Chris Stone and the Chinese private foundation delegation

On 28 October, the Nonprofits in China Domain invited twelve top Chinese private foundations to a seminar on non-profit governance at the Hauser Center. The seminar was moderated by Professor Christopher Stone, director of the Center, while representatives from the Narada Foundation, China Foundation for Poverty Alleviation, Mercy Crops China, Beijing Western Sunshine Rural Development Foundation, Sun Yafang Foundation, Vantone Foundation, Beijing Ren Ai Charity Foundation, China Social Entrepreneur Foundation, Huaxia Center for Economic and Social Development Research, XinPing Foundation, and Nonprofit Incubator (NPI) served as discussants. Mercy Crops China organized this delegation in a week long program to visit relevant institutes in the United States; Harvard was the delegation’s first stop (details of the delegation’s representatives and their respective organizations are available here).

Professor Stone opened with remarks that the role of governance can be distilled into the responsibility of non-profit organizations. He stressed that an organization, such as private foundations operating in China, ought to maintain its integrity in three areas: finance, operations, and purpose. He challenged representatives from these twelve private foundations to assess the effectiveness of governance in their respective organizations and discuss in general how governance affects non-profit organizations in China.

Xu Yongguang, Vice Chairman and Secretary General of the Narada Foundation, provided an overview of governance in Chinese nonprofit organizations. Xu stated that each NGO should be held responsible to the people, to the government, and to their sponsors, regardless of their country of operations; overall the board of directors should be the ultimate decision maker for the NGO. However, such is not always the case in China. Many Chinese NGOs face structural problems to give the board its proper due: in government-operated non-governmental organizations (GONGOs) the board only ranks third after the government and management in its decision making ability; whereas in grassroots NGOs the founder often find his decisions unchallenged regardless of the board structure. For private foundations there are no external pressures to set its structure: however, donors, often entrepreneurs of strong leadership, often interfered with the decision of the board. The Narada Foundation resolved this problem by establishing a diverse board, composed of both donors and experts. The Foundation created a meticulous but effective by-law to govern its meeting procedures; last summer, the Foundation adopted a declaration of self-governance to reaffirm its autonomy of the board.

Other organizations, however, have experienced difficulties in setting a structure to effectively govern the board. The board and the management team often conflict with one another. According to Yang Dongping, founder and chairman of Western Sunshine Rural Development Foundation, his organization lacks the diversity of board necessary to make the board effective. Composed of only experts, the board is in need of entrepreneurs of business background. For many small private foundations like the Western Sunshine Rural Development Foundation, management team is the actual decision maker. On the other hand, an overactive board with diverse opinions can be equally ineffective. Yang Ping, executive officer of Sun Yafeng Foundation, shared his experience from 2004 to 2007 as the secretary-general of entrepreneur-founded Alxa SEE Ecological Association. The board, largely composed of successful businessmen with rich resources, is powerful while the secretary-general lacks real decision making abilities. To sponsor any grant over RMB 100,000, the secretary-general must submit to the board for approval. Yang noted that a strong board against a weak management has both pros and cons. It creates more incentives for entrepreneurs to participate, but at the same time leaves the experts of the organization no role in decision making. In worst case scenarios, the secretariat may retaliate through manipulation of information to gain power for decision making. Overall, Yang urged for more supervision. Chen Yimei, China Country Director of Mercy Crops, agreed with this view and urged state legislature to impose rules in standardizing non-profit governance.

The Hauser Center accepts gift from the Chinese delegation

Answering Stone’s question on whether members of the board should be compensated, both Xu Xiaodong of Vantone Foundation and Gan Dongning of China Social Entrepreneur Foundation agree that they shouldn’t. Gan further called board member to serve as examples for other members of the organization, suggesting that many staff of some Chinese non-profit organizations are given little or no compensation. Stone further commented that boards, like people, develop their own identity and culture.

Lu Zhao, founder and director of Nonprofit Incubator (NPI), explored the question of non-profits governance in China from a different perspective. Speaking from his experiences in helping numerous grassroots organizations, Lu noted that many of these organization’s problem lie with their founders—many of whom are eccentric and stubborn in character. These creators of grassroots organizations are unwilling to give up their own ideas and seldom pull themselves out. They would only seek help from others and seek diversity of the board when realizing the limit of their own resources; even then few could check on these founders’ decisions. Thus, the lifespan of these organizations are likely to be bound by the limits of the founder’s personal ability and resource. Lu highly esteemed founders of organizations willing to quit their organization, if not disbanding the organizations all together once the organizations’ social purpose is accomplished or effectively absorbed by the government. But this ideal found in many well established civil societies is perhaps still a bit distant from China.

(Article contributed by Hong Liu of Harvard University)

Since then, the number of registered and non-registered NPOs (nonprofit organizations) has increased in China in the recent decade, and along with this growth, the philanthropic and policy environment has gradually changed. Such changes were the focus of the afternoon panel discussion at the Hauser Center for Nonprofit Organizations on September 30, 2009, moderated by Professor David Brown, Senior Fellow at the Hauser Center, which brought together main figures from different sectors of the Chinese philanthropic world: Zhuang, Professor Hanlong Lu from the Institute of Sociology at the Shanghai Academy of Social Sciences, an expert on social policy in China, and Zhaomin Jin, Executive Director of the NDC and previous Deputy Secretary General at Shanghai Charity Foundation, a government owned foundation.

Zhuang began the panel discussion with a brief introduction to the development and expansion of her NPO Development Center in Shanghai, emphasizing the importance of such NPO support organizations to help enhance the capacity and legitimacy of grassroots NPOs—an “NPO for NPOs” of sorts. Such capacity and legitimacy may be difficult for grassroots NPOs that often lack professional resources to achieve on their own, especially given the rising expectations for Chinese NPOs by the government, donors and beneficiaries.

According to Zhuang, the key points to cultivating NPO success are to provide a supportive policy environment, good promotion and advocacy on the part of the media, and access to services such as training, coaching and networking. NDC’s influence and strength grew rapidly by strategically levering such needs and creating its niche as one of the few capacity building organizations. In addition to coaching NPOs in important skills such as grant writing and strategic planning, NDC has also helped bring together and forge partnerships between NPOs and the local government. NDC has expanded its services to NPOs throughout China and has created constituents in different areas such as health, disability and the environment. 

Over the past five years, NDC has trained over 4,000 executives and managers in the nonprofit sector in China, and has provided consulting to over 100 NPOs and corporations.

However, like most other nonprofits in China, NDC still faces major challenges of sustaining funding and recruiting highly qualified professionals.

Professor Lu followed up Zhuang’s introduction to her own NPO with a broader discussion of the policy and attitude changes towards NPOs and philanthropy in China throughout the last few decades. 1989 was the baseline year for recognition of NPOs with the establishment of the “Management Regulations of Social Associations,” one of the first documents outlining the Chinese government’s policy towards NPOs. Another key year was 2002, when China officially entered the World Tread Organization. Finally, he pointed to the 2008 earthquake in Sichuan that saw thousands of volunteers and donors gathering to help the victims, and the 2008 Beijing Olympic Games, which also inspired thousands of volunteers to action, as the most prominent signs of the emerging importance of philanthropy in China.

Lu divided Chinese social organizations into three categories: social organizations (such as the Chinese Handicapped Organization), civic non-profit enterprises (such as the NDC), and foundations. Between 1999 and 2008, the total number of social organizations in China increased by an astounding 290%, from 142,665 to 413,660.

Despite this increasing presence of social organizations, however, the official registration process continues to be restrictive. Registration requires the approval (or sponsorship) of a government agency at the county level or above. To prevent unnecessary competition, there can only be one of each type of organization in a given district.

Recent changes see, however, some regional government directing more resources towards NPOs; with greater provision of funding and even free NPO office space, the government is starting to include the development of the nonprofit sector into its long-term strategic plan.

Zhaomin Jin concluded the presentation portion with a brief overview of the current status of foundations in China, coming from her own previous experience of working at the Shanghai Charity Foundation. She noted that philanthropic donations in China are very unevenly distributed:  the top six foundations out of close to 1,600 foundations in China had collected 700 million dollars in donations out of the 1,200 million dollars collected by foundations in total last year. Furthermore, about 90% of all donations were received by “GONGOs”—governmental-operated NGOs—such as the Olympic Games Committee and the China Charity Federation.

According to Jin, most foundations in China run their own relief programs (operational foundations, rather than distributing grants to other nonprofits); for example, the Shanghai Charity Foundation operates nineteen branches throughout China and mostly allocates its funds to those programs. Even if funding is provided to other relief programs, very limited support is given to NPO support organizations like the NDC. However, recently, more and more foundations are moving towards becoming grant-making foundations, with Red Cross and Shanghai Charity Foundation giving out 8 million dollars for grassroots NPO programs last year.

When asked what they think will happen in the next ten years, all three speakers were hopeful about the increasing dialogue between the government and NPO sector and the gradual transition to a more enabling legal environment. Considering the immense rise of awareness of NPOs by the general public, especially following the 2008 Sichuan earthquake public relief efforts, the role of NPOs in Chinese society seems poised to increase.

Zhuang’s analogy of the philanthropic environment in China as a stage perfectly summarizes this optimism: “Currently, the government is the main actor on the stage; nonprofits are the ‘side figures’ running behind the stage. They’re there, but it’s hard to know what they’re doing or how they’re doing it. Eventually, the threshold to get on the stage will be lower; NPOs can then join the government on the main stage for equal assessment by all.”

(Written by Yongtian Tina Tan of Harvard University)

Creating an environment for China’s civil society organizations (“CSOs”)2 that will be more empowering has never been unimportant, but is especially so now—after the Paralympic Games in September, the Olympic Games in August, and the Sichuan Earthquake in May.3   The questions of what legal/regulatory changes would be beneficial for such organizations, those who volunteer for them, and those who donate to them are especially significant after the Sichuan Earthquake of May 12, 2008.   Problems with the harnessing of human and financial resources for disaster relief once again attracted the attention of millions of Chinese citizens and its increasingly aware “netizens” at the time of the earthquake.4    Issues about volunteers and the regulations that govern them also have resonance in  connection with the Olympics and Paralympics, which brought thousands of volunteers from all over China to Beijing.  Legal questions around the status of CSOs and their relationship with the party-state must be dealt with if China is going to be able to address the social and economic needs of its people in the twenty-first Century.  While the state has increasingly viewed CSOs as important partners in meeting societal needs since the reforms to modernize and downsize government in the 1990s, the relationship must mature in order to achieve more successful outcomes.   This Article proposes an integrated approach to creating more space for civil society in China.  It thus addresses the legal changes that will be necessary to attain Yan Mingfu’s vision of a more cooperative state-civil society relationship within a foreseeable time frame.
…
This Article will address the following topics with regard to the regulation of civil society in China:
•    Making the existing regulations for social organizations (shehui tuanti, “SOs”), nonprofit non- commercial entities (minban fei qiye danwe, “NCEs”), 12   and foundations (jijin hui)13   more user-friendly, including making it possible for de facto networks that provide and coordinate disaster relief to be recognized, perhaps as semi-legal entities for a short period of time.14  …
•    Making public fund-raising easier for small and medium-sized CSOs.  Although the amount donated to charity increased in 2007,16  the new tax rule permitting all certified charities to receive  donations  has  not  been  implemented. 17    In  addition,  the  provision  giving  the government a leading role in fundraising for national emergencies should be removed from the Public Welfare Donations Law (“PWDL”).18
•    Passing the Charity (cishan) Law to coordinate the development of the law governing public benefit organizations and begin the process of privatizing charity in China.   …
•    Relaxing the controls on volunteering. While the current municipal rules may work well with regard to a planned event such as the Olympics, they impede the development of volunteer networks at times of national disasters.

(For the complete paper, please click the link below. See page 60-89.

This essay is from INTERNATIONAL JOURNAL OF CIVIL SOCIETY LAW,  Vol VII Issue II, April 2009.)

Below are notes of his talk.

Given the shortage of time, I will focus my remarks on the subset of US foundations that make grants directly to grantees in China, whether or not they have resident staff in China. Not included are US foundations that grant funds to international intermediaries (such as Oxfam or World Resources Council), which in turn fund activities in China, or support the study of or exchanges with China (such as Luce and Freeman).  In excluding these groups as well as those in other countries (such as Volkswagen, Adenauer and Ebert in Germany or Toyota, Nippon and Sasakawa in Japan) I do not mean to denigrate in anyway their important contributions.

Direct Grantmaking by US Foundations in China has evolved over the past 100 or so years – 3 broad periods

(1) Pre-1950 – Rockefeller Foundation (public health and higher education – physics bldg at Nankai University), China Medical Board (Peking Union Medical College), Harvard Yanching Insitute (six Christian universities during 1930’s and 40’s )

(2) 1950-1978 – support to  major centers of  Chinese studies in US, UK, Australia, HK, India, Taiwan + library collections, pre- and post-doc research.  In mid 1970s efforts toward normalization of relations (National Committee on US-China Relations, CSCPR (initial exchanges)

(3) 1979-2009 – As China began to reform and opening to the non-communist world, US foundations began tentative explorations to see what they might do.  Ford Foundation (FF) and The Asia Foundation were among the first to put their toe in the water or, like Deng Xiaoping, to search for the stones to cross the stream.  Others followed and the field has continued to evolve.

Since 1979, 3 successive stages using Ford Foundation (FF) as an example:

- 1979 special appropriation of $200k. Mutual access and understanding (China Academy of Social Sciences, The Committee on Scholarly Communication with The People’s Republic of China, US-China Arts Exchange Center, Winrock International) visits, conferences, workshops

- Early 1980s, shift from exchanges to capacity building in three fields – economics education and research (Harvard Professor Dwight Perkins was involved), law and legal reform (Harvard Professor Bill Alford was involved), and international relations including area studies. These fields were ones that were important to China’s reform and opening, in which FF had experience elsewhere, and could be managed by a part-time program officer working from NY and using joint committees for decision making.

Enabled FF to broadened institutional connections beyond CASS and CAAS to include leading universities, State Council and/or ministry related research institutes. Also enabled FF, the case of area studies, to expand its geographic reach beyond US to include Africa, Middle East, LA.

- 1988 with the opening of the office in Beijing, three Program Officers plus the Rep on the ground – new programs in poor area development, RHP, and higher education &community colleges; greater outreach within China; broader range of institutions GONGOs and NGOs. Direct Grantmaking by US Foundations in China has grown significantly in recent years.

Statistics: Indebted to Foundation Center – Interactive map of direct grants by US grantmakers to non-US recipients (2003-09). During the period 2003-9 US foundations grants to Chinese recipients increased from $26m in 2003 to a peak of $58m in 2007, then declined to $40m in 2008 and to only $5m so far in 2009 (presumably reflecting primarily the state of the US economy). The number of grants has ranged from a low of 176 in 2004 to a high of 364 in2006. The number of recipients has ranged from 161 in 2003 to 260 in 2004 and to some 200 in each of the past three years. Unfortunately, for our purposes, the IFC data does not total the number of US  grantors.)

Y            $        G       R

2003 26m 286 161

2004 30m 176 260

2005 36m 252 137

2006 40m 364 202

2007 58m 322 192

2008 40m 322 192

2009 5m 33 24

Nature of Grantmaking since 1979 (as indicated earlier) has changed in 3 significant ways:

   1. Increasingly diverse range of recipients: National to provincial, urban/rural, ministries, research institutes, universities, ministries, GONGOs and NGOs
   2. Growing number of grantors: private foundations (FF, TAF plus Trace, Energy, Gates, Clinton + diaspora Cyrus Tang); corporate (Intel, Caterpillar, Eastman Kodak, Merck, Agilent Technology, GE, UPS, BP)
   3. Broader range of issues: environment, poverty alleviation, children’s and women’s rights, legal aid, RHP

Why the Changes?

In US

    * Growth in US economy, increased foundation endowments and in wealth of diaspora
    * Major new foundations
    * Energy, Gates and Clinton- Greater societal engagement with China – governmental, academic, commercial, nonprofits
    * Increasing appreciation of China’s growing international importance

In China

    * Reform and opening. Shift from all embracing party-state. Disaggregation
    * Changing roles and responsibilities vertically and among different sectors of society. Big Government, small Society to big Society, small Government. Greater space for NGOs. Tensions: reform vs. control. Relaxation vs. restriction. Cyclical vs. secular
    * Evolution in fiscal and regulatory framework governing nonprofits and foreign foundations 1999, 2004 regs
    * Growth in local NGOs, emergence of intermediary organizations, and now private foundations.Looking ahead

Six Challenges Facing US Grantmakers in China (half full vs. half empty)

(1) Still undeveloped legal and regulatory framework for the NPOs including foundations. Framework continues to evolve, with the timing and specific outcomes difficult to predict. Various laws and regulations beginning with 1989 Law on Registration of Civil Organizations, with primary objective of restriction and control. More are in the works.  Ministry of Civil Affairs (MOCA) is promoting a Charity Law. Others prefer a foundation law for public welfare, and still others argue for a basic NPO law.   Latest estimate is that draft Charity Law will go from the drafting committee to MOCA in June, from MOCA to SC LAO in July, and to NPCs sometime in the indefinite future. Lack of clarity makes both outside funders and local NGOs uneasy and less active than they might otherwise be.

(2) Achieving scale – linking local with national – is as difficult in China as it is elsewhere. National government has limited ability to assure its policies are implemented at provincial level and below. Challenge for those seeking national impact is embody local experimentation locally within an institutional framework capable of extending the lessons learned.

(3) Local civil society still relatively weak, but the number of registered and non-registered NPOs continues to grow rapidly. Up to 400,000 civil organizations (independent social organizations, foundations, and private nonprofit enterprises) are now said to be registered with MOCA, others with bureaus of commerce and industry, and with some 2 million still unregistered.

Growth reflects increasing recognition that government no longer has all the resources – human and financial – to meet China’s rapidly changing needs. Growth also reflects the lessons learned from crises such as SARS and AIDS. The combination has markedly increased the space of nongovernmental activity.  Has also led MOCA to be active in encouraging growth in the NPOs.  Local NPOs are finding it easier to register and some are now receiving government support for local service delivery in fields such as AIDS and poverty alleviation.

A part of this environment is the recent and rapid growth in the number of Chinese private foundations. Since the 2004 foundation law was passed, some 1531 are said to have registered including some 500 at the national level.  Increased wealth generally and the Sichuan Earthquake in particular help to explain the increase.  Potential for further growth in private foundations is huge; only 1-2% of private individuals who could afford to do so have set up private foundations.  The 2004 law also permitted foreign foundations to register and several of the largest, Gates and Clinton, have recently opened offices in Beijing, and other such as MacArthur have been exploring that possibility.

(4) Coordination among funding bodies (foreign and domestic) is generally lacking; more information exchange is needed as is greater transparency and accountability. Also need to foster ties between groups in China and counterparts elsewhere in Asia and the West.

(5) More attention is needed to developing indigenous support for the NPOs. The future of the sector will increasingly depend – not on foreign governments or foundations – but on funding from within China. This argues for more attention to the generic needs of the sector (a more supportive fiscal and regulatory framework, accounting of contribution of the sector by Center Statistical Office, encouraging public interest and attention, support for intermediaries – training, representation in policy making circles, facilitating exchange of experience – and greater transparency and accountability).  These activities have received relatively little attention from US grantmakers, which prefer to focus on particular sectors or problems.

(6)Finally, need for humility. Grantmakers may sometimes be a necessary but rarely, if even, a sufficient condition for something of significance happening.  Foundations are fortunate if given the opportunity to be associated with activities that improve human welfare, but the outcome – and the credit –belongs primarily to the grantees. Foundations need to be modest about successes as well as failures.