Legislations for Foreign NGOs; how will the second boot land?

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This article was originally published by Caijing Magazine.


What national legislation needs to consider is not just how to prevent some foreign NGOs from crossing the threshold, but also the impact on competitiveness in the international third sector capital market, and the necessary precondition of promoting China’s reform through opening up.


The “Overseas NGO Management Law (Second Draft)” (hereafter referred to as the Second Review) passed the review of the Fourteenth session of the Twelfth National People’s Congress and was shared with the public for comments on the National People’s Congress website from May 5th to June 4th 2015.

The Second Review attracted 1,803 recommendations, of which nearly half surged in on the last day. Because of the unfamiliarity of the term “non-governmental organization” for a majority of the Chinese public, and the visual and psychological distance brought about by the term “overseas”, the feedback process showed a gradual “fermentation” effect, possibly hinting at the likely impact of the law once it is implemented.

The Second Review attracted some controversy, and it was not adopted and published in the subsequent meeting of the Standing Committee of the National People’s Congress alongside other bills like the “National Security Law”, which was put up for comments around the same time. However, given the intensity of the motivations behind this legislation, the period before the next review of the law will probably not be indefinite. In reality, from the point of view of many domestic and overseas NGOs, waiting for the law is a bit like waiting for the second boot to fall upon the upstairs ceiling. Those in various sectors are concerned about when it will fall, and what kind of activity it will cause.

Since it has not yet fallen, the necessary thing to do is a prospective assessment of the Second Review, so that the regulated parties and the regulators can mentally prepare themselves for this item of legislation that is likely to have widespread effects.

How many overseas NGOs will be subject to the law?

Who is actually being managed by the “Overseas NGO Management Law”? It is easy to immediately link this with INGOs (International NGOs), but these are in fact only one type of NGO, listed under Group 9 (“International”) in the “International Classification of Non-profit Organizations”, referring specifically to NGOs with a mandate for cross-national activities such as development aid, international disaster relief, and international human rights organizations. The number of NGOs in this category is only a small percentage of the entire non-governmental non-profit sector.

“Overseas non-governmental organizations”, as defined in the Second Review (hereafter overseas NGO), refers to “non-profit, non-governmental social organizations established abroad”. Therefore its scope includes all types of “social organizations” founded outside of China.

One way of defining the above-mentioned “social organizations” is by referencing China’s current regulations. These refer to organizations with the following characteristics: social groups (non-profit organizations that allow members to achieve a common goal, such as associations, societies, unions of various kinds), private non-enterprise units (private organizations that provide non-profit social services, such as private non-profit hospitals, schools, research institutes, nursing homes, child welfare agencies, various social service agencies, environmental and other public service organizations), and foundations (non-profit legal entities established from donated properties with the purpose of engaging in public welfare activities).

Another method of defining them is to follow the legal concept of the country of establishment, such as “tax-exempt organizations” in the US, or “charities” in the UK. In terms of numbers, there are 1.8 million tax-exempt organizations in America and 180 thousand charities in England. Within the broadly defined non-profit sector, these organizations account for an average of 5.4% of GDP in developed countries, and they are widely active in areas like education, health, and social services, totaling 12 broad fields and 27 specific areas of activity.

It is evident that regardless of which method of definition is used, the bill’s object of regulation will be extensive and large-scale, and will comprehensively impact all aspects of public utilities and social life.

What’s more, since ‘overseas’(境外) is defined here as “outside of the borders”, rather than “outside of the country (国外)”, this geographically covers all relevant organizations in Hong Kong, Macao and Taiwan.

Specific organizations and popular activities

With the scope limited to the above-mentioned overseas NGOs, the Second Review’s objects of regulation include four categories: firstly, overseas NGOs that set up representative offices in China; secondly, overseas NGO activities in China; thirdly, foundations or social institutions established or jointly established by overseas NGOs in China in accordance with Chinese laws and administrative regulations; fourthly, Chinese domestic individuals, legal persons or other organizations commissioned or funded by overseas NGOs as direct or indirect agents for the carrying out of their activities.

Out of these, the first and third categories pertain to organizations. Organizations established or jointly established by overseas NGOs in China are regulated by this law, and regardless of what the legal liability is, the boundaries are clear. On the other hand, the second and forth categories pertain to behavior. This means that whenever overseas NGOs engage in any activities within Chinese territory, they are required to obtain a license in order to gain legitimacy. This is equivalent to putting up a wall between overseas NGOs and the Chinese border. Without a permit, any contact is prohibited.

Let’s consider some examples: the President of Harvard University coming to China to promote Chinese students’ recruitment and signing an agreement of cooperation with Chinese universities; Yale’s Alumni Association co-organizing a reception in Beijing with Chinese alumni; a British private school band coming during the summer to perform in a Chinese international school festival; the Swiss Red Cross sending medical staff to provide volunteer training in China; international aid organizations procuring relief items in China to be sent to disaster areas in the Asia-Pacific; the Brazilian Engineers Association holding its annual meeting in a Hainan Resort; a Taiwanese Association for Community Service working on community development in Fujian; any Hong Kong social club conducting one-to-one supervision services with social workers in Guangzhou; or even a Chinese scholar being requested by the American Association for the Advancement of Science to forward annual meeting invitations or members’ newsletters; New Oriental organizing student recruitment events in collaboration with foreign schools… According to the Second Review, without the approval of the Ministry of Public Security or the Public Security Bureau, these actions would all be under suspicion of being “illegal”.

There are also some gray areas. For example, if overseas NGOs were to send staff or commission Chinese lawyers or other personnel to seek office spaces and representatives in China, in order to meet registration requirements, would that be illegal?

Since the regulation pertains to overseas NGOs, if the US Chamber of Commerce comes to China to carry out market development activities it would require an approval by law, but member companies of the US Chamber of Commerce, or government departments, would not require approval to conduct the same activities.

If the regulation’s subject and scope is so extensive, what effects may occur in its enforcement, particularly unintended effects? This can be considered on three levels: direct, strategic, and overall.

Direct Impact: the threshold effect of the bill

The most direct impact of the bill is the intentional design of the system. The legislation intends to set up a manual filter for overseas NGOs at the Chinese border, letting the “good” overseas NGOs in, and blocking the “bad” ones. However, only a small part of NGOs can be subsumed into these two categories, while a large number are “unclear” and “inconspicuous”, and a small amount are “against the current”.

First of all, lets look at the effects of this separation between inside and outside of the borders. For charitable organizations as defined by the forthcoming “Charity Law”, registration and supervisory responsibilities rest with civil affairs departments, with four tiers of registration nationwide; the Second Review, however, gives the responsibility of supervising overseas NGOs to public security departments, with two tiers of registration at the State Council and provincial levels. As a result, at the levels of registration, management, and legal basis, domestic and foreign NGOs are divided into two separate systems and placed into two disparate pools, with interaction between the two groups coming up against a barrier.

Secondly, there is the erosive effect on the policy of ‘welcoming in’ so that China can ‘step out’. The “principle of reciprocity” between countries is one aspect, but as far as the present situation is concerned, the twin trends of NGOs “coming into” China and China “stepping out” into the world are in large part staggered. The awkward reality is that in “stepping out” and “welcoming in,” the distinction between insiders and outsiders is increasingly blurred. Local social organizations that took advantage of relaxed registration environments overseas to set up overseas NGOs and expand their international cause may face a halt in funds returning to the ‘womb’. As an example, “Confucius Institutes”, which are established in universities or research institutes overseas (most fall under the “overseas NGOs” category) in a commitment to spreading Chinese culture, and not only do not consider the US government’s “principle of reciprocity” approach, but also carry out activities like bringing teachers over from China and signing partnership agreements with Chinese schools, will also fall under the regulatory category of “overseas NGOs”.

Thirdly, there is the deficit effect on local welfare resources. Since overseas NGOs can only register at the levels of the Ministry of Public Security and provincial public security organs, even when a foreign community-based volunteering association carries out activities in a community in China, approval from at least the provincial Public Security Department level must be obtained, alongside the approval of an officially or formally registered Chinese partner and its competent business unit, the obtaining of six documents, and the fulfillment of the entire approval process. The direct impact of this process is that the more a third sector activity is grassroots, small-scale or based upon a Chinese partnership, the less likely it is to happen. This causes existing resources to tilt towards large organizations within the system, resulting in reverse resource flows and a widening gap. For example, a county-level private school in Zhejiang city may be able to establish international ties based on its own strengths, but due to the approval process described above, it may fail to receive approval or the other party may be unwilling to spend the time and resources necessary, and so the partnership may end up in failure.

Forthly, there is the stagnation effect which costs and the implementation process will bring about upon foreign activity. The large scale of overseas NGOs, the concentration of approval authority within the public security department, the lack of professional judgment, the cumbersome approval process and the complex requirements will ultimately result in low approval rates; even for those who receive approval, the time needed to prepare for the process may be months or even years.

Therefore, besides imposing strict limits on certain NGOs from entering China, the more widespread effect of the approval process will be to create a “sluggish” attitude towards foreign opportunities within the nonprofit field, affecting areas of social and economic development.

In recent years, under the influence of policy guidance, this trend has already emerged in areas like academic exchanges, international conferences and exchanges between domestic and overseas NGOs, affecting normal activities.

In modern society’s exchanges and circulations, being able to arrange things on a brief notice is an important feature. Occasions such as the American Medical Association taking the chance to visit a Chinese hospital to discuss cooperation opportunities while on its Asia-Pacific visit, or a neighboring hospital extending them an invitation while they are on a visit to a medical school in China, are very common. The degree of control over the approval process will certainly be inversely proportional to the openness of the exchanges.

In the information age, sluggishness in these fields will not only affect the amount of exchanges, but to an extent also society at the macro level and economic productivity.

Strategic Impact: the effect of strategic shifts in International Third Sector Capital

The direct impact of the aforementioned can be summarized as the ‘threshold’ effect: if the threshold for approval and registration becomes higher, so that the cost and difficulty of crossing this threshold from both the inside and the outside increases, then the likelihood of entrances and exits decreases. A similar system can be found in the “dual management system” for China’s domestic social organizations, which was incepted in 1998. Although the extent and elements of both systems vary, basic principles like the need for pre-approval, dual management, increasing thresholds and the difficulty of achieving legal status are the same.

Looking at China’s model for domestic social organizations’ management, in place since 1998, the practical results are clear: grassroots organizations face registration difficulties, and large numbers of NGOs exist outside of the law.

According to the estimates of various scholars, the number of ‘illegal’ organizations is up to or over ten times the number of ‘legal’ ones. This scenario eventually motivated a reform in China’s social organization management system.

If the same logic were applied to overseas NGO management, would it produce the same results? The answer might be quite complicated. There is at least one fundamental difference: China’s grassroots NGOs, however reluctant, are familiar with the logic and skills of the ‘extrajudicial space’, achieving a tacit understanding along the lines of “you do not cause trouble, and we do not investigate” with the government, striking a balance where ‘selective enforcement’ indicates the border between deterrent and self-discipline.

The implementation of the “Overseas NGO Management Law” will see a confrontation between this Chinese logic and international legal thinking: overseas NGOs may not accept, or may not be able to deal with this ‘existence outside of the law’.

If Overseas NGOs adopt a ‘achieve legal status or leave’ attitude, the efficacy of ‘selective enforcement’ as a deterrent will become problematic.

If Overseas NGOs do not want to be like Chinese grassroots NGOs, who do not give up on their goal of survival regardless of the hassle, then the impact may not only be on the height of said threshold – ‘how will we cross this threshold in order to stay’, but the threshold changing the selection environment – ‘after an assessment of the threshold, should we stay?’ In other words, the Overseas NGO Management Law will change China’s third sector competitive market environment, reshape its position in the international third sector strategic layout, and impact the capital flows coming from international philanthropy.

Due to the rise of China’s economy, resources flowing into poverty alleviation, educational funding and public health have been gradually withdrawn, and many Foundation’s donors prefer their contributions to flow to Africa or the Middle East where the need is greater; many non-profit university programs operating in China are also on the verge of financial difficulties. If the requirements for approval are increased, the degree of freedom reduced and organizations’ daily operating costs increased, the balance is likely to tip, causing them to close down.

If foreign NGOs assess this and find that China has higher comparative costs than its neighbors, or feel an unwelcoming message from the legislation, or do not know how to achieve a legal status, or feel harassed by the already complicated procedures in place, there may well be a trend towards charity resources being directed elsewhere.

Within the international third sector capital market, what impacts foreign NGO behavior, in greatest contrast with Chinese grassroots NGOs, is not only the height of the threshold, but more importantly the multiple elements of comparative advantage.

Although China’s economic and social development holds a certain appeal for international third sector capital, the fact is that just like financial investment is sensitive to policy changes, the strategic layout of third sector capital is similarly sensitive to its environment.

Now that the bill has not yet been officially presented, foreign NGOs in China are still observing from the sidelines, waiting for the final draft; once the bill is introduced, many of them will try to acquire legal status. The challenge for Chinese legislation and law enforcement is as follows: what if this legalization process cannot be implemented quickly and relatively smoothly?

Besides its impact on the social welfare field, the impact of the “Foreign NGO Management Act” could also be more general, in particular as a signal of the country’s degree of openness.

Since the reform and opening-up policy in the 1970s, China has used opening-up to promote reform, turning openness to the outside world into a driver for domestic reform. Opening-up has thus been the driving force behind reform. Early foreign NGOs enjoyed a policy backdrop of ‘welcoming in’ the foreign so that China could ‘step out’. The Ford Foundation’s first funding program was established in China through the invitation of then Dean of the Chinese Academy of Social Sciences Hu Qiaomu during a visit he made.

In the field of managing foreign NGOs, international practice usually adopts the principle of national treatment, rather than the principle of separating domestic and foreign entities; and the principle of regulating behavior, rather than the principle of restricting legality. A legislation that pertains to all foreign NGOs and covers all organizations and activities is uncommon within the international community.

With regards to the “Foreign NGO Management Law”, setting aside the issue of which foreign NGOs stay and which ones leave, what the law says about China’s attitude towards the “foreign” will potentially havea far-reaching impact on China’s international relations and national image. Before the bill is introduced, an assessment of international strategy and political openness should not be lacking.

How will the second boot land?

The “Overseas NGO Management Law” will not only affect the fields of NGOs and philanthropy. Why might there be other unexpected impacts? Besides factors like the rushed timeline of the legislation and strict management being the legislative intent, there is another problem that cannot be ignored, namely the gap of cognition on NGOs.

In China, NGOs or social organizations simply move to fill in gaps or act as ‘icing on the cake’ in order to supplement community life, whereas in developed countries in Europe and America, NGOs form the main body in the social fields of science, education, culture, health and social services.

China currently has three regulations regarding social organizations, none of which are relevant to the overseas NGO category, with the exception of representative offices established in China by overseas foundations.

There is an undeniable need for legislation pertaining to overseas NGOs. With that clear, between the revision of the third draft and the introduction of the final draft, is there any possibility of achieving a better balance between effective supervision and avoiding a ‘closed door’ effect? There are several crucial basic points that need attention.

First of all, there is the issue of restricting the object of regulation. Should the focus be on constitutions, thereby cancelling the approval of temporary activity licenses, or on giving ‘temporary activities’ a clear definition, such as the continuing activities of unregistered organizations? At the same time, according to the current definition of ‘non-governmental non-profit social organization’, the use of ‘overseas non-profit organization’ is more suitable as a legislative title. Because the understanding of NGOs is narrow, it will be easier to overlook the larger body of the social service sector in legislative thinking.

Secondly, there is the regulating department and management system. Would it be possible to return to a unified registration and management system for local and foreign entities, or set up a special committee directly under the government’s supervision, with the participation of the civil affairs, public security, foreign affairs and other departments, with an office located within civil affairs, and various departments sharing the responsibility of discharging their duties and assisting in coordination?

Thirdly, there should be a list of government departments and their clear legal responsibilities. This is so that overseas NGOs applying for registration are able to find the corresponding department in charge of their case, and there is a statutory responsibility for them to respond in accordance with the application materials and provide appropriate reasons.

Fourthly, there is the standardization of enforcement powers and the establishment of relief channels. This is especially relevant to the preconditions for enforcement, the rationality and clarity of legal liabilities and the legal remedies for non-liability or law enforcement disputes, particularly with regards to cases involving people, property and freedom.

Fifthly, there is a need to look at specific statute improvements like a rationalization of license registration requirements, an appropriate simplification of the approval process, and reducing interventions into overseas NGOs’ internal management issues, such as the management of their own personnel and volunteers.

Ultimately, the issue for overseas NGO legislation is not the legal technicalities, but the fundamental idea and purpose behind the legislation, and its theoretical basis should be an understanding of overseas NGOs, or NGOs in general, and of modern social governance.

What the national legislation needs to consider is not just how to prevent some overseas NGOs from crossing the threshold, but also the impact on competitiveness in the international third sector capital market, and the necessary precondition of opening-up for the promotion of China’s reform.

In Brief

Tsinghua University professor Jia Xijin discusses the possible consequences of the soon to be approved “Overseas NGOs Management Law” on China’s non-profit sector, and provides some recommendations.
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