Philanthropy in China: Part I

This is a guest post from Dien Yuen, Director of Philanthropy at Give2Asia. The New York Times recently ran an article titled In China, Philanthropy as a New Measuring Stick. I thought that as Chinese philanthropy evolves, the Tactical Philanthropy community would be well served to understand the history and stay on top of new developments.

Read Part II of the series here.

By Dien Yuen

China’s influence and power is undisputable and with its tremendous economic growth, millionaires are made daily. According to the 2009 Cap Gemini World Wealth Report, China’s high-net worth individual population became the fourth largest in world in 2008, surpassing the U.K. By 2018, this population is expected to more than triple in size. In addition to making money, many are also giving it away – and in significant amounts.

Those in the philanthropy field are fascinated by what is taking place in China. In a country where the government takes care of the social needs of its people, how did such an explosive number of social organizations come into being? Will a new group of Chinese philanthropy leaders soon shape the global philanthropy and social development field? Will the next wave of philanthropy flow from China to the U.S. – or has it already started? It is an exciting time for many of us in the field as we watch Chinese leaders search for philanthropic models around the world and adapt it to suit its own cultural and social context.

This is part one of a two part post on a brief overview of philanthropy in China. It is structured in three phases: pre-Sichuan earthquake, the response during the disaster, and post-Sichuan earthquake. The purpose is to provide an overview of the rapidly changing philanthropic landscape in China.

Brief overview of the non-profit sector in China

Philanthropy, non-profit, non-government organizations (NGOs), non-profit organizations (NPOs) and many of the terms that we are familiar in western society have different meanings in China. However, the concept of charity and giving is not new. Mutual assistance and personal relationships are emphasized and these concepts take shape in many forms in the Chinese culture. Charitable activities exist within communities, family associations, clans and villages. Evidence of individuals and families supporting schools, temples, and other social services programs is prevalent and documented.

China’s history of centralized planning created a situation where both for-profit and not-for-profit institutions were basically run by the government. Since the reforms, many new social organizations have started. Some are registered legal entities but many are not and thus, they do not receive tax and other benefits. It is very difficult to register with the government and the process may take several years. The social organization must be affiliated with a government line agency in order to apply for registration. The Ministry of Civil Affairs is the national body that governs NGO registration and management. If the NGO is not registered or it cannot register, then they can register as a commercial entity. However, in essence, most of these groups would be considered a non-profit in U.S. standards and there are ways that donors can still support these groups.

Pre-Sichuan Earthquake

As China transforms itself, organizations are addressing many social welfare needs of the society and their services fill the void left by the reform process. It is also important to note that many people in rural areas, especially minorities, live in poverty. While China is economically prospering, the gap between the poor and the rich is widening. There are many social issues that need to be addressed, including the rights of minorities and the 40 million left-behind children.

By June 2008, there were over 386,000 registered social organizations (211,000 social groups, 174,000 grassroots non-business organization and 1,400 foundations). It is estimated that over 300,000 of these social organizations are not registered or they exist as commercial entities; although I have seen figures of 800,000 to 1 million. In comparison, the U.S. has 973,354 public charities in which 483,709 charities file with the IRS.

In the U.S., we know that most donors are not motivated by tax considerations alone when making a charitable gift. Donors are more interested in giving back to society and supporting causes they care about. This pattern is similar in China. Donors supporting a non-registered NGO will not receive a tax benefit and yet, many still do. Donors are also concerned about the lack of accountability and transparency in government organized groups. Thus, many Chinese prefer to give to people and local groups they are familiar with that are doing the charitable work in their village or province. A majority of these gifts take the form of remittances. In the past decade though, the landscape is changing and donors are looking for more strategic ways of giving.

Social benefit organizations exist in many forms – government-organized, quasi-government, independent and many other forms in between. Some groups receive funds from the government for their operations and programs. Other groups receive funds from local and overseas individuals and corporations. Through exchanges, encouragement by the government, business and personal ties, charitable support from overseas Chinese is increasing. Education has been the primary recipient of charitable giving, followed by poverty alleviation. With the growing presence of local corporations and multi-national corporations in China, we are also seeing the emergence of a corporate giving culture. According to a 2006 report from McKinsey, about 80% of the total charitable contributions in China were from foreign sources. But this trend is changing – especially, after the Sichuan earthquake.

In Part II, I’ll look at the effect of the earthquake on philanthropy in China.