When CHINA ECONOMIC REVIEW caught up with Wyndham James, China country director for the international charity organization Save the Children, he was waiting for a flight at Chengdu airport.
James had just spent a busy few weeks leading his charity’s response to the earthquake that devasted parts of Sichuan in May. He spoke glowingly of the philanthropy of Chinese citizens and corporations alike in the wake of the country’s worst natural disaster in decades.
“It’s just extraordinary, extraordinary quantities of money,” he said. “It’s kind of the whole welling up of a nation.”
Charitable donations for the earthquake as of May 30 amounted to US$4.25 billion, according to the Ministry of Civil Affairs. This compares to around US$600 million given as “social donations” in the whole of 2007. The list of corporations that have made earthquake-related donations has been a veritable who’s who of China’s business world.
International organizations like Save the Children, which are prohibited from raising funds within China, will see none of this money. The earthquake may have caused an unprecedented boom in charitable giving, but it has also exposed cracks in China’s regulations governing philanthropic giving and the NGO (non-governmental organization) scene.
As the wealth of China’s citizens has grown, so has the number of private philanthropic foundations. China had 1,400 charitable foundations and 400,000 NGOs at the end of 2007, according to Ge Daoshun, a researcher at the Social Science Research Institute at the Chinese Academy of Social Sciences (CASS).
“If you look at all these precedents it seems clear that China is going to have an enormous philanthropic market,” said Nick Young, a long-time watcher of China’s philanthropic and NGO sectors. “But how to tap into it – that is the question.”
Under the current system there are only a few organizations, such as the Red Cross Society of China (which operates as a separate entity from the International Red Cross) that are allowed to accept public donations. The development of charitable giving has been impeded by fuzziness in the regulatory structure.
“Charitable organizations need a sound law and detailed regulations. Although we already have some management regulations, they are rough and incomplete,” Ge said. He suggests standardized laws for the disclosure of donor information, NGO employee salaries and details on donation spending.
Richard Brubaker, “executive volunteer” with Hands on Shanghai, an organization that recruits and trains volunteers in China, has a similarly frustrated take on the current regulatory situation.
“There are hurdles everywhere – regulatory hurdles, legal hurdles, tax hurdles – and there’s no actual law that governs NGOs or permits them to register fully in China,” he said.
Not just gongos
Only those government-supported organizations (known as gongos) that are allowed to receive public donations can provide donors with a tax-deductible official receipt, or a fapiao, which can then be used as a tax write-off. Grassroots NGOs therefore have difficulty attracting funding, hiring staff and expanding, Brubaker said.
Registration is also a big problem, according to Xu Yongguang, vice president and general secretary of the Narada Foundation, a private charity organization. Being registered with the wrong ministry, for example, can mean an NGO has to pay corporate taxes, Xu said.
What impact will the deluge of earthquake-related donations have on regulations? Save the Children’s James – whose organization is registering as a Chinese entity so it can to raise money on the mainland – believes it will prompt a reexamination of current practices.
“[There] will be an understanding of how to receive large amounts of money, giving the appropriate feedback to donors and creating a more sophisticated fundraising operation,” he said.
“Organizations that receive this cash will be able to respond more effectively in the future.”