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21st Century China: Does Civil Society Play a Role in

Promoting Reform in China?

Jenna Nicholas

Center for Democracy, Development and the Rule of Law Thesis

Spring 2012

Advisors:

Frances Fukuyama and Thomas Fingar

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Contents Page

Chapter 1: Introduction p. 3 Chapter 2: The Case for Reform in Social Sector

Organizations p. 9

Chapter 3: The Case for Transparency and Accountability in Social Sector Organizations p.29

Chapter 4: The Business Environment p. 47

Chapter 5: Government and Civil Society p. 57

Chapter 6: Conclusion p. 73 Appendix: p. 79 Bibliography: p. 91

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Chapter 1: Introduction

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Chapter 1: Introduction

Hypothesis

My hypothesis is that civil society has played an increasingly important role in

China over the past ten years in putting pressure on social sector organizations, business

and government to become more transparent and accountable. Modernization and

capitalism with Chinese characteristics have highlighted the need for reform in all sectors

of society. This, in turn, is producing a profound shift within China, leading to an

increasing demand for social justice and accountability, especially at the local level. It is

likely to be fraught with obstacles but in the end, I contend, China will have no choice

but to respond to the circumstances of the times.

Background

Chinas economic miracle and meteoric rise in GDP over the past ten years, under

the leadership of Hu Jintao and Wen Jiabao, is well documented. This period will go

down in Chinese history as an age of great industrialization and urbanization. It has lifted

hundreds of millions of people from poverty, improving living standards of a vast new

urban middle class, creating more billionaires than anywhere in the world except the U.S.

and turned China into the largest manufacturing center in the world. A top down

authoritarian regime has managed this great transition and, although China suffered

during the economic recession affecting the whole world in 2009, and growth has slowed

down, its economy is still strong. The Chinese Government is acutely aware, however, of

the need to boost its domestic economy and develop the poorer inland areas. Vast sums of

money have been allocated to this, but in many ways the results are so far uncertain and

there is much call for reform.

China may be number one in foreign exchange reserves but, in per-capita income

terms, it is still a developing country lagging behind the majority of the world. Whilst the

Chinese Communist Party (CCP) can perhaps no longer be described as a Party of

utopian ideology, but more a Party of material interests with a pragmatic agenda, it is

acutely aware of the increasing demands of civil society for justice and accountability as

well as for higher levels prosperity for all. It holds on tenaciously to its power and does

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not accept disobedience, but it is also resilient and resourceful. Furthermore, through the

new elite class, travel, trade and the Internet, China is now deeply and irreversibly

connected to the rest of the world. The need for transparency and anti-corruption

measures are playing increasingly important roles in Chinas civil society as it relates to

business, social sector organizations and governance.

Gold describes Chinas plight: China is vibrant, undisciplined, and rollicking,

yet simultaneously arbitrary, polluted, and oppressiveits leaders and citizens are

grappling with a relentless onslaught of unprecedented challenges, while also trying to

construct and consolidate institutions to manage the new order.1

For the purpose of this paper I define the scope of the sectors dealt with and

definitions used below:

Definition of Civil Society as it Applies to China Today

There are many different interpretations of what civil society means in the

Chinese context. Before the reform period began in the late 1970s, civil society,

translated as shimin shehui, was understood to mean capitalist society and therefore

carried a derogatory connotation. Since the reforms, a new translation, gongmin shehui,

has been adopted to emphasize the political meaning of civic engagement in public

affairs. It is now understood to refer to the realm or sector that belongs neither to the state

nor the market.2 The definition of the United Nations Development Program seems to be

the most appropriate for the purposes of this paper: civil society is the space between

family, the market, and the state; it consists of non-profit organizations and special

interest groups, either formal or informal, working to improve the lives of their

constituents.3

1 Gold, Thomas, China, Countries at the Crossroads, (New York, Freedom House, 2007)

2 Yu Keping, Civil Society in China: Concepts, Classifications, and Institutional Environment, China Academic Journal Electronic Publishing House, 2006, issue 1

3 UNDP, 2002

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Accountability and Transparency

The definition of accountability that will be used in this paper is the obligation of

an individual or organization to account for its activities, accept responsibility for them,

and to disclose the results in a transparent manner. The definition of transparency that

will be used is action, method or procedures that lack hidden agendas and conditions,

accompanied by the availability of full information required for collaboration,

cooperation and collective decision making.

Scope of the Social Sector

Social sector organizations are those that are delivering social services. This could

be through non-profit organizations, GONGOs (government operated NGOs), non-

governmental organizations (those registered NGOs with government supervision),

private foundations or public foundations. Also included are grassroots civil-society

informal and unregistered groups, or organizations registered as a business but

undertaking social work. There is also a brief consideration of the emerging sector of

social entrepreneurship and impact investing4. The role of transparency within this sector

is covered in a dedicated chapter to this topic together with information gleaned from

organizations and people visited in Beijing between April and August 2011.

Scope of Businesses

Chinas positioning as the workshop of the world and as a major economic

power has placed it under intense scrutiny, both in its dealing with business norms and

procedures on the international stage as well its corporate social responsibility in

enterprises within China. Calls for accountability and transparency, justice and fair

working conditions are becoming louder both from Chinas civil society as well as

international human rights and legal advocates. The chapter on business discusses the

ramification of these changes.

4 See Appendix 9 for a brief overview of impact investing and social entrepreneurship in China.

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Scope of Government

For the purpose of this paper I do not go into the intricacies of Chinese

government structure, but refer to the CCP (Chinese Communist Party) and their top

down approach to governance from the center to the provinces, to the townships and to

the villages. I contend that all measures taken by the government are intended to maintain

control from the top. However, as China is opening up to the world, the CCP is having to

remain alert to changing conditions and public opinion despite the fact that there are not

clear bottom-up channels for reform. The Internet is proving to be a major factor in

generating citizen concerns, which cannot be ignored by the CCP, despite attempts to

monitor and in many instances ban its use. So, far from being static and rigid, as is often

assumed from a Western perspective, the CCP is constantly experimenting and using the

best minds from China and the world to suggest innovative ideas to advance the declared

aim of creating a harmonious society. The CCP knows that failure to demonstrate the

will to be more sensitive to the changing times could lead to civil unrest and instability.

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Chapter 2: The Case for Reform in

Social Sector Organizations

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Chapter 2: The Case for Reform in Social Sector Organizations - A Historical

Perspective

Overview of Chapter

In this chapter, I hope to outline from a historical perspective how civil society in

China has coped with development and reform over the last thirty years, during which

time the focus of the Chinese government has been primarily on increasing GDP (gross

domestic product), sometimes at the expense of civil society. I will explore attempts

made by official government sponsored organizations as well as a growing number of

grassroots organizations that attempt to address pressing societal problems. Finally I

suggest that in response to civil unrest and the wide gap between the rich and poor in

China, that the government is becoming more responsive to civil society demands

for domestic reform aimed at facilitating, improving and funding social sector services as

well as loosening restrictions and supporting grassroots initiatives.

Civic Values in Chinese Society

Chinas unique historical experience of thousands of years of rule by emperors;

the role of communism and the rule of Mao Zedong; the Cultural Revolution and the

opening up that has taken place over the past thirty years, are all important factors to

consider when looking at the development of the social sector in China. Some argue that

Confucian ideology has played a really important role in shaping civic values in Chinese

history. Qiusha Ma suggests that, Before the Communist Party came to power, China

had many, many private associations and institutions, such as private schools and

hospitals5. Jessie Jiang suggests that, studies have referred to a millennia-long tradition

of philanthropy in China, rooted in Confucius ethical concepts of benevolence (ren) and

kindness (shan), which forms the basis of Chinese perception on volunteerism6. Li

Xiaoxiao argues that the concept of volunteerism has historically been defined as

5 http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:86861.pdf

6 Han, 2009

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helping each other (huzhu) building up from the grassroots. 7 In addition to the

Confucian values of benevolence (ren), righteousness (yi), kindness (shan) and

truthfulness (xin), the current concept of volunteerism in China is also influenced by

civic values and growing understanding of the role of an emerging civil society,

especially in the context of globalisation and democratisation8. However, others suggest

that traditional China had a distinctly un-civic culture and that charity in China was

completely family-based with no basis for social trust between non-kin. It is for this

reason that Chinese society was characterized as a "loose tray of sand," where each grain

represented a family or lineage. Although influenced by Western concepts of civil

society, Chinese scholars have adapted and redefined the understanding of civil society to

include Chinese characteristics.

Under Maos Rule

Totalitarianism in the Communist state of China, under Mao, led to the breaking

down of all vertical links between individuals, including the family. Therefore by the end

of the Cultural Revolution any sense of individual liberty or community had been

shattered. The Brookings Institute suggests that, From 1948-78, when China functioned

under a planned economy system, social welfare was the responsibility of the

government, leaving no role for NGOs.9 Qiusha Ma further suggests that, After 1949,

first, the majority of civil associations were suppressed; and second; all the private

service providers were nationalized, following the Soviet Unions model. Therefore,

during that period in China there were no true private or non-governmental organizations

of any type. However, social organizations continue to exist and some old social

organizations, such as the Red Cross and other professional associations, remain.

Although eventually they were nationalized, on paper they were still called social

7 Li Xiaoxiao in Ding et al., 2007; 8-17 8 Appendix 4 looks at other motivations that people have for participating in philanthropic causes.

9 Zhang Ye, Brookings Institute, China's Emerging Civil Society, http://www.brookings.edu/papers/2003/08china_ye.aspx

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organizations.10 During this time, the focus was on participation in mass organizations,

rural collectives and the Communist Youth League. Any sense of civic responsibility

outside of state patronage mechanisms was not permitted. Carol Hamrin argues that this

history had a strong impact in shaping peoples conception of civic engagement. She

suggests, There is a deficit of humanitarian values throughout society stemming from

decades of class struggle mentality coupled with the current un-tempered pursuit of short-

term material gain.11

The Increase in Civic Consciousness

The state has traditionally played an extremely important role in China in terms of

the protection of citizens. Before Deng Xiaopings reforms in 1978, the danwei/work unit

system meant that people felt that they were supported by the state in such essential

services as healthcare and education. However, after the era of reform, this support

loosened up, and the vast majority of the population found themselves in dire need and

without support. It was clear that the distribution mechanisms for social services had to

be reformed and developed.

In the aftermath of the 2008 Wenchuan Earthquake in Sichuan Province, China,

many organizations gathered to try to determine what should be done. This earthquake

measuring 8 on the Richter scale struck Sichuan Province, killing around 90,000 people

and injuring 363,000, destroying more than 15 million homes and leaving 10 million

homeless and 1.5 million displaced. The estimated damage was $20 billion. The media,

in particular social media, was very quick to respond but the government was seen as

slow in their response12. The response was challenging because each of the NGOs

involved had their own mission and mandate and this was one of the first attempts to

form a coordinated response to a huge societal problem in China. Many people therefore 10 Congressional-Executive Commission on China, To serve the people: NGOs and the development of civil society in China. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:86861.pdf

11 Carol Lee Hamrin, Chinas Social Capital Deficit, http://www.globalchinacenter.org/analysis/chinese-society-politics/chinas-social-capital-deficit.php 12 Appendix 7 shows the increase in media coverage of philanthropic causes.

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see the aftermath of the 2008 Wenchuan Earthquake as the beginning of a surge in

philanthropic engagement and strong civic responsibility in China. There was certainly a

great increase in philanthropic activity and donations from 2008 to 2010.13

The Hauser Center for Non-Profit Organizations argues that, The growth of

philanthropy in China is dramatic. Spurred by the 2008 Beijing Olympics and the

Szechuan earthquake in May of that year, 2008 became the first year of philanthropic

China.14 Despite the philanthropic activity that existed before 2008, the earthquake had

an important impact in terms of galvanizing the laobaoxing, or ordinary citizens, around

social causes.15 John Giszczak, Programme Division Coordinator of Save the Children,

China, argues that the Sichuan Earthquake of 2008 brought to peoples attention that the

government did not have much experience in dealing with any organization outside its

own direct rule. In the case of the immediate and overwhelming aid that was required

during and after the earthquake, NGOs, both foreign and local stepped in to fill the

breach. This underscored a grave deficiency in the Chinese Governments ability to

handle such disasters and coordinate between aid initiatives. The response to the Yushu

earthquake of 2010 was even more poorly managed.

The relative success of some NGOs in handling crises without posing a threat to

the government has led to a tentative trust and cooperation between the two, affording

more opportunities for civic engagement, for both registered and unregistered

organizations. Thomas Gold suggests that currently more and more Chinese are

participating in civic life on their own, such as in NGOs or via Internet chat rooms and

blogs. Chambers of Commerce, with local and foreign members, have also begun to 13The earthquake inspired an increase in donations from RMB13.3 billion in 2007 to RMB76.4 billion in 2008 and highlighted philanthropy as an important approach to addressing these issues. Business for Social Responsibility, Catalyzing Social Investment in China, http://www.bsr.org/reports/Catalyzing_Social_Investment_in_China_BSR_CiYuan_November_2011.pdf Business for Social Responsibility (BSR) works with its global network of more than 250 member companies to develop sustainable business strategies and solutions through consulting, research, and cross-sector collaboration.

14 P.152, Alex MacGillivray, Gefei Yin (China WTO Tribune), Kate Ives (Accountability), Joshua Wickerham and Yi Shi (Accountability), The state of responsible competitiveness, 2009 15 Business for Social Responsibility, Catalyzing Social Investment in China http://ciyuan.bsr.org/data/resources/Catalyzing_Social_Investment_in_China_BSR_CiYuan_November_2011.pdf

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assume an important role in Chinese life.16 Foreign NGOs, however, are under more

stringent restraints and surveillance as the government is ever watchful for subversion or

anti-government rhetoric.

Structure of Social Sector Organizations in China17

According to Xu Wang, There are three types of civil society organizations

within the Chinese context, all of which are called civilian non-state organizations18

The first group comprises social organizations, which are membership-based entities.

Included in this group are GONGOs (Government Operated NGOs) focused

predominantly on associations such as sports, business, academic and other such areas of

civil affairs, such as the Red Cross Society. The second group comprises of foundations,

which are fund and asset based. These are split up into private and public foundations.

The third group incorporate what are referred to elsewhere as non-governmental

organizations (NGOs) and civilian non-enterprise units such as private schools, non-

profit hospitals, and social service agencies which have a public-interest objective.

Those organizations that are not able to comply with the registration process for an NGO

register with the Bureau of Industry and Commerce and are considered as businesses with

a social cause. Technically, those not registered at all are considered illegal.19

GONGOs (Government Operated NGOs)

One of the largest contingents of social sector organizations in China are the

government operated non-governmental organizations (GONGOs).20 According to the

Hauser Center, many of these GONGOs are able to gain an edge over other non- 16 P.18, Thomas Gold, China, Countries at the Crossroads 17 See Appendix 2 and 3 for statistics on social sector organizations

18 Anthony J. Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs http://www.jstor.org/stable/10.1086/660741#rid_rf1 19 Ye Zhang, Chinas Emerging Civil Society, http://www.oycf.org/Perspectives2/22_093003/2b.pdf

20 Zi Zhongyun, Crossing the New Threshold.

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governmental organizations through a de facto unfair competition.21 Chen Jie suggests

that, One major category of GONGO is born of traditional Leninist mass organizations

(renmin tuanti). There are eight of them, including the All China Youth League, All

China Womens Federation, and the All China Federation of Trade Unions. The

government is trying to gradually restructure the function of these mass organizations

away from their original role as Communist Party overseers of particular constituencies,

towards one more of service facilitation and provision. As a result, satellite agencies

(associations and foundations) have been created.22 According to Chen Jie, The fear of

bottom-up social mobilization as well as practical needs have led the government to

create a semi-official NGO sector, a policy practiced with increasing enthusiasm from the

1990s. Government and Communist Party departments at various levels have been setting

up foundations and other organizations to advance charitable, research, information and

policy objectives.23 Spires suggests that the GONGOs are much more likely to attract

foreign funding than grassroots NGOs. This is because many of the grassroots NGOs,

due to difficulties with registration, often find it difficult to achieve legal status and are

sometimes working on radical issues. Therefore foreign funders often prefer to work with

professional and hierarchical grantees within existing institutional structures. As is seen

from the table below, the majority of US foundation giving has bypassed grassroots

NGOs. From 2002 to 2009, academic, government and GONGO grants together counted

for 86% of total grants. Whereas grassroots NGOs received only 5.61% of the total

grants.

21Hauser Center, Shenzhen Government Delegates Some of Its Functions to Social Organizations, http://hausercenter.org/chinanpo/2009/11/shenzhen-government-delegates-some-of-its-functions-to-social-organizations/

22 Chen Jie, The NGO Community in China 23 Chen Jie, The NGO Community in China

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NGOs (Non Governmental Organizations)

There is a difficulty in the conception of NGOs in China because of the fear that

they could be seen as anti-government. Therefore the term minjian zuzhi or the

peoples sphere organization is often preferred to the term fei zhengfu zuzhi as the

prefix fei implies anti government.25 Any group that wants to establish a social

organization has to register through The Ministry of Civil Affairs and they are overseen

by the relevant affiliated supervisory branch. However, this can be an extremely difficult

process in terms of application to the institution and being monitored by it. They are also

closed down very quickly if they are seen as a threat. Anthony Spires suggests that the 24 http://yaleglobal.yale.edu/content/us-foundations-boost-chinese-government-not-ngos

For more information on US donor giving, see Appendix 9

25 Anthony J. Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs http://www.jstor.org/stable/10.1086/660741#rid_rf1

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requirement to have a supervisory agency can be viewed as an enervating control

mechanism. However, the former head of the Ford Foundations Beijing office and

political scientist, Tony Saich suggests that registered NGOs can operate within the

constraints of the regulations in a fairly efficacious, albeit not completely independent,

manner. Saich, as others, argues that such organizations benefit from the legitimacy and

protection extended by their sponsoring agency and may also be granted greater access to

decision makers as new policies relevant to the field of their activities are formulated.26

Around 2002 was the time, according to Shue, when shehuihua, societalization, of

bringing society back into public service delivery, was trumpeted by the Chinese

government as an important reformist initiative that would help to relieve the heavy

welfare burdens on the state and mobilize otherwise dormant social forces and resources

for good causes. The government also wants to ensure that they can monitor civil society

and therefore does not enable civil society to develop as an autonomous unit. Xiaomin

Yu, a professor from Beijing Normal Universitys School of Development and Public

Policy, suggested in an interview that the Chinese government want to develop a strong

third sector as service providers rather than as a social movement. The Hauser Center

suggests that currently the government sees itself as the sponsor of all social

organizations. Instead, it seems as though it would be more advantageous for the

government to see social sector organizations as partners and establish mutual respect

with them. Ma Qiusha suggests that despite the large role of government in NGOs, NGOs

are still the mechanism through which people participate in public affairs, develop their

personal interests and get their voices heard.27

Gold suggests that, The governments policies toward NGOs pass through

alternating periods of restriction and loosening, and the shifts are often

unpredictableThe restrictions on NGOs are clearly motivated by the CCP (Chinese

Communist Partys) concerns that groups in China, including foreign ones, might play 26 Anthony J. Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs http://www.jstor.org/stable/10.1086/660741#rid_rf1 27 Congressional-Executive Commission on China, To serve the people: NGOs and the development of civil society in China. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:86861.pdf

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the same sort of role as those in Georgia, Ukraine, and Kyrgyzstan in fomenting Color

Revolutions.28 The chart below gives some indication of how the government views

certain sectors:

Government generally supportive/mutually beneficial

Government generally not supportive/controversial

Running orphanages HIV/AIDS

Delivering care to the elderly or disabled

Tibet and other minority groups rights issues

Providing education and other forms of welfare to the rural poor, especially girls

Migrant education

Nonetheless, numerous NGOs, especially in the environmental field, operate very

actively in China. Although there are no established channels by which civic

organizations can participate in the policy process, they comment quite forcefully on

affairs of the day through their websites and blogs. They have had some successes, such

as delaying (but apparently not canceling) dam building on the Nu River in the southwest

and on a sacred Tibetan lake.29

Foundations

There is a significant distinction in China between private and public foundations.

Foundations, in particular public foundations, traditionally act as operating entities rather

than grant-making foundations supporting NGOs. However, recently some public

foundations have taken on the role of grant making. Private foundations are independent

but are often associated with a company e.g. Vantone, Narada and Soho. Li Jing,

Secretary General and Executive Director of the Vantone Foundation, suggests that there

are an increasing number of public foundations which are beginning to follow the models

set by private foundations in innovation and grant-making with the encouragement and 28 Thomas Gold, China, Countries at the Crossroads 29P.7, Thomas Gold, China, Countries at the Crossroads

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support of the government. Examples of this are the China Youth Development

Foundation and the China Poverty Alleviation Fund, which have recently been given

greater autonomy. According to statistics from the China Foundation Center, in 2011,

China had 1,284 non-public foundations and 1,181 public foundations as is shown in the

graph below.30 Even foundations that are trying to follow a grant-making model, find it

difficult to develop their capacity to fundraise. Currently, the non-public foundations do

not have the legal right to fundraise from the general public; instead they can only

fundraise from specific individuals. When private foundations give grants, they want to

see tangible results showing how their money has been used. When the NGOs do not

produce tangible results, distrust arises which raises the whole issue of transparency and

accountability. The lack of this leads to distrust, which in turn leads to less assistance.

A model of contingent symbiosis

It is important to consider ways in which the state and civil society can work

together to pursue mutually beneficial goals. Spires suggests that in the case of China, it

is important not to consider state and society as being inevitably in opposition and

30 Cheng Yingqi, Scandals put a big dent in donations http://www.chinadaily.com.cn/china/2011-10/19/content_13928884.htm

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unalterably in competition with each other for influence and authoritythe relationship

between the two need not be imagined as zero-sum.31 According to Spires, there seems

to be a shift from a corporatist model to a model of contingent symbiosis between state

and social sector organizations in China. Corporatism is a system of economic, political,

or social organization that involves association of the people of society into corporate

groups such as agricultural, business, ethnic, etc. on the basis of common interests.

Corporatism is theoretically based upon the interpretation of a community as an organic

body. Often a corporatist model is used to describe how authoritarian states ensure tight

control over interest groups and prevent democracy from arising. Contingent symbiosis,

Spires suggests, acknowledges the real-life micro level negotiations that take place

between the state and bottom-up associations. It is in these details that we can start to

understand both the possibilities and the limits of political life in an authoritarian

regime.32 Spires further suggests that: While this may reflect the relationship between

government and official NGOsGONGOs, to be more accuratecorporatism cannot be

suitably applied to understand the existence and survival of ostensibly illegal grassroots

organizations.33 The protagonists of this model of contingent symbiosis suggest that

despite the fragility of the NGO-government relationship, such a relationship is

beneficial. Vivienne Shue agrees with Spires that there is an intriguing relationship that

exists and extols the mutual benefit achieved, between the emergence of a robust sphere

of civil associational life, on the one hand, and the consolidation of social power in

relatively strong or resilient state organizations, on the other. Putting it in simple terms,

we might propose thatunder certain conditions at least, strong and robust civil

associations can go together with powerful and resilient states.34

31 P.2, Vivienne Shue, The political economy of compassion

32 Anthony J. Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs http://www.jstor.org/stable/10.1086/660741#rid_rf1 33 Anthony J. Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs http://www.jstor.org/stable/10.1086/660741#rid_rf1 34 Shue, 1994:66

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The Growth of Civil Society - Grassroots

The last decade has seen the emergence of a large number of grassroots

organizations. These groups are formed by Chinese citizens, some registered as

businesses and some not registered at all. Professor Wang Ming of the Tshinghua

University NGO Research Centre suggests that despite the fact that the official statistics

from the Ministry of Civil Affairs in 2010 suggest that there are 400,000 social sector

organizations; it seems as though the unofficial figure of 3-4 million is much closer to

reality. This research is based on rigorously going through old periodicals to find groups

that act as NGOs but have not officially registered.35 The advantages of them registering

is that they have the legal protection of the state and they are not acting illegally.

However the disadvantages of trying to register are that often the registration

requirements are too onerous and many groups prefer to avoid contact with the

authorities.

They perform an important function in society, engaged often in providing

essential social services to local communities. However, the government is often fearful

of fully empowering organizations to take responsibility for social causes for fear they

will not be able to control them. In an interview with Jianyu, a Tshinghua Professor, he

said, The Chinese government is cautious about supporting civil society because there is

fear that civil society organizations might play an anti-government role. Mutual trust

develops over time through social capital and organizations sharing resources amongst

themselves. 36 Therefore, unless the social sector organizations cause a social

disturbance or incite violence, by and large the government leaves them alone. Spires

quotes one grassroots activist as saying: In China, if the government doesnt say no,

you can experiment and understand their failure to say no to mean yes, or you can say

I thought since you didnt say no, I could do this. Thats the way things work here. So

35 Statistics from Chinese Ministry of Civil Affairs, Bureau of Management of Nongovernmental organizations, http://www.chinanpo.gov.cn/web/listTitle.do?dictionid=2201

36 This interview took place between April and August, 2011

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we do take some risks here in our work.37 One supportive government official explains

the suspicion from the governments perspective as follows, Not enough government

officials know anything about civil society. Some of them are very afraid of it, wondering

what it is and what political motives people haveBut I think that the government needs

to understand that civil society in China today is not political. These NGOs, the

grassroots NGOs who are mostly registered as businesses, theyre outside of the civil

affairs system, but theyre not looking to do anything political. Theyre trying to help

alleviate poverty or provide educational assistance or help people with diseases. This

is something the government needs to understand.38

There is additionally an incentive system for local government officials in

supporting grassroots initiatives. The officials are largely judged based on GDP so

decisions they make are often based on short-term economic growth rather than long-

term social benefit. Officials are also judged based on the lack of social unrest, disruption

and protests that take place in their area of jurisdiction. Therefore, the existence of both

official and unregistered social organizations that are addressing important social

challenges can be seen as useful to local officials. The officials are able to take credit for

positive social activities but attempt to hide unfavorable or unsuccessful ones. In like

manner, government-NGO conflicts do not necessarily represent central government

directives but rather clashes of interest between local NGO activities and local political

and economic interests.

Some social sector organizations, however, make their protests louder. Spires

comments that in more candid moments, many civil society spokespeople present

themselves as critical thinkers, patriotic progressives who dare to pursue the promises of

socialism that the government has seemingly abandoned in the name of economic reform.

With the Internet penetration into more households and daily lives, the information flow

has increased exponentially in recent years. It has become harder for social tensions to be 37 Anthony Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs

38 Anthony Spires, Contingent Symbiosis and Civil Society in an Authoritarian State: Understanding the Survival of Chinas Grassroots NGOs

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ignored or suppressed by powerful interests or some local governments. Civil society

groups allow the disadvantaged to be heard. Some take it to the next step.

Mounting Unrest

In an environment where civil society has very limited ability to apply pressure on

the government to rectify ills of social justice; where there is little rule of law, and

grievances are dealt with in an ad-hoc manner, it is not surprising that the only recourse

open to citizens is to resort to demonstrations, protests and occasionally to riots. Civil

unrest is officially known as mass incidents in China. It would seem that as China

surges ahead in becoming a world economic power and the Chinese elite are enjoying all

the excesses, which money can provide, the poor are becoming understandably aggrieved

and mass incidents are increasing exponentially. According to a report in Open

Democracy Shenzhen alone, one of the more advanced industrial centers in China has

officially registered about six hundred unexpected mass incidents each year from 1990

onwards. Whilst there is no way of confirming the accuracy of the data, statistics have

been taken from various sources to indicate that grievances range from issues of

unemployment, pensions, wages, corruption, tax collection problems, misuse of funds,

widespread informal bankruptcy, neighborhood and housing issues, land acquisitions,

forced relocations, environmental damage and mismanagement. A graph representing the

rise in protests is shown below.

24

39

The strategy mostly used by the government is mainly to adopt measures between

concession and repression and to keep the protests localized. What the party seems to

fear the most is coordination between groups or across provinces, which would render the

situation untenable for the CCP. Wen Jiabao called for urgent political reform in his

final news conference on March 14th 2012, cited in the China Post. He said: New

problems that have cropped up in Chinas society will not be fundamentally resolved, and

such historical tragedy as the Cultural Revolution may happen again.40 This would 39 1993-94 data from Murray Scott Tanner (2004) China Rethinks Unrest, The Washington Quarterly, Vol. 27, No.3, Summer 2004, pp 138-39; 1995- 2002 data from Albert Keidel (2005) The Economic Basis for Social Unrest in China, Carnegie Endowment for International Peace- for The Third European- American Dialogue on China; 2003-2004 data from South China Morning Post, July 7, 2005; 2005 data from Thomas Lum (2006) Social Unrest in China, CRS Report for Congress, Congressional Research Service; 2006-07 data from Ben Blanchard (2011) Riot in South China After Fruit Vendor Allegedly Beaten to Death by Officials, July 27, 2011; 2008 data from Goh Sui Nui, (2010)Political Reform, China Style, Asia New Network, November 4, 2010; 2009 data for from Gordon C. Chang (2011), Repression in China Losing Its Effectiveness and Its People are Becoming Defiant, Fox News, April 25, 2011. Elizabeth J. Perry and Merle Goldman (2007) Grassroots Political Reform in Contemporary China, Harvard University Press, Cambridge.Ching Kwan Lee (2007) Against the Law: Labour Protests in Chinas Rustbelt and Sunbelt, University of California Press, London. Susan L. Shirk (2007) China: Fragile Superpower, Oxford University Press, New York. Jenifer Huang McBeath and Jerry McBeath (2010) Environmental Change and Food Security in China, Springer Dordrecht Heidelberg, London.

40 Tania Branigan, China needs political reform to avert 'historical tragedy', says Wen Jiabao http://www.guardian.co.uk/world/2012/mar/14/china-political-reform-wen-jiabao

25

explain also why China is so adamant about controlling the civil society organizations

and the Internet.

Meeting Social Demand

It is assumed that the Chinese government is able to act uniformly to ensure

control over the various provinces and social service organizations within them, with a

top-down directive. However in todays China the central government in Beijing enjoys

much less control over these provinces and receives far less feedback. It relies heavily

on the social sector to meet social needs and, as incentives are given to local and

provincial level authorities based on the economic performance in their areas of control,

societal development often takes second place. Much of the community-based social

service is government driven but relies on civil society participation, as the government

cannot take all of the financial responsibility.

For a number of years the government has referred to building a harmonious

society. In the National Peoples Congress in 2005 and in the recent 12th 5-year plan, it

refers to inclusiveness and improving peoples livelihoods by way of the promotion of

happiness, sustainability and addressing economic disparity. As much as this may be

rhetoric, it acknowledges the fact that there are problems with the provision of social

services. Carol Hamrin suggests that, To NGOs on the receiving end of policy, the

(focus on building a harmonious society) appears to be a cover for cutbacks in state

funding, without adequate tax incentives for donors or protection for genuine autonomy

in decision-making. This problem is aggravated by the fact that there is little

communication and coordination amongst the NGOs. Furthermore, there is often a

disconnect between the NGOs and other sectors of society.41 The UNDP has been

working with the government on public-private partnerships. These partnerships are often

useful because they help to keep each organization accountable.42 Linxiu Zhang of the

Rural Education Action Project further reiterated in an interview the importance of

participatory governance whereby there was teamwork between local organizations and 41 Carol Lee Hamrin, Chinas social capital deficit http://www.globalchinacenter.org/analysis/chinese-society-politics/chinas-social-capital-deficit.php 42UNDP, Public Private Partnerships, http://www.undp.org.cn/modules.php?op=modload&name=News&sid=12&file=article&pageid=3

26

policymakers. In this way, each is able to bring their expertise to the table and each is

able to benefit from the other.

In a report in Caixin newspaper on April 6th 2012, East China Normal University

Professor Xu Jilin says it is no longer a question of whether social organizations will

reform, but when the next step will be made. He is further quoted as commenting: If

there are no grassroots-level reforms, top-down reforms will be rendered ineffectual43.

Xu Jilin further argues that, in the absence of vibrant social organizations, harmful

activities fill a vacuum of services catering to social needs.44 For example, the

emergence of criminal gangs.

This raises the whole issue of building trust. Bonds of trust and cooperation help

to promote the strength of the social sector and depend heavily on transparency. Putnam

argues, "In all societies dilemmas of collective action hamper attempts to cooperate for

mutual benefit, whether in politics or in economics. Third-party enforcement is an

inadequate solution to this problem. Voluntary cooperation (like rotating credit

associations) depends on social capital. Norms of generalized reciprocity [for favors

received] and networks of civic engagement encourage social trust and cooperation

because they reduce incentives to defect, reduce uncertainty, and provide models for

future cooperation. Trust itself is an emergent property of the social system, as much as a

personal attribute. Individuals are able to be trusting (and not merely gullible) because the

social norms and networks within which their actions are embedded.45"

Premier Wen Jiabao, in a report released on March 19th, 2012, pushed for further

social innovation and for redefining the relationships among the government, citizens,

and social organizations46. The Chinese Ministry of Civil Affairs has recognized the 43 Wang Su, In the Field of Social Organizations, a Constant Need for Reforms http://english.caixin.com/2012-04-06/100376927.html 44 Wang Su, In the Field of Social Organizations, a Constant Need for Reforms http://english.caixin.com/2012-04-06/100376927.html 45 p.177 Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy

46 Social media give voice to the disadvantaged http://www.herald.co.zw/index.php?option=com_content&view=article&id=37075:social-media-give-voice-to-the-disadvantaged&catid=45:international-news&Itemid=137

27

need for a supportive legislative framework for social sector organizations. On July 4,

2011, Li Liguo, the head of the Ministry of Civil Affairs, announced that charity, social

welfare, and social service organizations would be permitted to register directly at local

civil affairs agencies. This initiative was spearheaded by Guangdong provinces recent

reforms relaxing the registration requirements for social organizations. These reforms

were followed up with The Standing Committee of the Guangzhou Municipality Peoples

Congress passing a law entitled, Guangzhou Municipalitys Fundraising Regulations.

This enabled more social organizations and public institutions to expand their fundraising

activities.47 It is hoped that this will set the pace for reforms across the country. The

greatest hope and aspiration of Chinese civil society organizations is that they can bridge

the ever-widening gap between the rich and poor. Lifting people out of poverty could

also have marked advantages for Chinas domestic markets, especially now that China

can no longer depend on sustained growth in exports.

The jury is still out on whether the new administration will implement the reform

measures outlined by Premier Wen Jiabao in his last public speech, but few doubt the

need for such measures. It is worth speculating that if the government put as much effort

into creating a harmonious society as it has done in achieving the miraculous economic

growth China has witnessed, then the world may in many ways look to China as the new

paradigm of world order.

47 China Development Brief, Guangzhou frees fundraisers http://www.chinadevelopmentbrief.cn/?p=603

28

29

Chapter 3: The Case for

Transparency and Accountability in

Social Sector Organizations

30

Chapter 3: The Case for Transparency and Accountability in Social Sector

Organizations

During my five month stay in Beijing in 2011, I visited more than seventy

organizations offering some form of social benefit to the Chinese society, from

Registered Government NGOs (GONGOS) to NGOs, to Public and Private Foundations,

to philanthropists, to grassroots organizations (civil society). My aim was to interview

each to get a sense of how the social sector has developed in China over the past ten

years, what role various organizations play and what relevance transparency and

accountability have played in their development. My particular interest was in looking at

the benefits and challenges for each sector providing a social service, the role of the

government, and trends over the past ten years in relationship to the broader questions of

modernization in 21st century China.

One of the greatest challenges in the development of Chinas social sector is the

legitimacy for providers of services, for donors, for recipients of non-profit organizations

(NPOs) and for the general public. It is also important to make sure that money is being

used effectively. The absence of transparency in social sector organizations has been

important in a number of recent famous cases. Various non-profit organizations in China

have been discredited due to claims of corruption and this has had negative repercussions

on the sector in general. Transparency is important from the perspective of donors,

recipients and the government. If there is no transparency, then the organizations become

de-legitimized and cannot be trusted by either donors or the government. Transparency is

therefore considered as a means to an end where the end is effective delivery of social

services. Unless there are more transparent organizations, there is no way that the sector

will gain legitimacy and that these organizations will be able to receive funds and thrive.

Transparency in social sector organizations: a comparative perspective

Transparency is incredibly difficult to encourage, irrespective of the country or

organization concerned. Whether it is foundation leaders reporting the provenance of

their donations or the philanthropic organizations accountability on distributing funds,

31

transparency is a murky area. It may not be a question of dishonest dealings, it might be

just a reluctance in the philanthropic sector to openly report failures for fear that this will

have negative repercussions on the branding of the organization and hence peoples

willingness to donate. It has been widely observed that there is not an open discussion of

failure within the philanthropic sector. Organizations want to present a positive image of

themselves and often do not want all of their work to be evaluated. This is particularly the

case with respect to US foundations that have a huge repository of data and information

but often do not reveal this information to the public. The supposition is that if there are

any negative issues revealed, or failures reported, this may disincline the American public

from donating. There are various initiatives based in the US that are focused on

promoting transparency. For example, Guidestars mission is to revolutionize

philanthropy and nonprofit practice by providing information that advances transparency,

enables users to make better decisions, and encourages charitable giving.48

The National Committee for Responsive Philanthropy (NCRP) in the United

States works on promoting transparency and conducting action research. They analyze

and advocate for the support of institutional philanthropy operating with integrity and

openness.49 In Hong Kong, the National Council of Social Service50 plays an important

role in promoting transparency and impact measurement. Stoner Weiss describes the

difficulty for civil society organizations in Russia, civil society and non-governmental

organizations (NGOs) have been stifled through legislation that imposes onerous re-

registration requirements. A few of these organizations have been unceremoniously

raided and closed by the authorities, while human rights and democracy groups have been

accused of pushing an agenda that benefits foreign states. More generally, civil society

finds itself increasingly unable to serve as an effective check on abusive state practices at

a time when the hollowing out of political opposition has increased the importance of

48 GuideStar, http://guidestar.org/

49 National Committee for Responsive Philanthropy, http://www.ncrp.org/campaigns-research-policy/accountability

50 National Council of Social Service, http://www.ncss.gov.sg/home/index.asp

32

external monitoring.51 Russia, like China, is fearful of negative feedback from civil

society organizations.

Why is transparency in social sector organizations in China important?

Lack of transparency and accountability in social sector organizations is one of

the biggest hindrances to charitable giving and the development of the social sector in

China.52 The various cases of corruption reported over the past couple of years have had a

very negative affect on the perceptions of Chinese civil society.

The US has taken steps to encourage accountability in social sector organizations.

The US government requires non-profit organizations, or 501C3s, to complete annual tax

forms (entitled 990 forms), which provides an accountability mechanism; the absence of

completely stringent requirements in China impedes accountability. Donors often have no

idea how their money is spent. Deng Guosheng, an associate professor at Tsinghua

Universitys School of Public Policy and Management, suggests that, Charitable

organizations seldom respond to donors requests for information about financial reports

so few donors have a clear understanding of what their money is used for and what

effects it brings about.53 Over recent years, there has been an increase in annual

philanthropic giving. However, in a recent survey of people who donated to the Sichuan

relief efforts, Deng found that of the 1,684 who responded, more than 60 percent had

little or no idea how the money was being spent.

Tsinghua's Deng argues that although there is officially a national tax deduction

policy for charity donations, these are often extremely difficult to actually claim. Jessie

Jiang argues that, Today, even for China's nouveau riche who are willing to give, 51 P.2, Stoner-Weiss, Kathryn, Russia, Countries at the Crossroads

52 According to Business for Social Responsibility (BSR), Beijing, While the growing dollar amount of donations is encouraging, the donations impact also deeply matters. Frustrated by the lack of information about how their donations have been used, individuals and corporate donors are demanding increased transparency from organizations. Catalyzing Social Investment in China: http://ciyuan.bsr.org/data/resources/Catalyzing_Social_Investment_in_China_BSR_CiYuan_November_2011.pdf

53 Hauser Center, Donors Kept in the Dark on Where Money Goes http://hausercenter.org/chinanpo/2010/06/donors-kept-in-the-dark-on-where-money-goes/

33

government policies often fail to encourage charitable actions...Moreover, the policy only

applies to donations made to the very few government-sanctioned charities, which are

commonly blamed for lack of transparency or even corruption.54 Domestic foundations

receive annual government inspections and submit annual reports every year, but the

responses are only accessible by the government, not the public. A lack of rating agencies

also contributes to the problem. Apart from government supervision, there are no

independent third-party agencies monitoring these charities.55 Deng Guosheng further

argues that the scandals in the social sector industry might disappoint the public, but

refusing to donate was not a reasonable action and it would eventually hurt people in

need. Instead, people could and should invest time in finding the most transparently

operated charity organizations.56

The State and transparency

Transparency is important both from the perspective of the government and

society. Transparency regarding the activities of social sector organizations is important

for the government because it is helpful for them to know what types of activities these

organizations are engaged in so that they can develop stronger partnerships with these

organizations. For the general society, transparency is important because it helps to build

trust in the social sector organizations. The Ministry of Civil Affairs suggests that, Still,

much can be done to improve the professionalization and accountability of Chinas

burgeoning civil society sector. The governments proposed reforms to expand

registration options for NGOs in China will help broaden the scope and potential of civil

society to promote responsible competitiveness.57 Zhou Xiaozheng, a professor of

sociology at Renmin University, suggests that, "We urgently need laws to regulate the

area of charityPeople can't just say they are going to donate to charity, receive the

public's praise and do nothing afterwards. 58" Zhou further points out that promised 54 Jessie Jiang, Amid China's Economic Boom, Philanthropy Lags http://www.time.com/time/world/article/0,8599,2027055,00.html 55 Hauser Center, Charity transparency criticized, http://hausercenter.org/chinanpo/2011/02/charity-transparency-criticised/

56 Global Times, Trust in charities waning http://china.globaltimes.cn/society/2011-04/646502.html

34

charity recipients have the right to sue donors for fraud if they do not carry through on

their promises. However, this channel is rarely used, as there is limited legal support for

transparency cases.

The Wenchuan earthquake of 2008 had a significant impact on transparency in

philanthropic organizations in China. The state insisted on maintaining control over all

emergency aid initiatives. Brian Hoyer suggests, Although the state deserves praise for

its handling of the response, a lack of transparency in terms of specific data and details of

the response have concealed many of these successes, as well as obscuring areas for

improvement.59 After the initial rush of donations had passed, the disaster and the large

donations triggered public scrutiny and transparency over the use and impact of

charitable funds. 60

Challenges of promoting transparency amongst donors

The Chinese philanthropists are generally unwilling to divulge much information

about philanthropic activities they undertake. This proved to be a potential problem

when Bill Gates and Warren Buffett organized a dinner for Chinese billionaires on

September 29th 2010. Many of the invitees were concerned that they would be asked to

participate in a public pledge.61 One of the reasons that people are reluctant to be too

public about their giving is the fear that they will then be harassed to donate to many

different causes. One philanthropist that I interviewed in Hong Kong indicated that 57 Statistics from Chinese Ministry of Civil Affairs, Bureau of Management of Nongovernmental organizations, http://www.chinanpo.gov.cn/web/listTitle.do?dictionid=2201

58 Beijing Global Times, Checking up on charity, http://beijing.globaltimes.cn/society/2011-04/635928.html

59 Brian Hoyer, Humanitarian Exchange Magazine, Lessons from the Sichuan earthquake http://www.odihpn.org/report.asp?id=3008 60 Business for Social Responsibility, Catalyzing Social Investment in China http://ciyuan.bsr.org/data/resources/Catalyzing_Social_Investment_in_China_BSR_CiYuan_November_2011.pdf 61 However, approximately two-thirds of the invitees eventually came.

35

Chinese billionaires have an iron-wall security around them protecting them from being

harassed by the many needy people and organizations. However there are some

exceptions to this. Some people enjoy the public attention that they receive from giving

and are actually criticized for how public they are about their giving. For example, Chen

Guangbiao, president of Jiangsu Huangpu Renewable Resources Company, constructed a

money wall at the Industrial and Commercial Bank of Chinas (ICBC) Jiangsu Branch

to collect donations. The wall had 330 bricks made up of 100-Yuan bills worth 100,000

Yuan. He also goes into the streets and hands out money and encourages others to do the

same.62 He visited Taiwan in early 2011, on a thanksgiving trip to thank the Taiwanese

for their contribution to the Wenchuan earthquake relief effort63.

However, the notion of Chinese personal and corporate philanthropy is growing.

Many super-rich Chinese have come from humble backgrounds and have a sense of

wanting to help the less fortunate. The obstacles are that they are not always sure

whether their philanthropic gifts will reach the desired recipients. Appendix 5 shows

the increase in Chinese Corporate Philanthropy.

Social Sector Organizations Visited in Beijing:

A common thread that ran throughout my interviews was the emphasis that was

placed on the importance of accountability and transparency amongst social sector

organizations64. Another important element that emerged was the extent to which an

individuals status and their guanxi (relationships) played in their perception of the

social sector. Xiaotong Fei describes the interconnectedness of personal relationships,

"The path runs from the self to the family, from the family to the state, and from the state

62 Xinji Letu, Top philanthropist tangled in fraud accusations http://www.beijingtoday.com.cn/tag/chen-guangbiao

63 Ko-Shu-ling, Government stewed over tycoons visit http://www.taipeitimes.com/News/taiwan/archives/2011/01/28/2003494635

64 See Appendix 1 for Interview list

36

to the whole world.65" The higher an organizations social standing, the stronger their

government connections, the more likely they are to have a favorable view of the sector.

This is because it is much easier for individuals and organizations that have these types of

relationships to gain access to funds and to freely operate. For a full list of all

organizations and individuals interviewed, please see Appendix 1. I have documented a

few particularly noteworthy examples below.

1) China Foundation Center (CFC)

The China Foundation Centers66 mission is to bring transparency to philanthropic

markets through access to the highest quality data, news, and analytics to enhance a

bigger social impact of philanthropy. In 2009, a delegation of several Chinese Private

Foundations visited the US Foundation Center in New York. The participants on this trip

were greatly inspired by the US Foundation Center and this led to the formation of the

China Foundation Center in 2010. The US Foundation Center uses data, analysis, and

training to connect people who want to effect social change to the resources they need to

succeed. Their aim is to inform public discourse around philanthropy and encourage a

broad understanding of the role that non-profits can play.

The China Foundation Centers executive team includes Cheng Gang, Geng

Hesun and Tao Ze who all have experience working in the philanthropic sector. CFC

received initial seed funding from the Ford Foundation and has recently received further

funding from LGT Venture Philanthropy. CFC uses a network map system designed and

developed to provide easily accessible information about foundations. Foundations can

voluntarily upload information regarding their annual giving and annual expenditure,

which can then be viewed by the general public. CFC is currently working on developing

a transparency index and rating system that would be similar to Morningstar or Nasdaq

for social sector organizations. They are also working on initiatives to promote more 65 p.66, Xiaotong Fei, From the Soil: The Foundations of Chinese Society 66 China Foundation Center, http://en.foundationcenter.org.cn/index.html

37

professionalism in the social sector through training programs for foundation leaders. I

have had the opportunity to spend extended periods of time with both Cheng Gang and

Tao Ze and they both have a keen desire to help support an infrastructure for social sector

organizations in China.

2) China Charity Donation Information Center (CCDIC)

Established in 2008, and led by Peng Jianmei, who has extensive experience

working in the media, business and the philanthropy sectors in China, the China Charity

Donation and Information Center (CCDIC) is a non-profit organization supported by, and

working closely with, the Ministry of Civil Affairs in China. Its mission is to promote

effectiveness and transparency of Chinese civil society organizations (CSOs) and of the

sector as a whole.

In 2011, in response to growing transparency problems, the CCDIC published a

report on the state of the charity sector transparency in China. The CCDIC reviewed the

disclosure practices of 99 nonprofits but received feedback from only 65 of them. These

organizations included non-public offerings and local non-governmental organizations.

Of the 65, 42 percent of them claimed to have no guidelines on information disclosure,

and 37 percent said no staff was specially designated for carrying out related work.

Furthermore, the report found that, 90 percent of the public is dissatisfied with how much

information is being disclosed and the way it is made public. Among the 99

organizations, 20 percent of them did not have their own websites and, for those with

websites, 43 percent were not updated regularly or users found them to be unhelpful

when searching for information. Only 10 percent of the public interviewed in this survey,

expressed that they were partly or very satisfied with the state of information disclosure.

According to the Global Times, 90 percent of interviewees felt that they were not given

enough information about the use of donations, the result of sponsored projects, and the

final destination of

38

their money.67 CCDICs research team believes that a lack of relevant laws and

regulations, standards for information disclosure and the training of professional

personnel were the main reasons for poor performance in transparency for domestic

charitable organizations. In the charity field of China, information disclosure has both

mandatory and voluntary aspects. A related government department supervises

mandatory disclosure but there are differences in the responsibilities between local and

central government and this makes it difficult for The Ministry of Civil Affairs (MOCA)

to oversee charities that lack registration records.68

In November 2011, CCDIC announced that its newly-created online disclosure

platform would kick off next year, enabling any member of the public to see how

charities are receiving donations, and where they are spending them. The Ministry of

Civil Affairswhich oversees the CCDICsaid a new 2012 donation information law

will also force charity organizations to disclose more of their accounting records.69 If

this is passed, this could have significant consequences on building transparency in social

sector organizations in China. It is however extremely difficult for them to collect

information from public channels to match the high scores charitable organizations give

themselves. The biggest gaps in the information disclosure are found in financial auditing

and personnel appointments. In an interview, Kong Can suggested that the CCDIC are

working hard to create training materials and programs to support the work of

philanthropic organisations in China.

67 Global Times, Trust in charities waning http://china.globaltimes.cn/society/2011-04/646502.html 68 Business for Social Responsibility, Catalyzing Social Investment in China http://ciyuan.bsr.org/data/resources/Catalyzing_Social_Investment_in_China_BSR_CiYuan_November_2011.pdf

69 Hauser Center, Charity Transparency Criticized http://hausercenter.org/chinanpo/2011/02/charity-transparency-criticised/

39

3) Vantone Foundation

The Vantone Foundation was established in April 2008 as a non-public

foundation registered with the Beijing Municipal Civil Administration. The Foundation

aims to promote environmental protection and energy conservation, and to promote

harmony between man and nature. Its main business endeavor is to promote the

construction of ecological communities. The Foundation aims to become an important

driving force for the construction of urban ecological communities in China.70 Li Jing,

the Executive Director and Secretary General of The Vantone Foundation suggested in an

interview that The Vantone Foundation aims to build these ecological communities by

developing local partners and a strong feedback mechanism. This feedback mechanism

helps to ensure accountability and transparency. The foundation is run using a business

model and therefore has a strong set of internal metrics. They believe in attracting strong

talent and professionalism to the social sector and therefore pay their employees a lot

more than most other foundations. The Vantone Foundation is one of the few private,

grant-making foundations in China. Their vision is to generate positive social change

through developing the capacity of NGOs to influence the environment around them.

They have recognized that if they want these organizations to grow and prosper, it is

essential that they have a strong level of accountability between themselves and their

NGO partners to ensure that money is being used as intended. Mr. Feng Lun, the

chairman of Vantone Holdings, has great hopes for the Vantone Foundation and the

development of the philanthropic sector more generally in China. Therefore, they place

great emphasis on developing innovative models. They have a very strong internal

mechanism of accountability and transparency whereby projects are regularly presented

to the board and communicated to their partners. Furthermore, the Vantone Foundation

often runs capacity-building sessions with their community leaders to ensure efficient use

of funds.

70 Vantone Foundation, http://www.vantone.net/en/contents/427/1568.html

40

4) Red Cross Society, Guo Mei Mei

As mentioned, transparency has become particularly important over the past year

because there have been some cases of corruption in social sector organizations that has

had the impact of in some ways delegitimizing the sector. In particular the Guo Mei Mei

case of June 2011 had a negative affect on peoples attitude towards the Red Cross

Society. Guo Mei Mei, a 20-year-old female Chinese micro blogger, flaunted her

extravagant lifestyle by posting photos of herself with luxury sports cars. She claimed to

be a general manager at a branch of the Red Cross Society. Although it turned out that

she did not work for the Red Cross, this case began to raise questions about the

legitimacy of not only the Red Cross Society but also other philanthropic organizations in

China. Data from the China Charity and Donation Information Center under the Ministry

of Civil Affairs suggests that there is a connection between this case and general giving

in the social sector. Certainly the case of the Red Cross scandal came up in many of my

interviews as a significant impediment to giving. Public

donations to charitable organizations dropped from March to May 2011 from

6.26 billion Yuan to 840 million Yuan, with a decrease of 86.6%, from June to August

2011.

The Guo Mei Mei case added to problems that the Red Cross was already facing

as a result of the information that came out earlier in the year regarding a huge amount of

funds being embezzled. There was exposure of a 9,859 Yuan ($1,510) dinner bill for Red

Cross staff in its Luwan, Shanghai branch.

Despite the quick handling of the case by the organization, public trust in the charity

plummeted as

news of the scandal spread. According to a report in the Beijing Times, the image of a

receipt was uploaded onto a sina.com micro blog. Many netizens were soon complaining

of the Red Cross' extravagance, and wondering where their donations were going. As one

of China's major charities, China's Red Cross enjoys heavy subsidies and its staff is often

treated as if they were government officials. It claimed that the money had already been

reimbursed but also appealed to

41

all the Red Cross branches in the city to discipline themselves. There have been other

cases of corruption with the Red Cross. Southern Weekly reported that a staff member of

the Red Cross said they would send over 1,000 tents worth 13 million Yuan ($1.9

million) to the

earthquake-stricken area. The extortionate prices for the tents raised questions as to how

the funds were being spent.

5) Henan Soong Ching-ling Foundation

An accusation was made against The Henan branch of the Soong Ching Ling

Foundation that they have been 'abusing and profiteering from donation money' including

investing in a US$6.2mn land project in Zhengzhou, Henan's capital. According to Toby

Webb, This is a serious allegation as it is not just anonymous donations that have gone

astray but from poor farmers who have invested in the Foundation's "public welfare

medical insurance" scheme, run by the Foundation, and supposedly offering better

interest rates than the local banks. The financial experts argue the land deal makes the

fund fragile and any collapse would mean huge losses for very poor farmers.71 However,

others argue that the Soong Ching Ling Foundation are merely exploring innovative ways

of addressing social problems and are therefore not inherently corrupt.

6) Initiatives supporting corporate social responsibility

One initiative supporting corporate social responsibility in China was initiated by

Business for Social Responsibility (BSR). BSR was founded in 2002 and has the mission

to work with businesses to create a just and more sustainable world. In Spring 2011, I had

the opportunity to work with BSR to conduct monitoring and evaluation of a partnership

they were supporting between Nike and the China Youth Development Foundation. This

partnership helped to promote transparency in both organizations. Nikes community 71 Toby Webb, China charity tales: Where philanthropy meets corruption http://tobywebb.blogspot.com/2011/11/china-charity-tales-where-philanthropy.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Tobywebbssmarterbusinessblog+%28Toby+Webb%27s+Smarter+Business+Blog%29

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investment strategy uses sport as a tool for positive change. This strategy leverages its

brand, experience, and passion for sport to improve the lives of the disadvantaged and

inspire others to take action. Nike launched a program to ignite a grassroots youth

movement using sports to tackle social causes. To achieve the desired impact in China

the company sought a partnership with the China Youth Development Foundation

(CYDF), which also engages and empowers youth. CYDF has networks nationwide and

the resources to connect with local government and local communities to expand Nikes

program. More information can be found about Business for Social Responsibility and

this partnership in Appendix 8.

7) Other Initiatives promoting transparency in social sector organizations in China:

Other organizations that are making significant headway in promoting

transparency amongst social sector organizations are the Social Venture Network, Qifang

and the Beijing Charity Association. The Internet, in particular social media, is playing an

important role in the promotion of transparency. One such organization is Qifang. Qifang

is an open platform and online community whose mission is to give everyone a way to

pay for their education. Leveraging the latest in web and community technologies, Qifang

efficiently brokers data and relationships through a transparent platform built on trust to

connect and assist everyone involved in education finance. Qifang is committed to

maximize social benefits through a sustainable business model.72

The government recognizes the importance of contributions and wants to facilitate

this by making the social sector organizations worthy of funding. The Ministry of Civil

Affairs has made significant steps in utilizing the web to promote transparency. They

have a very robust web portal for civil society, both nationally and locally. Karla Simon

suggests that, The national web portal73 has online application and filing mechanisms

for acquiring registration or changing registration and for filing annual reports. On the

basis of such reports, all CSOs (civil society organizations) are awarded grades and they 72 Qifang, http://qifang.com/pageAboutUs.htm?pageName=aboutUs 73 www.chinanpo.gov.cn

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are required to prominently display the plaques showing the grades awarded in the annual

inspection. These processes are obviously designed to enhance accountability and

transparency for CSOs. After a report unveiled by a subdivision of the Ministry of Civil

Affairs showed that about 75 percent of charitable organizations in China either lack or

have no guidelines on the disclosure of information, MoCA has taken these facts into

account and has responded in important ways. First, in the Five Year Plan for the

Development of Charity published in July 2011, MoCA pledged to adopt rules that allow

for an organized and regulated system that will encourage further charitable initiatives

from various enterprises. Specifically these will be: (i) the implementation of the charity

law; (ii) regulations pertaining to community fund raising and volunteerism; and (iii) new

regulations for the management of social organizations (including foundations and non-

profit social enterprises). 74 If these initiatives are put into place, this will have

significant ramifications for the social sector in China.

8) Other types of organizations that are engaging in the social sector: Impact Investing

The Impact Investing space is an emergent sector in the world in general but

particularly in China. Impact Investing involves investing in social ventures or triple

bottom line companies, which are companies that are trying to, maximize their social,

financial and environmental impact. The development of metrics to assess social ventures

has been essential for the growth of the impact investing space. These metrics help to

ensure accountability of the businesses. One of the most successful that has been created

so far is the Impact Investing Reporting Standards (IRIS). Societal demand for such

standards plays an incredibly important role in encouraging the development of impact

investing. As Amy Domini argues, For socially responsible investors, impact starts by

changing the dialog. That's what is accomplished by setting standards to what you buy.

There was no such thing as a corporate social responsibility report until responsible 74 Karla Simon, Fashioning new government-mandated charity policies for accountability and transparency http://philanthropynews.alliancemagazine.org/fashioning-new-government-mandated-charity-policies-for-accountability-and-transparency/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+alliancemagazine%2FDeMY+%28Latest+from+Alliance%29

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investors demanded them. Now there are over 4,000 published each year, according to

the Corporate Register. There was no pressure on the Securities Exchange Commission

for greater disclosure until socially responsible investors raised the issue. There was no

baseline ongoing corporate social impact being studied until the research needed by my

field created it. Applying standards to what we buy has literally changed laws; it has

changed corporate behavior; and it has done this globally.75

There are a number of impact investing funds that are currently operating in

China that I had the opportunity to interview. For example, LGT Venture Philanthropy,

which is the Lichentensteins princely familys impact investing branch, has a presence in

China with most of their investments being $1 million or more. There are a number of

smaller funds such as the Lanshan social investment fund, the Yu fund and Transist.

Although it is early days, these organizations have the potential to really drive forward

impact investing in China.

9) Social Entrepreneurship

Social entrepreneurship is a relatively new concept in China. Meng Zhao suggests

that there are three forms of social entrepreneurship in China. There is shehui qiye (the

social enterprise), shehui chuangye (the social startup), and gongyi chuangye (the startup

for public good). The reason for these distinctions is that in Chinese the words social

and enterprise have different meanings than in English. The word social in Chinese

does not connote nonprofit, philanthropy, or charity, nor is it used in phrases like social

sector or social economy. In Chinese, the term public good has been used more

frequently to refer to philanthropy or charity. The word enterprise in Chinese contains

little implication of innovation, risk taking, or venture. It narrowly indicates business or

company. On the other hand, startup has a clearer reference to innovation and

venture.76 One of the challenges with the growth of the sector is the lack of government 75 Amy Domini, Want to Make a Difference? Invest Responsibly http://www.huffingtonpost.com/amy-domini/want-to-make-a-difference_b_834756.html 76 Meng Zhao, The Social Enterprise Emerges in China

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recognition of the term social entrepreneurship. Therefore currently no organization can

register as a social enterprise. Currently, it is not possible for organizations to register as

social enterprises. For social enterprises that have a revenue producing model, there can

be a challenge conceptually as to whether an organization that is doing good should be

allowed to also make a profit out of this. As with many other grassroots organizations,

the government neither bans them nor overtly gives them the right to operate. There are a

number of organizations, which help to support the emerging social enterprise sector. For

example, the Schoenfeld Foundations ECSEL Program. The ECSEL Program helps to

support some incredible social entrepreneurs through mentorship, training and seed

funding.77

77 ECSEL Fellows Program, http://www.ecselfellows.org/en/about-ecsel

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Chapter 4: The Business Environment

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Chapter 4: The Business Environment

As China positions itself more and more on the central stage as a world economic

power, it is challenged both internally and externally on the need to be both accountable

and transparent. Internally, companies, especially those set up to supply the West with

branded labels made in China, are under scrutiny to incorporate more responsible

business practice and CSR (corporate social responsibility) into their working

environments; Chinese workers are equally demanding better working conditions and fair

wages. On the international scene, there is pressure on China to comply with international

norms on disclosure for company listings on the stock markets and to allow the Chinese

currency to float on international currency exchanges. The more powerful China gets,

the more it will be subject to intense scrutiny about its trading practices. China has a long

way to go to meet these demands, much of which is dependent on an evolving rule of law

The CCP is being forced to take account of these issues of