How Far Has Philanthropy Sector Reform Come Since 2011? The Experts Debate

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CDB’s Guo Ting, reports on a debate among experts and leaders within the philanthropy sector about how far the sector has come since the critical year of 2011 when it was beset by scandals and energized by microblog campaigns.
The experts see both good and bad news in the data on public donations. While donations overall continued to climb, and donations to foundations surged to the forefront in 2011, donations from individuals (not counting wealthy entrepreneurs) appear to have declined. There were also major imbalances in the way donations were used. Most donations were spent on education and poverty alleviation, and only a very small fraction was used to fund grassroots organizations. Most importantly, for a number of experts, the scandals of 2011 did little to change a philanthropic sector that continues to uphold the special privileges of government-backed foundations.

“A year worthy of being recorded in the annals of charity”, “the public awakening of charity awareness “, “public charitable trust plunges,” “philanthropy, in the throes of development, faces a critical stage and enormous challenges.”
On July 2012, at the news conference to publicize the 2012 China Philanthropy Development Report (中国慈善发展报告) (hereafter referred to as the Blue Book of Philanthropy慈善蓝皮书) at the Shenzhen Charity Fair, experts and scholars put forth different interpretations on the development of philanthropy in the past year. The consensus view was that 2011 will be an important year in the history of the development of charity and that the present development of charity is closely linked with the process of social transformation and will be a critical element in the breakthrough of the reform process.

Donation Data Looks Promising

One major trend in 2011 was that charitable donations continued to grow. In the Blue Book of Philanthropy,  the data collated by the China Charity & Donation Information Center (中民慈善捐助信息中心) showed that the total value of national charitable donations in 2011was 84.5 billion, a decline of 18 percent compared with 103.2 billion in 2010.

However, in addition to being influenced by the Guo Meimei and Lu Meimei scandals of 2011 (the lack of major disasters in 2011) played  an important factor in the decline. Charitable donations consist mainly of two parts: normal donations and donations for disaster relief. Looking at the data from the last five years, the amount of donations were the highest in 2008 and 2010. However these two years were also exceptional with the occurrence of  major disasters: the 2008 Wenchuan earthquake and 2010 Yushu earthquake as well as Zhouqu landslide. The total amount of donations in 2011 was lower than 2008 and 2010 but in a year with no disaster, it still showed an obvious growth trend compared with 2007 and 2009, the two other years with no major disasters. Therefore, Yang Tuan, the Blue Book’s editor and deputy director of the Social Policy Research Centre in the Chinese Academy of Social Sciences (社科院社会政策研究中) noted that the 2011 total value of  donations “reflected continued momentum in the development of charity over the last few years.”

Looking at the development trend of social organizations in 2011, there was a relaxation in the regulations for registration and management of social organizations in various parts of the country.  This trend was not confined only to major cities like Beijing, Shanghai and Guangzhou but also spread to Ningbo, Changsha, Chengdu and other localities. By the end of 2011, the number of registered society organizations in China had reached 462,000, an increase of 3.6 percent from the previous year. The growth rate may not seem impressive, but the number of foundations reached 2,614, an increase of 18.8 percent over the previous year. The growth in the number of private foundations continued to exceed that of public foundations, reflecting the continued growth in corporate donations ((Editor’s Note: The number of private foundations has grown quickly in the last 5-6 years since 2008 when tax regulations were revised to allow companies to claim tax exemptions for a larger portion of their income that went to qualified donations.)). This year, the donations received by foundations accounted for 40 percent of total charitable donations, ranking first ahead of other charitable organizations (e.g. the Chinese Red Cross and China Charity Federation) and Civil Affairs departments ((Editor’s Note: Compared with 2010, the proportion of donations going to foundations increased from 33 to 40 percent, while the proportion going to the Red Cross and Civil Affairs declined.)).

Meanwhile, individual donations accounted for 31.62 percent of all donations. The donation of 3.5 billion yuan worth of shares by entrepreneur Cao Dewang changed the entire charitable donations scene in 2011 ((Editor’s Note: Cao, the chairman and CEO of the Fujian-based Fuyao Glass Industry Group, made news in the philanthropy world when he donated 300 million of his shares in the company (a reported $530 million value) to establish the Heren Charitable Foundation in 2011.)). Of course, the numbers may not look so beautiful if examined more carefully.

Registration continues to be a problem for many social organizations. In the 2011 Civil Public Interest Development Report produced by Sun Yatsen University’s Center On Philanthropy (中山大学公益慈善研究中心) analyzed a survey that showed  only 48 percent of social organizations are registered with Civil Affairs, while 28 percent were unregistered, 14 percent were registered as businesses, and another 10 percent were “attached to” (guakao) a legal organization. The statistics on donations also show a number of imbalances. In terms of funding from donations, the statistics show a number of imbalances. For example, donations flow mostly to the education and poverty alleviation sectors. In addition, statistics from the China Charity Donation Information Center (据中民慈善捐助信息中心) showed that donations for vocational education only accounted for two percent of the total contributions to the education sector.

Moreover, less than one percent of the donations in the poverty alleviation and social development sectors went to community development, and less than three percent of funding went to support capacity building for charitable organizations. At the same time, a number of participants pointed out that the Blue Book of Philanthropy‘s statistics did not include data on micro-philanthropy and peer-to-peer donations, such as those used in the influential “Free Lunch” and “Love Clears the Lungs” programs ((Editor’s Note: The “Free Lunch for Primary School Students in Poor Mountainous Areas” program was initiated by the journalist, Deng Fei, in the spring of 2011 and provided free lunches to more than 10,000 children in 77 schools. The Free Lunch program became the model for a nutrition improvement program for rural students carried out later that fall by the State Council. “Love Clears the Lungs” (or Love Saves Pneumoconiosis according to their website) is a microblogging project started by the journalist, Wang Keqin, and is devoted to helping the victims of pneumoconiosis, an occupational lung disease caused by the inhalation of dust.)). These programs were funded directly by small public donations and more truly reflect the citizen-initiated forces that are changing society.

Behind the Data: Civic Action Driving Social Change

One view put forward by Mr. He Daofeng, executive vice president of the China Foundation for Poverty Alleviation (中国扶贫基金会), is that philanthropy has an important role to play in the building of civil society. In the first article of the Blue Book of Philanthropy, “2011: The Awakening of Civic Awareness among Chinese Citizens,” Mr. He points out that philanthropy’s biggest contribution to social reforms has been the creation of the spirit of contracts in the process of overseeing how donations are spent. Citizens came together to publicly track and monitor the flow of donations. If public donations only went into the government treasury, there would never be a civil society. The spirit of citizenship can only be nurtured by participating in a civil society. At the same time, freedom of association, and social autonomy are the foundations of a civil society. Many charitable drives set off by Weibo in 2011  such as the Free Lunch program, and “Snapshots for the Public Welfare” addressed issues of fairness, justice  and social conscience. They extended beyond simple charity to embrace the notion of freedom of association. Historically, British charity legislation in the mid-19th century as well as the American philanthropic movement in the late 19th century and early 20th century played important roles in the transformation of society in these two countries.

Thus, in the view of (the Blue Book editor) Yang Tuan, against the backdrop of the current contradictions arising from three decades of reforms in China, charity cannot make up for inadequate policies but can be seen as a vote of confidence and a weapon in the hands of the public. In addition, participation in micro philanthropy enables ordinary members of society to regain their confidence and compassion, and use donations to express their views and identity. From a government perspective, the dean of the China Philanthropy Research Institute (中国公益研究院), Wang Zhenyao notes that the mode of interaction between charity and government has undergone  a huge change in 2011. For instance, the Free Lunch program led to a change in the government’s public policy. Charity may create a breakthrough in social reforms. However there are problems to face and solve. Behind the data, there is a need to be vigilant against bubbles and traps.

A More Pessimistic Evaluation

A more pessimistic interpretation of the data was provided by other participants.  “The data on charitable donations for 2011 should cause more concern given that there were fewer individual donations which meant that a large number of citizens cast their votes in choosing not to participate in charity ” said Deng Guosheng, the director of the Center for Innovation and Social Responsibility at Tsinghua University (清华大学公共管理学院创新与社会责任研究中心) in the concluding speech at the Blue Book of Philanthropy press conference. In 2011, the charity sector in China faced a crisis of confidence with many questions being raised ((Editor’s Note: 2011 was the year of scandals in the philanthropic sector, implicating a number of government-backed public foundations such as the Chinese Red Cross, the Soong Ching Ling Foundation, the China Youth Development Foundation, and the China Charity Federation.)).

However, statistics show that the amount of normal (e.g. non-disaster related) donations in 2011 was not that different from 2010. One year later, observers also found little change had taken place in the philanthropy sector, with many of government-organized organizations undertaking no discernible reform with the exception of the Red Cross (红十字会) which released an information disclosure platform. What was the reason for this lack of change? Deng Guosheng believes that these organizations remain in a monopolistic, privileged position. Using their ties with the government, they raised funds through administrative measures to acquire a large number of resources. Studies of charitable developments should look not only at the total donation amounts, but also at the proportion of corporate and individual donations. In Deng’s view, the most important indicator to measure the healthy development of the charity sector is the proportion of individual donations. Using this indicator, Deng found that China’s charitable undertaking was affected severely in 2011. Based on Deng Guosheng’s research on foundations, the proportion of individual donations received by many foundations was extremely low if donations from big individual donors like Cao Dewang and Wang Jianlin are excluded. The proportion is less than 10 percent for some foundations. In his view, the seemingly healthy total donation amounts can therefore be deceiving ((Editor’s Note: Unlike in countries like the U.S. where the majority of donations come from individuals, in China the majority of donations come from corporations, so the decline in individual giving noted by Deng Guosheng should be a point of concern.)).

In addition, the way in which donations are used may be more important than the numbers themselves. According to Xu Yongguang, chairman of Narada Foundation(南都公益基金会), public foundation revenues exceeds 15 billion yuan while expenditures are more than 12 billion. If 10 percent of this revenue was given to grassroots organizations, that would amount to 1.2 billion yuan. Yet the reality is that less than one percent goes to grassroots organizations. Most of the funds from public foundations and government-organized charities flow back to the government. Even private foundations love to collaborate with the government because they can get civil servants to work free of charge and benefit from other government resources. Companies also like to work under the banner of the government. In contrast, working with grassroots organizations can be difficult and yield no visible benefits. Grassroots organizations also need to have their personnel costs covered. As a result, foundations show them limited support.

Xu Yongguang also noted that foundations play almost no role in social employment. In 2011, the revenue of the nation’s top ten public foundations reached four billion. Based on comparable administrative costs in the U.S., that amount would generate 54,000 jobs in theory. However, the largest ten foundations only employ 429 people, about 0.8 percent of the job opportunities that would be generated in the U.S. under similar circumstances. The contribution of Chinese foundations to employment is thus almost zero ((Editor’s Note: The low level of employment in Chinese foundations reflects both the fact that philanthropy is still in its early stages, and constraints imposed on administrative costs in the 2004 Foundation regulations which require that staff wages and benefits and overhead not exceed 10 percent of the foundation’s total expenditures.)).

Others raised doubts about some of the policy reforms for social organizations taking place in various parts of the country. Regarding the “hub-style” social organizations that the government is using to better supervise NGOs, Jin Jinping, director of Peking University’s Center for NPO Law (北京大学非营利组织法研究中心) noted that these “hub-style” organizations are formed from the original mass organizations, such as the All-China Youth Federation, the All-China Women’s Federation, Social Science Federation and Disabled Person’s Federation.  “Given that these organizations are integral parts of the state system, their vitality and professionalism in promoting social sector development are questionable. Perhaps they should go through a performance evaluation to see whether they are fit to be called social organizations? In addition, “hub-style” social organizations are themselves  “social organizations.” Thus when they utilize government resources, there is bound to be competition with other social organizations. How then do we prevent these “hub-style” organizations from taking advantage of their own privileged position in the government to gain access to government contracts and other resources?

Debate over the Direction of Philanthropy Sector Reform

In a number of forums and meetings held in late June, Deng Guosheng criticized the Shanghai-based Non Profit Incubator (NPI) model being replicated by various local governments for deviating from its original intention. With its model of “incubating” social organizations, NPI has become just another government tool to increase GDP through social investment, rather than cultivating a civil society.

In response to Deng’s comments, Lv Chao, the founder and director of NPI (恩派) discussed the relationship between NPI and the government. He further reiterated the use of cooperation in promoting charitable reform. The purpose of NPI’s incubator was to develop “incremental shares” in charitable organizations. This idea follows the model of private enterprises in the early years of the economic system reform in the 1980s and 1990s. Given the unchanged “existing shares” of state-owned enterprises (which can be likened to today’s public foundations), the development of “incremental shares” enabled private enterprises to enter into a competitive relationship with state-owned enterprises. Lv sees this process energizing the sector and promoting development and change in both the public foundations and grassroots NGOs. Lv pointed out that currently it is very difficult for donations to reach grassroots organization and very few private  foundations are willing to support such organizations. The only realistic option is to look to the government to support NGOs. Thus, currently, the relationship between NGO and government has become the top issue for the development of the charity sector. In his view, the relationship between NGOs and the government is complicated, because the government is not monolithic. Different departments and levels of government have different perspectives, stances, and conditions. One has to look around, be open-minded and deal with supportive individuals in these different agencies. He rejected the notion that cooperation between the government and NGOs is tantamount to “cooptation”. If one does not wish to see major upheavals in society, NGOs and government will need to collaborate so that both sides benefit, and jointly explore and move ahead on the road of progressive reform.”

As to how grassroots organizations should cooperate with the public foundations that possess the most resources in the charity industry, Deng noted the answer does not lie in both parties minding their own business for the sake of peaceful co-existence. Instead, he advocates fundamental legislative reform of public foundations and the system governing philanthropic activities as a way to promote greater cooperation. Deng said the key to philanthropic reform is reform of the system itself. The main path is still through legislation, abolishing the professional supervising unit requirement for NGOs that want to register with Civil Affairs, and thereby doing away with the dual management system. However, the reform process needs to be differentiated. Different categories of charities need to have different paths of reform. For example, organizations like the Chinese Red Cross need to reference international conventions and carry out reform according to the law by modifying the Red Cross Law. Regarding the China Charity Federation, there are questions about the legality of its fundraising status and fairness of the fundraising playing field, given the Federation’s close ties with the Civil Affairs bureaucracy. The goal of reform should be to sever the connection between these “charitable organizations” and the Civil Affairs bureaucracy in order to foster relatively independent public foundations. At present, there are reforms being carried out in the philanthropic sector in certain regions For example, the Shenzhen Charity Federation (深圳市慈善会) has been separated from the Shenzhen Municipal Civil Affairs Bureau and registered as an independent public foundation. However, these reforms are relatively piecemeal. For more thorough-going changes to take place in the public foundation sector, legislation will be needed to motivate them to become truly vibrant, independent non-profit organizations without administrative rank or special treatment.

In Brief

CDB’s Guo Ting, reports on a debate among experts and leaders within the philanthropy sector about how far the sector has come since the critical year of 2011 when it was beset by scandals and energized by microblog campaigns.
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