This is CDB’s translation of a talk given by professor Jia Xijin, from Tsinghua University’s School of Public Policy and Management, on the history of philanthropic foundations in China. The talk was given on the 30th of August in Xi’an, at the the Shaanxi Summit of the China Foundation Forum. The Chinese version was published on the 4th of September 2019 by the WeChat account of the China Foundation Forum. You can see the original here.
History: the three stages of development of the Chinese Foundation
Stage 1: “Fundraising”: the emergence of the Chinese Foundation
Since the Reform and Opening Up, there have been three stages in the development of the Chinese foundation, which I will summarise with three words. The first stage is “fundraising”. This marks the emergence of the foundation with Chinese characteristics. Founded in 1981, the China Children and Teenagers’ Fund was the first national-level charity foundation in the new China. It was jointly initiated by the National Women’s Federation and 17 other organisations. The Soong Ching Ling Foundation followed in 1982, the China Foundation for Disabled Persons in 1984, the China Youth Development Foundation in 1989, and so on. The majority were created by “People’s Groups” (人民团体) and had a degree of government background, or could even be seen as bridges created by the party and government to connect with society.
Why did such foundations appear? After the reform and opening up, the government realised that there were a lot of social causes that it wanted to tackle, but there was a lack of funding. At this time, our way of thinking was not for society to do these things for itself, but for society to give money to the government and allow the government to do them. In practice, in addition to national compulsory taxation, a channel for voluntarily donating further funds to the state was opened up. This was the origin of social donations in China, where people donate to the government and semi-official organisations like the Trade Union, the Communist Youth League and the Women’s Federation do the work. The context of the “fundraising” foundations is that social resources were monopolised by the government. Only certain government-related organisations could fundraise in society, and the Chinese foundation originated on this footing. This is the study of the emergence of the Chinese foundation.
The vast majority of foundations established before 2004 had their origins in fundraising. Looking back, there was a completely different backdrop to the establishment of foundations in the United States. The motivation behind the establishment of US foundations was finding a way to use funds donated by entrepreneurs. In this context, the foundation became a “way of distributing funds”.
It should be said that “fundraising” foundations played a big role at the time, such as with Project Hope. At that time, Mr. Xu Yongguang proposed a lot of things, but later continuously tried to revise them. Why? This is the distinguishing characteristic of that stage. For example, in charity, the consensus is firmly opposed to the concept of “zero cost”. But at that time, if you did not say zero cost no one would donate money. I believe that fundraisers knew that this was wrong. How could organisations not need money to operate? But in order to get the masses to understand, you had to first say this so that they would be willing to join in, and then slowly revise it and explain to them that this concept is wrong and there is no free lunch in this world. Therefore, in the beginning fundraising foundations helped the government realise its social interventions. However, with the development of the economy and society, some foundations began to have a certain autonomy and to carry out innovative social projects. The path of the Chinese foundation started like this, so it made a great contribution. Project Hope is a classic example.
It’s just that if things had always remained at this stage, the real meaning a foundation should have would have been lost. Why are there fundraising foundations? This is because the right to undertake social fundraising was monopolised by the government, and nobody else could do so, so this was the only way to have specific organisations with the mission of fundraising. This is where Chinese funds found their significance in that environment. But in a normal civil society, fundraising can be conducted by all organisations and even individuals. Fundraising is a natural right and does not require permission. If fundraising is opened up, you will find that this is not a specific attribute of an organisation at all. That is, the “fundraising” foundation is only the product of a specific stage set against the backdrop of a system with Chinese characteristics. As soon as the monopoly over fundraising ceases to exist, this type of foundation will have no substantive meaning.
Stage 2: “Using Funds”: The Rise of Non-governmental Foundations
The turning point for the start of the next phase should be 2004. In that year, the new “Regulations for the Management of Foundations” replaced the original method. These regulations differentiated between public fundraising foundations and non-public fundraising foundations. The actual significance is that the category of non-public fundraising foundations was established. Prior to this, “foundations” referred to public fundraising foundations. Organisations which could raise funds could only rely on government organisations to do so. The second stage occurred because our law recognised the fact that society can take money to do things itself, and that this can be legally recognised and given legal form.
The meaning of “non-public fundraising foundation” is that if there are private resources that do not originate from social fundraising, they can also carry out charitable undertakings which we originally considered to be the preserve of the government. The right to fundraise was thus not opened up, but the government’s monopoly on the control of charitable work was. The right to implement charitable undertakings or “do things” was also opened up. If you have money, you can go and carry out your ideas. This may not sound like anything extraordinary, but in the context of that time, seeing entrepreneurs carry out the charitable activities that they wanted according to their wishes was already an epochal leap forward for China.
The regulations on the management of foundations were a turning point. Non-public fundraising foundations started to grow rapidly. At the same time, the growth of public fundraising foundations has always been small and maintained a steady state. In 2011, non-public fundraising foundations overtook public fundraising foundations for the first time. By the end of 2018, there were already 5,109 non-public fundraising foundations, having grown rapidly from zero in 2004. So this is the characteristic feature of this stage.
So what is the function of these foundations? Although the foundation has established this interface for the inclusion of social resources, the social function of the foundation is still focused on its own operations. Therefore at this time a large number of non-public fundraising foundations are using their money to undertake projects themselves, as operating foundations. While Project Hope raises money from everyone to fund schools, non-public fundraising foundations correspondingly use their own money to build schools to help those they want to help.
In comparison, social organisations, especially social service organisations, use social resources to undertake projects. It’s just that the resources of social service organisations may be slightly more diverse, while the funding sources for non-public foundations are relatively unified. It is clear that undertaking projects is not a specific organisational characteristic of foundations. Although the new category of the non-public fundraising foundation was established during this stage, a distinctive social function was not achieved. We have found that many choose to set up foundations for convenience, controllability or for regulatory reasons, but foundations and civil non-enterprise units do not have special functional attributes.
According to statistics from the Foundation Centre Network, foundations which originate from a non-governmental background have grown tremendously since 2004. If the first stage in the development of Chinese foundations, the one of “fundraising”, related mainly to the government monopoly over public fundraising, then in the second stage, the one of “using funds”, the operational characteristics of the foundation are mainly related to the way the Chinese, and especially the rich and entrepreneurs, view wealth. For example, when people look at charity and public welfare, they will pay the most attention to the amount donated by entrepreneurs, rather than the purpose of the donation or how it is used. The concepts of wealth and charity stop at “giving”, so this stage took shape as a result of these kinds of attitudes. We find that in a genuine spirit of charity, donations should be the beginning rather than the end point. But in the specific cultural environment of China the “donation” is the end point, after which you find a few people and spend the money. This represents the characteristic feature of the second stage.
A slide from Professor Jia’s lecture, showing the growth in the number of non-public fundraising foundations (blue) and public fundraising foundations (orange) from 2011 to 2018.
Stage 3: “Distributing Money”: the Awakening of the Modern Chinese Foundation
The third stage is the “path of distributing money” (散财之道). So far this cannot be considered a mature stage in China, but the sector already has this awareness. So this is the awakening of the modern Chinese foundation. Although foundations in China have undergone a long period of development, foundations that truly have the main aim of “distributing money” have just started to awaken. What are the characteristics of such foundations? They distribute money themselves, and are dedicated to giving money to others. They are a resource for social organisations. At this stage, the concept of funding and operational foundations is gradually emerging, and people are starting to distinguish between them. It’s only once people have this concept and can distinguish them that everyone will realise that only funding foundations are real foundations, and organisations that do things themselves are actually social service organisations. Using money to build schools is something that a social service organisation and a charity organisation should do, and they are not real resource repositories. Therefore, funding foundations represent the core of the modern foundation.
Although Chinese foundations have undergone 30 years of development, foundations which really embody the role of being repositories of resources that provide funds to others have only emerged in recent years. So far, there is no statistical data, but as professor Wang said, the proportion of foundations that provide funding is about 1%. In short there are not more than 100 of them, which is in fact an extremely small number.
The Current Situation: the Repositioning of the Chinese Foundation
The Charity Law provides legal policy support for achieving a key transformation for the foundation. Although there are many problems with the Charity Law, it has promoted the formation of the concept of the modern foundation. The Charity Law opens up the right to apply for public fundraising status. Any charitable organisation, civil non-enterprise institution or foundation can apply for public fundraising status as long as they meet the relevant conditions. That is, the public fundraising foundation defined in the “Foundation Management Methods” and “Foundation Management Regulations” does not exist in law after the introduction of the Charity Law, and foundations face a repositioning.
After the introduction of the Charity Law, how can the Chinese foundation reposition itself in the current environment? For a foundation which “uses money”, it is even more necessary to rethink what a foundation is and whether its own organisational attributes have specific connotations.
The definition of many organisations in the United States is based on their attributes, that is, the specific function of the organisation. Without a specific function, there is no specific meaning. Internationally the historical basis for this type of organisation, the foundation, to come into being, has been the existence of wealthy people hoping to achieve specific charitable purposes through donations after they die, thus creating a foundation for asset management.
In the current legal context, Chinese foundations should move towards opening up public fundraising. The trend is to go from government monopoly to the monopoly of specific social organisations, and then to market choice. The foundation as an organisation that uses assets does not have specific attributes, and all social organisations can achieve this. The assets and the vision must last forever. Assets with ambition and vision behind them are where the motivation for the modern foundation lies. Therefore it all depends on whether the foundation can produce such a vision.
There are more than 800,000 social organisations in China, including more than 7,000 foundations. The United States also has more than 1.6 million. But the meaning of these two words is different. In China the meaning of “social organisation” is an organisation with legal legitimacy, while in the United States legal organisations have existed at all times and places, and can be established by any organisation at any time. In the United States and other developed countries, the social organisations regulated by law are tax-exempt. With reference to the standards of the 1.6 million social organisations in the US, China has around 10,000 similar organisations. The number of more than 7,000 foundations is also unreliable, with no more than 100 ones that provide funding. Therefore, when we compare, there are 1.6 million tax-exempt organisations and 100,000 foundations in the United States, while in China there are 10,000 tax-exempt organisations and fewer than 100 foundations. These are comparable figures. This also explains why there seems to be a large number of Chinese social organisations and a vigorous presence of foundations, but we do not feel their existence in our lives.
The Future: Foundations and the Charity Ecosystem
On the road to future development, the foundation must recognise what the charity ecosystem is and what the specific role of the foundation is within it. There is a division of labor between the three sectors of government, enterprises and society. The foundation plays the role of fund conversion or of bringing resources from the “collection” to the “distribution” sectors.
Cross-domain and cross-sectoral innovation is a trend in contemporary social innovation. Therefore the foundations need to realise that they are situated within a large ecosystem in which social enterprises, social organisations and enterprises all coexist, and everyone represents a link in the chain of legal organisations with charitable purposes. The specific role foundations have within this chain is providing resource support. In the economic sector, banking and financial institutions have specific behaviours. There is no specific difference between large and small enterprises. Our foundations should be able to take on the role of banking or financial institutions in this field. Only by becoming a resource repository can the foundation find its own specific role in the charitable ecological chain and support the structure of the charity ecosystem.
Therefore, it is not enough just to consider the number of foundations, we need to think about the position of the foundation within this structure. In the charity field, in relation to policy, relying on an organisational structure formed by a fundraising monopoly is false. Regarding society, especially participants and donors, a transformation in the way of seeing wealth is required. Foundations need to consider what is ultimately achieved from public donations and participation. The goal of the real charity sector is to achieve a vision, that is the realisation of the society we want. The foundation is an organisation that supports achieving a vision. It is an organisation which provides a sustainable mechanism for achieving charitable goals for assets with a vision. This is the transformation of the future foundation.
My wish is that the foundation can transform into the modern foundation as soon as possible. Thank you!