Shenzhen suspends foundation registrations

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On Sept 30, Shenzhen Municipal Social Organization Administration issued an announcement stating that the bureau would suspend the registration of foundations with immediate effect, according to the “Notice of the Guangdong Provincial People’s Government on Announcement of the List of Administrative Licensing Items in Guangdong Province (2022 Version)” and the notification requirements of the Guangdong Provincial Department of Civil Affairs.

The suspension of registrations has sparked concern in the sector.

The “Ministry-City Agreement”

In July 2009, China’s Ministry of Civil Affairs (MCA) and Shenzhen Municipal People’s Government signed the “Cooperation Agreement on Promoting Comprehensive Supporting Reform of Civil Affairs”, also known as the “Ministry-City Agreement”. Some major reform projects and measures of the MCA were first tested in Shenzhen, including the registration and management of foundations and other pilot projects, making Shenzhen a key location for the MCA to conduct follow-up research.

This agreement was contrary to the Regulations on the Management of Foundations, which stated that the foundation registration and management agency must be at the provincial level or above.

The agreement, valid until 2015, stated that the two parties would evaluate the results of their cooperation two months before the end of the agreement, with the two parties then able to negotiate a new agreement if required.

After 2015, however, the two parties did not renew the contract, but the “Shenzhen Model” was unanimously recognized by the state, province and city. According to media reports at the time, the MCA designated Shenzhen as a “National Demonstration Zone for Innovation in the Construction of Social Organizations”.

In January 2010, the “Social Organization Registration Management System Reform Project” declared that the then Social Organizations Administration of Shenzhen Municipality had won the 5th China Local Government Innovation Award.

In just over a year, at least seven private foundations had registered with the Shenzhen Civil Affairs Bureau, including Shenzhen One Foundation Charity Fund (One Foundation), which has been applying to change its status from a non-public fund to a public fund since November 2010, although the charity has not been able to register due to relevant legal and policy restrictions.

The Shenzhen Municipal Bureau of Civil Organizations finally managed to apply for a special policy for the One Foundation, which was then directly registered with the Shenzhen Municipal Civil Affairs Bureau, without being affiliated with any supervising units, thanks to the “Ministry-City Agreement”. One Foundation was the first private foundation directly registered with the Shenzhen Civil Affairs Bureau.

Sudden suspension

In practice, the “Ministry-City Agreement” ran until Shenzhen announced the suspension of foundation registration on Sept 30.

According to the China Philanthropist magazine, the “notification requirements of the Guangdong Provincial Department of Civil Affairs” mentioned in the Shenzhen announcement urged cities in Guangdong Province including Shenzhen to “comprehensively implement the list management of administrative licensing items and implement administrative licensing strictly in accordance with the list”, and that “no administrative license shall be illegally implemented outside of the official list”.

Public disclosure documents show that in the list of administrative licensing items in Guangdong Province, 686 administrative licensing items are set at the central level, 25 at provincial-level, and seven at city level.

The approval of the establishment, modification, cancellation, registration and amendment of the articles of association of a foundation shall be carried out by the provincial civil affairs department. In case of the dual responsibility management system of the registration administration authority and the professional supervisory units (PSUs), the PSUs shall conduct the preliminary examination.

China’s Regulations on the Administration of Foundations have been implemented since June 1, 2004. They stipulate that civil affairs departments of all levels are the registration and management organs of foundations. The regulations are considered a turning point in the development of foundations in China because for the first time the concept of non-public foundations has been defined and their registration is encouraged.

However, over a decade has passed and some problems have emerged, including the difficulty of registration, as well as the withdrawal of registration applications by some foundations, which lag far behind the general trend of China’s social development and the development of the philanthropy sector, as well as the updated operation practices and management rules of foundations.

The introduction of China’s Charity Law in 2016 solved some of the problems. As the fundamental law of the charity sector, it opened the door to the decentralization of foundation registration. On May 26, 2016, the MCA publicly solicited opinions on the “Regulations on the Management of Foundations (Draft for Comments)”. In terms of the registration management system, the draft lowered the entry threshold for foundations and stipulated a mix of a direct registration and dual management registration system. The draft makes it clear that the establishment of a foundation generally applies directly to the civil affairs department for registration. It also expanded the registration and management authority of the foundation to the ministry and provincial levels, as well as the city and the county levels.

However, in the “Regulations on the Registration and Management of Social Organizations (Draft for Comment)” issued by the MCA in 2018, the conditions for the establishment and registration of foundations have been tightened.

Current problems

The decentralization of foundation management has lowered the entry threshold for foundations and provided opportunities for the establishment and development of foundations, especially the development of foundations at the grassroots level, according to He Guoke, executive director of Zhongzhi Social Development Promotion Center and a partner of Beijing Zhicheng Law Firm.

In addition to Shenzhen, reform attempts on the registration of foundations have been carried out in some other cities and provinces across the country for over 10 years.

According to data from the China Foundation Center, by the end of 2021, there were nearly 9,000 foundations in China, and over 90 percent of them were established in 2004 or later.

Since 2004, the average annual growth rate of the number of foundations has reached 15.49 percent, showing a trend of rapid growth and then slowing down. Since 2016, the growth rate of the number of foundations has further slowed, with an average annual growth rate of 9.33 percent.

However, among the nearly 10,000 foundations in China, many may not be functional any more, partly due to unclear procedures for winding them up. The existence of a number of “zombie foundations” has increased difficulties in the country’s management of the whole sector.

“In order to improve the quality of the entire charity sector, a core issue is to allow those foundations that have registered but have not carried out activities to withdraw in an orderly manner,” He told the China Philanthropist.

To address the issue, the MCA has clarified in the revised “Foundation Management Regulations (draft for comments)” that foundations that have not engaged in public welfare and charitable activities for two consecutive years and whose registration certificates have been revoked according to law must apply to cancel their registration, and the draft clearly stipulates the cancellation process.

But since this round of revisions has not yet been completed and the draft is still pending, how a foundation should apply for cancellation has not yet been clarified.