Below is my translation of Mr. Xu Yongguang's remarks (along with the original Chinese text) at the Foreign Correspondent's Club of China on February 24, 2010.
Nonpublic Fundraising (private) Foundations: Changing China’s Nongovernmental, Public Welfare Environment
During the Spring Festival, I had a dream to modify the two policy documents of the Ministry of Finance and State Administration of Taxation regarding non-profit organization tax exemption. These two documents restrict the state's preferential taxation policies toward nonprofits (NPOs). To this end, in December 2009, 24 Foundations wrote to the Ministry of Finance and State Administration of Taxation, asking for a direct dialogue with Mr. Xie, the Minister of Finance and State Administration of Taxation director, Mr Xiao Jie, and to request the State Council to carry out a review on the two documents.
This event, on the one hand shows that China's policy environment for NPOs is unsatisfactory. But it also shows that NPOs know how to protect their own rights in accordance with legal procedures when their rights are being infringed, even by government departments.
Last year in October, I led a delegation of China's non-public offering foundations to the United States to a meeting at Harvard University, where I said: "China's economic reforms 30 years ago, rapid economic development has become the world's third largest economy, and surprised the world . I believe that over the next 30 years, China's development of its foundations will surprise the world, and even become second only to the U.S. Chinese foundations all believe this.
China’s "Foundation Management Regulations" passed in 2004 was a breakthrough for China's non-public fundraising foundations. By 2009, just five years later, the number of non-public fundraising foundations have gone from 0 to 846, and nearly matched the number of public fundraising foundations that have developed over the last 30-years (991). Even more exciting is that because of the rapid growth of private wealth, large private foundations have emerged in China. Last year, two Fujian entrepreneurs emerged: in the first half of 2009, Fuyao Chairman Cao Dewang announced he would donate 4 billion yuan in Fuyao shares in his father's name to set up the "Heren Foundation," which led to a controversy over whether you could use company shares to establish a foundation. This prompted the Ministry of Finance to issue this year a "Notice on Financial Issues regarding Equity-linked Corporate Charitable Donations", to clarify that shares could be donated to foundations. In the second half of 2009, Fujian Regal Chen Fa Shu donated 8.3 billion yuan in stock to the newly established Xinhuadu Foundation, making that foundation’s assets the largest in China. Non-public fundraising foundations represent the "rise of a new generation of non-governmental charitable initiatives in China" (People's Daily), and is of great significance to changing the environment for China's nongovernmental public welfare sector.
1. Non-public fundraising foundations have broken through the systemic bottleneck for civil society organization registration.
For a long time, due to the provisions of the dual management system for non-governmental organizations, China's foundations and philanthropic organizations have had a strong government background. Only the government or its authorized departments had the possibility of setting up charitable organizations. For non-public fundraising foundations, the Ministry of Civil Affairs can serve as both the professional supervising agency and the registration agency, in order for enterprises and entrepreneurs to give back to society, and realize corporate social responsibility and provide a channel for participation in public affairs. In other words, in the past, individuals and enterprises only had the power to donate money to participate in public service, now they can establish their own public welfare organizations.
The development of China's non-public fundraising foundations is in the early stages of take-off, and we can expect the next 10 to 20-year period to be the high tide. This will be in line with development of foundations in other countries.
2. Non-public fundraising foundations have broken through the irrational bottleneck blocking the allocation of resources for nongovernmental charitable foundations.
Public fundraising foundations have a history of more than 20 years in China. The public foundation's fund-raising, donations, daily management, etc., are not easily separated from government control. And the use of private donations often gets diverted from the people to the government, in order to make up shortfalls in the government’s budget. This trend does not conform with the reform of government functions, and inhibits the growth and development of non-governmental charitable efforts. Chinese non-profit organizations represent only about 0.3% of the service industry in terms of value-added and employment. This is a far cry from the world average. Non-governmental public welfare organizations’ difficulty in getting access to resources is an important reason. But the most important reason has to do with the difficulty of registering non-governmental organizations.
Non-public fundraising foundations have the autonomy to determine the direction of their public welfare projects and funding. Charitable resources can flow towards public service areas outside of the government system, and turn into an important resource provider for non-governmental public welfare organizations (commonly known as grass-roots organizations). This will fundamentally improve the environment for the development of non-governmental public welfare.
After the Wenchuan earthquake in 2008, non-public fundraising foundations rapid response became a major provider of funds for grassroots organizations’ rapid involvement in the earthquake relief and reconstruction. For example, Nandu Foundation which I work for, has funded more than 60 grass-roots organizations engaged in post-disaster reconstruction projects.
3. Non-public fundraising foundations have broken the systemic bottleneck restricting the independence and governance of civil society organizations.
Before the advent of non-public fundraising foundations, public fundraising foundations that emerged out of government departments, had a hard time asserting their own independence because of the inextricable link that exists the government and these foundations. Nonpublic fundraising foundations do not share property or personnel with the government and thus are more independent of government.
4. Nonpublic fundraising foundations are breaking through the bottleneck of lack of capable practitioners in civil society organizations.
In the past, practitioners in China’s non-profit organizations were mainly of two kinds. One was former government staff or retired cadres. The second was intellectuals in the the pursuit of social ideals. What was lacking was professionals with management capacity. Nonpublic fundraising foundations have brought into the public arena a large number of such professionals who are well versed in modern corporate governance and market regulation. At the same time, non-public fundraising foundations can offer salaries that come closer to compensation packages that attract young professionals, and can have a major impact on improving the personnel structure of the non-profit sector.
The growth of nonpublic fundraising foundations has had a significant impact in fostering China’s civil society. In the large-scale development to avoid chaos, this is the consensus of colleagues in the industry. To this end, in 2009, China's non-public fundraising foundations Development Forum issued the "Declaration of self-discipline for non-public fundraising foundation." In January of this year, more than 30 non-public fundraising foundations and public fundraising foundations joined together to found the China Foundation Center, to encourage foundations to start disciplining themselves through information transparency, thereby improving the transparency and credibility of foundations, and improving the discipline, governance, standardization and service of foundations, so that we can look forward to the healthy development of China’s nongovernmental public welfare sector.