Tuesday, March 29, 2016

Charity Law FAQs

Below are some FAQs about the new Charity Law[1]. The FAQs reflect my own personal views. I’ll be posting revisions of these FAQs throughout the year as new questions and information arise, new developments take place, or my views change. Comments, criticisms and suggestions are welcome.

What is the Charity Law and when does it go into effect?

The Charity Law does the following: 1) defines the scope of the charity/philanthropy sector sector in China[2]; 2) regulates the establishment and management of charitable organizations and charitable trusts and their assets and activities; and 3) regulates the scope and management of charitable fundraising and donations, including more requirements for information disclosure by charitable organizations in order to promote greater transparency in the sector. 

The Charity Law was passed on March 16, 2016 and will go into effect September 1, 2016.

What is new (and not so new) about the Charity Law?

The Charity Law is the most comprehensive law on charity that has been passed in the history of the PRC. It is not exactly the first of its kind though. An Explanatory Note attached to the first draft of the Charity Law last October notes the existence of earlier, relevant laws such as the Public Welfare Donation Law (PWDL) and Trust Law. The PWDL, passed in 1999, defines the scope of who can make public welfare donations (including overseas donors) and the nonprofit organizations qualified to receive those donations, the responsibilities of donors and recipient organizations, and preferential policies for charitable donations such as tax exemptions. 

How is the Charity Law different from other relevant legislation?

The Charity Law is a much more comprehensive law than the PWDL. It has a section (Chapter 4) on Charitable Donations and articles laying the responsibilities of donors and recipient organizations, and the management and supervision of charitable organizations and services that are more detailed than what can be found in the PWDL.

It also has several new sections. It has an important section (Chapter 2) allowing for the establishment of a new category of nonprofit, public benefit organization – the charitable organization. There is also an important section on Charitable Fundraising (Chapter 3) that broadens the scope for public fundraising and for the first time regulates online fundraising.  After the scandals in the philanthropy sector in 2011, the Charity Law also includes a section (Chapter 7) on Information Disclosure to encourage greater transparency and accountability among charitable organizations in how they carry out their fundraising activities and how donations are used.

The Charity Law also addresses new organizational forms touched on in other legislation such as charitable trusts (Chapter 5). There is a Trust Law that has existed since 2001 that allows for charitable trusts, but none have been established so far to my knowledge. In 2015, Jack Ma of Alibaba made news when he donated around $2.4 billion to set up a charitable trust outside of China, explaining that the regulatory environment for philanthropy in China was not yet mature enough.

What is positive about the Charity Law?

1) Language and intent are always important when we are talking about legislation, and the language and intent of the Charity Law are for the most part supportive of the development of charitable organizations and activities, particularly when compared to drafts of the Overseas NGO Management Law.

2) Compared with the PWDL, Chapter 1 of the Charity Law somewhat broadens the scope of what constitutes public welfare or charity. In defining the scope of charitable activities, it uses language similar to the PWDL, including the last catchall category of “public benefit activities that comply with this law.” How broad this last category is will depend on how the central and local governments implement and enforce this law. Will it include activities such as performance art events advocating against sexual harassment, or lawsuits defending labor activists? Only time will tell.

The Charity Law also broadens the scope of public welfare/charitable organizations and undertakings to include volunteers, charitable organizations and trusts, and urban and rural community organizations, but does not explicitly mention nonprofit public institutions which are a legacy of the planned economy. The PWDL was adopted in an earlier era when China was making the transition from a planned to a market economy and public institutions created during the prereform period were commonplace.

3) The Charity Law contains none of the corporatist language of previous regulations which imposed strict limits on freedom of association. In past regulations, it was common to see clauses that stated that only one social organization working on a particular issue area was allowed to register within a given administrative area, or that a social organization registered in an administrative area could only work within that area, or that a social organization would not be able to establish branches in other localities.

In what is the biggest change, the Law does not require charitable organizations to find a professional supervisory organ to be its sponsor before registering with the Civil Affairs department. The need to find an official sponsor, and thus be under the “dual management” of that sponsor and Civil Affairs, was in the past the biggest obstacle for nonprofits seeking to register.  Under the Charity Law (Chapter 2), organizations can directly register with Civil Affairs.  

Unlike previous regulations, the Law also does not place limits on the number of organizations per sector, on branch organizations, or on the geographic scope of an organization’s work.

4) The Charity Law provides more generous tax incentives, particularly for donors, although we still need to see how the tax departments promote, implement and enforce those incentives. One new addition in the final version of the law, for instance, can be found in Article 80 which states “the amount of charitable donations beyond the amount deductible from income tax for that year is allowed to be carried over into the calculation of taxable income over the next three years.”

5)  The Charity Law lowers barriers for charitable organizations by not requiring a minimum level of capital or assets to register (Article 9), unless those requirements are to be spelled out later in the implementing regulations.

6) The Charity Law lowers barriers for public fundraising organizations by allowing organizations that have been lawfully registered for two years to apply for public fundraising status (Article 22). In the past, public fundraising status has been very difficult to obtain and the criteria needed were never clearly spelled out.

7) The Charity Law does not require the charitable organizations to go through an annual inspection process by which they have to submit reports to their supervisory organs for approval. In previous regulations, nonprofit organizations needed to submit reports to their professional supervisory organ for inspection and approval. Under the Charity Law, charitable organizations no longer need professional supervisory organs and therefore will only be required to submit an annual work and financial report to the Civil Affairs department with which they are registered (Article 13).

8) It encourages the establishment of industry and professional associations of philanthropic organizations to promote self-regulation in the sector (Article 19).

What areas of the Charity Law could be improved?

1)    It could make clearer the relationship between charity and public

2)    It continues to use vague language in places such as Article 104 which states that charitable organizations engaging in or funding activities that endanger national security or the public interest will be investigated and have their registration revoked.

3)    There is too much emphasis on formal organizational status which discriminates against small, grassroots organizations or groups that are unregistered and informal in nature.

4)    The Law limits management fees to 10% of that year’s total expenses (Article 60). The 10% across-the-board limit is too low, hampers the ability of organizations to hire professional staff or rent appropriate venues for their offices, and does not take into consideration the different needs and expenses of charitable organizations.

5)    The Law still maintains a two-tiered system of public fundraising and non public fundraising organizations in which organizations with public fundraising status are grandfathered into the system generally because of their close ties with the government, not because of their management capacity and professionalism.

6)    The Law does not address the status of fundraising through social media platforms such as Weibo, or Weixin groups. Does the use of these platforms constitute public fundraising?

7)    The Law, in my view, places too much emphasis on transparency in a country where nonprofit, nongovernmental organizations have in the past been punished for being transparent about their work. It also has onerous information disclosure requirements that require staffing and other resources that may be lacking in smaller organizations, and conflicts with the requirement in Article 60 to keep management costs under 10 percent of total expenses.

8)    Article 95 calls for Civil Affairs departments to set up a credit record system for charitable organizations and their responsible persons, yet it does not specify what criteria would be used to assess the credit of the organization and responsible persons. This raises concern about how the organization and responsible person would be evaluated.

[1] I am using the ChinaLawTranslate’s unofficial, and still ongoing, translation of the Charity Law as a reference in addition to providing my own translation when needed.
[2] The terms charity and philanthropy (慈善) are sometimes used interchangeably with the Chinese term “gongyi” (公益) which is translated variously as “public welfare,” “public benefit” and “public interest.” There has been no official explanation of the distinction between charity and public welfare, and the text of this law treats them as synonymous. For example, Article 3 which defines the scope of charity in China includes poverty alleviation, social assistance, disaster relief, promotion of education, science, culture, health, sports, environmental protection and “other public welfare activities that comply with this law.”

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