOs,” said Meg Davis, executive director of New York-based Asia Catalyst, which works with a number of grassroots groups in China on AIDS-related projects. “There’s a sense at the top that they’re suspicious of NGO powers.”

She spoke by phone from the southern province of Yunnan, where her group works with 90 women with HIV. The new rules are complicating efforts to wire the group money from overseas, she said. Asia Catalyst has been told a representative must be present on a specific day this month to get key paperwork notarized — a day when the group says none of its people will be in China.

“Stopping work is not an option. These women are working with a population that is sick and dying,” Davis said. “The only thing we can attempt to do is comply as best as we can.”

The rules were issued by the State Administration of Foreign Exchange, which normally has little to do with NGOs. They were posted on the administration’s Web site and came into effect March 1.

Phones at the administration rang unanswered Friday.

China never really regulated foreign donations until now, said Deng Guosheng, a lecturer with the NGO Research Center at Tsinghua University in Beijing. “I think most will not face a problem, but for those sensitive NGOs, it will become hard for them to get foreign donations.”

China has struggled to keep up with the growth of aid groups in recent years. The Ministry of Civil Affairs says about 400,000 groups are registered and many more are not. A report published by the Chinese Academy of Social Sciences has estimated the total number could be 3 million.

“No government official knows how to regulate them,” and they don’t know what most aid groups are doing, said Wang Liwei, the CEO of China Charity Media Group, which publishes Charitarian magazine.

His fellow editor, British lawyer Clare Pearson, said other countries long ago made similar moves to watch where money for aid groups comes from.

“Look at this way,” she said. “If I’m in the UK and a bunch of Chinese people come over, build a school and set up a curriculum to start teaching children, I’d be asking a lot of questions.”

But some groups worry that China is checking more for possible political challenges.

Last month, China told schools to sever all ties with the international relief agency Oxfam and bar its campus recruitment efforts, accusing the group’s Hong Kong branch of having a hidden political agenda. Oxfam has operated in mainland China for 20 years and denied that its activities were political.

Associated Press researcher Xi Yue contributed to this report.

Copyright © 2010 The Associated Press. All rights reserved.

Also see post “On the Impacts of China’s SAFE Regulation Regarding Overseas Donations“.