Helping Charity Private foundations have been growing fast,yet some bottlenecks linger

By WANG HAIRONG

On January 11,One Foundation launched by martial art starturned-philanthropist Jet Li formally announced its transition into a public foundation.

According to China’s current Regulations on Foundation Administration,public foundations are allowed to raise funds from the general public,whereas private foundations,which are established with funds provided by individuals or businesses,are banned from doing so.

Last September,Li took people by surprise saying the high-profile One Foundation could close at anytime because of difficulties in fundraising due to its fuzzy legal status.At that time,the three-year-old foundation operated as a project under the Red Cross Society of China and could not raise funds independently.

Li’s remarks shed light on the difficulty that individuals and businesses have registering foundations.

The successful transition of One Foundation should be attributed to an agreement signed between the Ministry of Civil Affairs (MCA) and Shenzhen,a boomtown in south China’s Guangdong Province,on July 20,2009.Reform programs launched by the MCA,those on foundation registration for example,would be piloted in the city under the agreement.One Foundation registered as a public foundation with Shenzhen’s Civil Affairs Department on December 5,2010.

Registration thresholds

Currently,a private organization must have a supervising government department or government authorized organization before they can register with the MCA or local civil affairs departments,said Deng Guosheng,a Tsinghua University professor studying nongovernmental organizations (NGOs).

Many government departments are reluctant to shoulder the responsibility as supervising private organizations,Deng said.As a result,many non-public charitable organizations are registered as corporations,or have never registered.

The government set up the current management system out of concern that civil affairs departments were not capable of managing highly diversified non-public organizations,Deng said.This system played certain positive roles before,yet its drawback is becoming increasingly prominent,Deng told the Beijing-basedGuangming Daily.

Deng said the management system should be reformed.On one hand,the registration requirements should be lowered,and competent charitable organizations should be allowed to directly register with the civil affairs departments;on the other hand,for fears that some private foundations are not good at using resources or even attempt to profit,the government and society should strengthen supervision,said Deng.

Sun Weilin,Director of the Bureau of NGO Administration at the MCA,said civil affairs departments had been actively supporting the development of private foundations,and set relatively lower requirements on private foundations than on public foundations in terms of registration and the percentage of charitable spending.

Sun said the MCA and local civil affairs departments would actively shoulder the responsibility of supervising agencies as long as private foundations are in the fields of their jurisdiction,such as social welfare and philanthropy.

Some people question requirements,such as an initial capital requirement for charitable foundations.They think it will prevent people from engaging in philanthropy.Liu Zhongxiang,an official working on foundation management in the MCA,said the worry is understandable but unwarranted.Foundations are only one organizational form of philanthropy,he said,people can engage in philanthropy in many ways,such as by delivering money,services or emotional support.

Tax burdens

Wang Ming,a Tsinghua University professor studying NGOs’ development,suggests the government give more preferential tax treatment to charitable foundations,such as waiving taxes on their capital gains.

NEW START:Jet Li (first left) and guests at a ceremony celebrate the One Foundation going public in Shenzhen,Guangdong Province,on January 11

A New Way To Give

By WANG HAIRONG

At five and a half years old,Heungkong Charitable Foundation is China’s oldest private foundation.It was formally launched in 2005 by Zhai Meiqing with a 50-millionyuan donation ($7.26 million) from her company,Heungkong Group.

Since its inception,Heungkong group has donated a total of 300 million yuan ($44.8 million).After 2005,it mainly donates money through Heungkong Charitable Foundation,which focuses on education,poverty and disaster relief.

Last year,Forbes Chinaranked the foundation third on its list of private foundations in China.

“My wealth is from society,so I should give back to society,”said Zhai,who rose to become one of China’s earliest millionaires from a furniture saleswoman early in 1988 when she was 24 years old.“Business and philanthropy are my careers,one makes money and the other gives out money where it’s needed and I feel happy that I can help others.”

Heungkong Charitable Foundation was registered on the same day China’s Regulations on Foundation Administration went into force on June 1,2004.The regulations give a green light for individuals or businesses to set up private foundations.

Before the regulations,most charitable foundations in China were either set up or backed by the government,said Liu Zhongxiang,an official working on foundation management in the MCA.

Since the publication of the regulations,the number of private foundations has soared,said the Chinese Academy of Social Sciences in its annual report on China’s philanthropy published in November 2010.

In 2009,China had 846 private foundations,accounting for about 46 percent of a total of 1,843 charitable foundations in the country.The number was 32 percent more than that of the previous year,much higher than the 4 percent growth rate for public foundations during the same period.

Private foundations have not only grown in number and scale,but also in creativity.“They have made new contributions in discerning social needs,solved social problems and promoted social progress,said Yang Yue,an official with the MCA.

The emergence of private foundations marks the transition of philanthropy from sporadic and direct assistance to recipients to long-term planned charity,said Jin Jinping,Director of the Non-Profit Entity Study Center at Peking University Law School.

“They make charity more professional and institutionalized,”Jin said.

The institutionalization of charity enables rich people to set up enduring foundations that can outlive the founders themselves,said Jin.Although founders of some famous private Western foundations such as the Carnegie Foundation,Rockfeller Foundation and Ford Foundation have passed away,their foundations are still running under their initial missions,Jin said.

China has preferential tax treatment for individual and corporate donors.Currently,charitable donations from a company not exceeding 12 percent of its total profit in that year and charitable donations from an individual not exceeding 30 percent of his or her taxable income in that year can be deducted from taxable income.

Donors who give money to foundations can enjoy tax deduction only when the foundations are on the government’s list of qualified foundations for tax deduction.The list has been expanded to include private foundations,yet only a few are on it.

Many donors didn’t apply for tax deductions because they did not know such a policy existed or they gave up applying due to complex procedures,said Wang Zhenyao,Dean of Beijing Normal University One Foundation Philanthropy Research Center and a former official at the MCA.

Xu Yongguang,Vice President of Narada Foundation,a private foundation based in Beijing,particularly believes regulations issued in November 2009 by the Ministry of Finance and State Administration of Taxation would discourage rich people to set up private foundations.

The regulations do not exempt capital gains of private foundations from the 25 percent corporate income tax.On the other hand,private foundations are required to spend at least 8 percent of the previous year’s fund balance on charity.China’s tax policy will only let the size of private foundations shrink over time,said Xu.

Xu said many other countries do not levy tax on charitable foundations’ capital gains.He cited the United States as an example,where foundations are only required by law to spend 5 percent of their previous year’s assets,and pay 1-2 percent tax for their investment income.

Internal challenges

Private foundations are still in infancy and face many internal challenges,including unclear missions,poor planning,lack of independence and expertise and low initiative in information disclosure,says a report on China’s philanthropy released by the Chinese Academy of Social Sciences published in November 2010.

Yang Yue,an official with the MCA,said these challenges had hampered private foundations to mobilize social resources and render sufficiently large social impacts.

Kang Xiaoguang,Director of the Non-Profit Organization Research Center at Renmin University of China,and other researchers conducted a study on the internal governance in 65 private foundations in China.Their findings released in 2009 showed that 12 percent of them had never disclosed any information.

Only 9 percent of the founders or management of private foundations had proactively,objectively and comprehensively disclosed key information,the study finds,while most organizations disclose only the information mandated by the government.

The Regulations on Foundation Administration that went into force in June 2004 require foundations to submit annual work reports,including financial statements,to the government department they are registered with and the information should be published in authorized media.

In June 2010,the China Foundation Center’s website (www.foundationcenter.org.cn) was launched to create a platform for foundations to disclose financial and program data to the public.The website was initiated by 35 public and private foundations including Narada Foundation,China Youth Development Foundation and the China Foundation for Poverty Alleviation.

Currently,the government appraises a foundation’s performance annually.Shi Huaimiao,an official responsible for foundation management at the Beijing Municipal Civil Affairs Bureau,said foundations failing to comply with government requirements will face penalties including warnings,suspension and termination,and can not enjoy any preferential tax policies.

Yang said the MCA and the civil affairs department of local governments would support the growth of private foundations through laws and regulations,strengthening and improving supervision.They will also increase the channel for information disclosure.

A philanthropy law is still in the making in China.The MCA finished a draft in 2006,yet due to issues such as how to define charity and the roles of charitable organizations and the government,the draft has not been deliberated in the National People’s Congress,reported the Guangzhou-basedSouthern Weekendnewspaper.