The more wealthy they get and the more they increase in number, the more China’s upper class comes under scrutiny. Over the past several months, that has been especially true regarding philanthropy or the absence of it among high wealth individuals. In a report feaaured on the Hauser Center blog (translated from Chinese) Xu Yongguang of China Youth Development Foundation discusses several barriers to philanthropy for the country’s high wealth individuals. While Xu makes good points, I think he has a very conservative view of the role of the wealthy in philanthropy and their ability to engage in charity.
“The social responsibility of China’s rich cannot be measured by the donation amount.”
If companies don’t have solid CSR practices (producing quality products, providing healthy and safe environment for employees, etc), it doesn’t matter if they are donating money to charity. Charitable giving, says Xu, is voluntary whereas social responsibility is a must.
- On one hand I agree. Forced charitable giving is, to say the least, an oxymoron. Socially responsible business practices are a crucial part of every company as they protect employees, consumers, and the general public and can lead to job creation, environmental conservation, and healthier communities. But, charitable giving is a necessary component to alleviating social ills. Many issues are beyond the scope of a company’s operations (such as surgeries for children with birth defects) yet wealthy companies and individuals are in a position to greatly impact people in need. It does, however, require a dose of altruism.
“China’s charity system is confusing to navigate—to which organizations should one donate? And how would the money be used?”
Large donations to the government in the name of charitable donations undermine real charitable giving. While some of these donations are genuine, Xu says, “donations made during non-disaster or ‘peaceful’ times could be seen as a bribe for power, economic benefits, political recognition, or social prestige.” The general public, including the wealthy, are unclear about how their donations are used, which further undermines charities and charitable donations. For those who do have an interest in charitable giving, they are dissuaded by the lack of transparency and the possibility of fraud.
- There’s no doubt that the system is complicated and has a long way to go, both in how the government promotes charitable giving and how the wealthy engage with it, but not giving at all is hardly an option. High wealth individuals who invest in the social sector now have the ability to shape it into a more transparent and effective arena where impact is tangible. Qualified advisors who understand the sector are also an untapped resource for those looking to invest in China.
“China’s tax system has limited stimulating effects on the rich, discouraging the development of private foundations.”
While hefty inheritance taxes in America encourage the wealthy to donate large amounts to charity and into their own foundations, China does not have such a tax and is unlikely to have one anytime soon, according to Xu. The Treasury and National Taxation Bureau require private charitable foundations (which include family foundations) to generate an annual profit of 8 percent and pay 25 percent in taxes. Not only does this de-incentivize the wealthy from starting foundations, but Xu says, “existing foundations find themselves gradually shrinking instead of expanding their impacts.”
- Irrespective of any tax, donating large sums of money rather than bequeathing ones wealth to family members is a radical step away from cultural norms. Additionally, while tax deductions for charitable giving are tricky, the government does has created some favorable policies for both individual and corporate donors. For individuals, donations of up to 30 percent of their taxable income can be deducted. Corporate donors are also eligible for a deduction of 12 percent or less of the company’s annual profits.
“Charities need professional management as well as wealthy investors.”
The 800 plus private foundations that have been established since the Chinese government allowed their creation in 2004 “lack professional and effective administration, especially when it comes to distributing their funds,” says Xu. While Xu is hopeful that China’s charity system will improve, he doesn’t seem to encourage the creation of more foundations until better systems are in place. Instead, rather than starting something new, Xu says the wealthy can give to existing foundations. The trick, of course, is to find organizations that are transparent and effective.
- This suggestion is perhaps the best option for would-be philanthropists. Much like Warren Buffett’s decision to give his money to the Gates Foundation, Chinese wealthy could build up an existing foundation through their donations and by extension be an advocate for more transparent practices in that foundation. Their influence then has the potential to contribute to a more positive giving culture in China.
Ultimately there are a lot of barriers to keep the wealthy from donating money to needs in China, but perhaps we too often look at this issue from a glass half empty perspective. After all, if a wealthy entrepreneur wants to help disabled people, they have the resources and certainly the creativity to figure out a way to do that. Therefore, the issue is more one of “want to” than “can.” If and when the wealthy do decide to give in force, they will most definitely do it on their own, distinctly Chinese way hopefully because they have been encouraged by examples in China and other countries and compelled by the needs of their own people.
—Georgia
Perhaps the greatest impediment to donors in any country, and also one additional explanation for creation of large foundations and gifts directly to government, is the absence of significant scale charitable organizations asking for money. The charitable impulse has always existed in Asia generally and China specifically. But "altruism" alone does not give a prospective major donor the knowledge or confidence to make a significant charitable investment. Major Donors need choices and they need to be invited to give. Once that happens on a larger scale, as it has begun to do at some of China's universities, China's wealthy will give much more and more often.
Posted by: Jay Frost | December 22, 2010 at 12:35 AM