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China's 1,000-plus charitable organizations now act as an intermediate step between the government and the individual. They help the people who are not yet covered by the public welfare benefits the government offers.

On March 19 this year, the State Council, China's cabinet, promulgated the Regulation on Foundations Administration, which will come into effect on June 1. The regulation marks a new phase of the development of Chinese charity foundations.

Government keeps its hand in

Charity organizations play an increasingly important role in China, and much of their success should be attributed to assistance from various levels of government.

In contrast with the situation in most other countries, where charity organizations are supported by privately raised funds, China's rely heavily on public funding. Since making contributions to charity has not yet become a common or widespread practice in the private sector, the government-backed mechanism that exists now is essential for fundraising: Few would trust an organization set up by total strangers or some unknown company. Who would give them money?

Many donors feel that government affiliation lends credibility to an organization.

Retired and even incumbent senior officials occupy key posts in most Chinese charity organizations.

For example, Chen Tiedi, president of the Shanghai Charity Foundation, was once the head of the Shanghai Municipal People's Congress, the top local legislature; and several of the 20-plus vice presidents are incumbent Party or government officials whose influence is crucial for the foundation.

Ruan Guangming, the secretary-general of the Shanghai Education Development Foundation, said that top municipal leaders convened the first meeting of his foundation. Representatives from various departments of the Shanghai municipal government were present and were lobbied to donate 17 million yuan (US$2.1 million), the first sum of money the foundation obtained.

South China's Guangdong Province once organized a parade to appeal for donations for education. Led by top local leaders, the event mobilized an estimated one million citizens and all the major local media. Any enterprise willing to donate 400,000 yuan (US$48,385) was allotted a float in the parade. At intervals in the parade, local leaders showed off their talents in calligraphy and painting. A company could acquire a calligraphic rendering of its name, executed by the hand of a top local leader, by making a donation of 300,000 yuan. Many companies were happy to come up with the cash, as it was a very low price to pay for the amount of advertising and goodwill that accompanied the purchase.

Sociologist Lu Hanlong says that charity should supplement private and government functions, but in China it is more an extension of the government. The system seems to be effective and efficient, but it can also dampen people's enthusiasm: no one wants to feel forced to make a donation.

Because some charities are hotbeds of irregularities and scandals, the government tries to regulate them very strictly. Employees' salaries, administrative expenses and investment fund management are all tightly controlled.

Charity organizations are generally required to invest funds in bank deposits to avoid risk. Spending on administration and lobbying is restricted, and many complain that it is too restricted. They cannot afford to organize essential promotional activities or hire qualified personnel, to the detriment of the charities and ultimately of the people they are supposed to help.

However, in many countries charities are permitted to spend 10 to 40 percent of the money they raise on administration and promotion, far more than the current Chinese quota. The ceiling is set low in China for fear that high expenses will irk the public and damage the government's image.

The newly promulgated Regulation on Administration of Foundations requires charities to limit spending on administrative activities and employees' salaries to 10 percent of total annual expenditure.

"Since foundations bear official stamps," says Ruan Guangming, "the first thing the government thinks of is to protect its own image."

The new regulation clarifies the government's role by saying that civil servants should not hold important positions in charitable organizations, but that the organizations should still be subject to the leadership of certain government departments.

The nouveau riche: stingy or savvy?

The group that should be most concerned about its image vis-à-vis charities is the mainland's entrepreneurs.

A survey reveals that fewer than 100,000, or 1 percent, of mainland China's 10 million registered enterprises have records of charitable donations.

To date, charities have relied heavily on the generosity of middle-income individuals on the mainland and big donors from Hong Kong, Macao, Taiwan and foreign countries.

Major organizations, such as the China Foundation for Poverty Alleviation and the China Charity Federation, report that on average, half of their funds come from small individual donations, one-third from non-mainland donors and the rest from mainland enterprises, with the overwhelming majority of those state-owned.

In Shanghai, one of China's largest cities, the Shanghai Education Development Foundation, the Soong Ching Ling Foundation and the Shanghai Charity Foundation derive 50, 70 and 30 percent of their donations, respectively, from non-mainland sources.

However, it would be unfair to conclude that entrepreneurs on the mainland are utterly aloof. Some 90 percent of private businesspeople have given donations at least once. Sixty percent of the funds donated to the Shanghai Charity Foundation come from domestic private entrepreneurs. Although many are willing to give, the amounts they are willing to donate are miniscule.

"Apart from miserliness, private entrepreneurs face a couple of problems that prevent them from giving donations. They are reluctant to mention them in the public," said Ma Zhongqi, deputy secretary general of the Shanghai Charity Foundation.

First, China's newly rich are afraid that public donations will bring trouble because of inadequacies that still exist in the Chinese law on the protection of private property. The constitutional revision to protect private property passed in March by the National People's Congress, China's top legislature, should add new impetus to the growth of charitable donations in China.

Second, some private entrepreneurs hide their wealth for fear of causing envy or hatred, or possibly even endangering their safety or their families'.

Many an entrepreneur feels that if he gives money to one organization, others will learn about his generosity and camp on his doorstep asking for more donations. Because almost all the charities are led by heavyweights whom he cannot afford to offend, he must give to them all. Thus, many businesspeople are afraid to make donations or make their donations public.

Moreover, says Deng Shengguo, deputy director of the NGO Research Institute at the prestigious Tsinghua University, as in most other third-world countries, many successful Chinese entrepreneurs have just finished their primary accumulation of capital. Uppermost in their minds now is how to increase their wealth and further develop their enterprises. They don't have much energy to care about charity.

Deputy Secretary-General Shen Haiping of the Soong Ching Ling Foundation says that although most people don't do good works for the sake of fame or other benefits, more people would be inclined toward generosity if they felt they would be repaid with reputation and advantages.

On April 30, 2003, to encourage donations for the battle against SARS, the State Taxation Administration announced that it would grant 100 percent deductibility for all cash and materials that companies donated for the control of the disease. Donations from enterprises - few of them privately owned - soared soon afterward. Normally, the law permits them only to deduct a maximum of 3 percent of their annual turnovers.

Reports hint that China will make the bold SARS emergency tax deduction policy permanent this year. If passed, it would make the Chinese taxation system the most liberal in the world in terms of encouraging donations.

Another connection between willingness to donate and taxes involves the inheritance tax - or rather, the lack of one. Because China does not levy one, most people prefer to leave the wealth to their families rather than donate it or parts of it to charity.

Long way to go

In China, the wealthy tend to make donations in times of crisis and disaster, such as during a flood or following an earthquake. In other countries, people tend to have longer-range donation plans, giving on a regular basis over a long period.

Li Yining, a prominent economist, points out that donations by the rich will help narrow China's widening wealth gap, which is already among the biggest in the world and threatens social stability.

Rupert Hoogewerf, a Shanghai-based British accountant who draws up annual lists of the 100 richest people on the mainland, reportedly plans to publish a list of China's top 100 philanthropist businesspeople in late April or early May. Some entrepreneurs are already indicating disdain for such a list.

Despite the apparent lack of generosity on the part of Chinese entrepreneurs, less-wealthy citizens seem less inclined to stint. In Shanghai, for example, more than 400 families - most of them average income earners - have adopted disabled orphans.