Can China's New Charity Law Fix a Dismal Donation Rate?

The annual session of China’s National People’s Congress closed in mid-March. Along with approving China’s 13th Five Year Plan, the rubber-stamp legislature’s main achievement was passing a new law to ease restrictions on the fundraising and operations of charity groups, while also increasing oversight of how their finances operate. The law, which passed with 2,636 votes in favor out of 2,859, seeks to make charitable giving easier and more attractive, countering widespread public distrust in charitable organizations.

The new law makes it easier for charitable groups to raise funds. Currently, Xinhua notes, “Only a handful of charities are currently allowed to raise money from anyone, while others are restricted to specific groups of donors.” The new law changes that, allowing any registered group that has been in operation for two years to apply for permission to seek donations from the general public. It also provides a tax credit for businesses that provide charitable donations, waiving corporate income tax on donations accounting for up to 12 percent of profits.

While making it easier for charity groups to solicit donations, the law also seeks to increase oversight on how that money is spent. Charities are told to publish their articles of association and organizational information, as well as provide annual reports that include financial statements. Those financial reports should be audited for additional accuracy, the law adds, although that does not appear to be a requirement.

At heart, the law is designed to fix China’s ailing charity sector. NPC spokesperson Fu Ying noted that charitable donations in China have exploded over the past ten years, rising from 10 billion renminbi in 2004 to 100 billion RMB ($15.3 billion) in 2014. That’s amazing growth, but it still leaves China far behind much of the rest of the world. For example, Americans gave $358 billion to charities in 2014, according to Giving USA’s annual report on philanthropy – over 20 times what Chinese gave. On the Charities Aid Foundation’s World Giving Index for 2015, China ranked 144th out of 145th – spared a last place finish by Yemen.

Why the discrepancy between China’s economic clout and its charitable donations? According to CAF’s finding, it’s likely not due to China’s status as a developing nation. CAF argues that charitable giving has little to do with overall economic prosperity or per capita income; Myanmar, in fact, claimed first place in the 2015 World Giving Index. “Some of the world’s most generous countries are among the most deprived,” CAF noted in its summary of the report. So why isn’t charitable giving catching on in China?

One reason: Thanks to endemic corruption, many Chinese don’t trust charities to put their money to good use. A series of recent scandals served to confirm those fears; the government-affiliated Red Cross Society of China, for instance, has been accused of misusing donations intended to help victims of the 2008 Sichuan earthquake. Another scandal erupted in 2011, when a young woman claiming to work from the RCSC posted pictures of herself enjoying a luxurious lifestyle online. Yet another scandal saw the Henan branch of the Soong Ching Ling Foundation accused of funneling donations to property developers rather than the needy.

Public distrust toward charities reared its head in 2013, when netizens balked at the suggestion that China’s charity law should simply deduct “a certain amount from everyone’s paycheck” as charitable donations. Chinese officials later categorically denounced the idea, which had been raised by an NPC representative. But the furor saw netizens voicing their suspicion of government-run charities, especially given their lack of transparency.

Low levels of charitable giving might seem a minor concern, but it has big implications for China’s prized “social stability.” As China struggles to rework its social security systems to provide a safety net for all its citizens, charities can play an invaluable role in filling in the gaps. Meanwhile, charities will be an important part of fulfilling Xi Jinping’s enormously ambitious promise to end poverty in China by 2020.

Beijing recognizes the useful role charities can play in China’s development. “Charitable programs are indispensable for the fight against poverty,” Li Jianguo, a vice chairman of the NPC Standing Committee, said while introducing the charity bill. A Xinhua headline proclaimed that the new law will “smooth China’s last-mile drive to [achieving] 2020 targets.” But to make sure the nonprofit sector lives up to its potential, China will need to boost public interest (and trust) in charities. That’s the basic rationale behind the current law, and there’s reason to be hopeful.

The new law addresses most of CAF’s key recommendations for governments around the world: it clarifies the regulations governing nonprofits; makes it easier and more desirable for people to donate; ensures transparency in charitable organizations; and encourages charitable giving. The fifth recommendation – “promote civil society as an independent voice in public life” – however, is unlikely to gain traction in China, where the Party prefers to quash competing “voices” and narratives. In fact, the law provides for punishment, including revoking charity registrations or criminal investigations, for charities that “engage in or sponsor activity deemed to undermine state security or public interests.”