Who is Stymieing our Charity?

By EO Editorial Board
Published: 2010-09-21

Issue 487, September 20
Translated by Tang Xiangyang
Original article

Recent events including the Buffet and Gates charity banquet, Chen Guangbiao’s decision to donate his wealth after death, and the troubling state of Jet Li’s One Foundation, have drawn public attention to the issue of charity. Despite widely-spread criticism, China’s wealthy elite remain ambivalent about the Gates and Buffet charity banquet; some of them, such as Zong Qinghou, have already refused the invitation for “various reasons.”

Why do they hesitate, or even refuse, despite the intense public scrutiny? Here are some possible reasons.

First, sometimes, charitable contributions are absorbed by the government as part of their non-tax revenue. According to local regulations, donations received by the government will be put into a special finance account and managed in the same way as government financial revenue.

Second, money donated to non-governmental agencies will be heavily taxed. Only a few organizations recognized by the government are given tax-exempt status.

Third, in some places, only contributions that are not target-oriented and paid in cash will not be taxed. That is to say - only money counted as a part of the governments’ non-tax revenue and funds that are not given to a particular cause, can be officially defined as a “donation.”

Fourth, the system supervising how donations are spent lacks transparency and supervision. Related governmental agencies should be actively responsible for monitoring and regulating against corruption. Many corresponding cases and internal government audits have shown that donations have been misused in the past. This is a result of the particular regulatory system that applies to charities in China.

One problem is with people appointed by the government to work for large charitable organizations playing a leading role in country’s charity sector. They are government officials and not philanthropists. Another aspect is, charity is not a sector with low entrance requirements nor does it encourage the public to play a role.

According to Chinese law, the foundation of a charitable organization should get approval from not only the civic affairs department but also the corresponding governmental authority. The Foundation Management Rules say, “The initial funding for a national public foundation should be no less than eight million yuan and that of local foundation should be four million yuan or more. The initial funding for a non-public foundation should be no less than two million yuan.”

The Foundation Management Rules also requires the original fund to be in cash; this is an obstacle for wealthy Chinese who want to start a charity. The injection of securities assets into a charitable fund will make the asset-allocation of charity funds more reasonable, since there is no need for contributors to sell their shares before placing them in the fund. Through this method, other negative outcomes can be avoided. For example, in 2009, Chen Fashu, then the wealthiest Chinese citizen, announced that he would donate shares and assets worth over eight billion yuan to establish a charity fund. However, the unloading of this volume of shares would destabilize the securities market. So far, there has been no follow-up news on Chen Fashu’s donation promise. The reason for the lack of further information is rumored to be connected to the Foundation Management Rules. When Chen begins to donate all of his wealth in the future, he will continue to face the same problems.

In the current charity system, characterized as government-dominated with characteristics of a monopoly, any non-government agency connected with charitable affairs will be viewed as a challenge to existing government charities. As a private charity, Jet Li’s One Foundation has a reputation for being well-operated, transparent and successful. However, its founder, Jet Li said on “Face to Face”, a CCTV program, recently compared One Foundation to a child without an ID Card and added, “I keep telling myself, it had a first day, now it will have a last.”

If there is no transparent mechanism to ensure the money collected by charity organizations is reasonably used, if people encounter ridiculous difficulties when attempting to donate their assets, and if non-government charitable organizations are always considered a threat to the government that cannot be trusted, then it’s not just the wealthy but everyone that will hesitate before giving to charity.

This article was edited by Ruoji Tang, Paul Pennay, and Rose Scobie