Several of our partners and readers have asked us about the news that broke this week from the AP about the impact of the new donor rules in China that went into effect on March 1st governing foreign donations. It wasn’t until a few days later that the China Philanthropy Times (CPT) broke the news domestically, though the article covers much of the private hand-wringing at many grassroots NGOs in the weeks prior. What does this all mean? Well, the answer is complex, so read on. You can read the actual Notice here in English and here in Chinese.
Here are some interesting tidbits that jump out about the Notice:
- It was issued by the State Administration for Foreign Exchange, and not the Ministry of Civil Affairs, which usually governs NGO matters.
- It requires NGOs to present a long list of documents to their local bank in order to retrieve the foreign funds. This includes showing documentation proving the authenticity of the funder as a nonprofit in the home country, as well as committing the nonprofit to a specific usage of funds. In some cases, it also requires original copies of operating licenses for both funder and nonprofit and for representatives of both parties to jointly show up at the bank.
- For the first time, donation agreements between foreign funders and unregistered nonprofits OR commercially registered nonprofits in China must have the grant agreement notarized in China. (More on this later)
- An addendum gives a list of government-run NGOs (GONGOs) that are exempt from needing to follow the prescribed procedures.
- Make no mistake, this is about tracking which groups abroad are giving in to China, with potential insights into politically sensitive groups exerting influence.
First some background that you may already know: there are millions of NGOs in China (the AP article says 3 million) of which only a small fraction are legally registered. The drumbeat for legal reform to allow the easing of registration has sounded loudly for years, and it remains unheeded so far at least from a macro level. As a result, the vast majority of nonprofits in China are unregistered and operate out of personal bank accounts OR are registered as commercial businesses as a work-around. Among these are countless international NGOs and some of the best regional or sector nonprofits in particular areas such as education, HIV/AIDS work, and the handicapped. Moreover, for many grassroots NGOs that do eventually receive the coveted nonprofit legal status from the government, it is usually after operating for years in a legal netherworld either as a legal non-entity or as a company. Being unregistered or commercially registered is simply a difficult reality of a being a grassroots nonprofit in today’s China.
So here is the “so what” we learn from the China Philanthropy Times (CPT) article and our conversations on the ground here. This Notice does not particularly hamper GONGOs, international NGOs (which have for years figured out creative ways to get foreign funding into China), or legally registered NGOs from receiving foreign funds. According to legal experts, the Notice especially impacts grassroots non-registered and commercially registered NGOs, the largest segment of the nonprofit sector. How? They now have to get their donation agreements notarized. On the surface, that would seem harmless and even like good news…finally, our funds can be legitimately counted as donations even if we aren’t registered as a nonprofit! But not so fast. Here is where the process gets choked up: it is effectively impossible for these groups to get things notarized in China. First, there are the issues of whether Chinese notary offices can even read and understand English documents (highly doubtful, but easy to fix). More critically is the issue of how a notary will be able to certify and validate the usage of funds spelled out in the donation agreement? In practice, few notaries would sign off on what they cannot verify. The CPT article documents two separate cases of nonprofits seeking to get a notary for a donation and being turned away. In one case, the notary official reviewed the Notice and said, “The process is effectively impossible.”
One could argue very optimistically that since this Notice is new, that the process will be ironed out over time with more granularity to the requirements. However, the notary process also requires that both the funder and the NGO have legal representatives come together to the notary and produce their original registration documents(!) Few foreign funders will fly over to China simply to help a nonprofit process a project grant. It effectively raises the cost of operations for China’s grassroots nonprofits significantly. This is the main concern of many of our nonprofit partners who receive foreign funding.
What will happen to these grassroots groups, which form the majority of the sector? The not-so-hidden secret of these grassroots Chinese nonprofits is that for years they have almost exclusively received their funds from overseas, since China’s domestic philanthropy market has been nascent and weak. There is conjecture that now perhaps they will have to turn to China’s newly burgeoning ranks of private foundations to fill in the gap. But these two groups have previously hardly communicated at all. And the CPT article notes that Chinese private foundations historically have not chosen to work with grassroots groups due to their perceived relative lack of influence and PR-building power. One can hope that they will see this need and pick up the slack over time. But what to do in the meantime?
Says Professor Jia Xijin of Tsinghua University’s NGO Research Center, an oft-quoted expert on China’s nonprofit sector, “The legal barriers [for these grassroots nonprofits] is so high, and oversight is lax. A negative trend is that now the government has not loosened the political environment but has increased the process management, bringing more difficulty to the ability to operate…If this issue is not resolved, it will stifle the growth of these organizations.”
We will be watching this issue closely, so stay tuned…