2016: the Year of Regulation and a New Future for Civil Society?

Outside China, we look to the past as a guide to China’s future. Here in Hong Kong we continued the wonderful tradition of commemorating the 27^th anniversary of the June 4 massacre in Tiananmen Square with the usual candlelight vigil in Victoria Park. In Taiwan, where the Democratic Progressive Party now controls the presidency and legislature, the Legislative Yuan commemorated June 4 for the first time. Memory is used in the service of keeping alive the dream of a democratic China. 

Inside China, the Communist Party has chosen to brush out the past, or perhaps  more accurately to use the past as a guide to what should be avoided in the future. It is more interested in shaping the future, in particular the future of China’s civil society, in a way that will strengthen CPC rule and prevent the reoccurence of the 1989 movement. Memory is used in the service of keeping alive Xi Jinping’s “China dream” - a dream rooted in the future rather than the past.

The year 2016 could be said to be the year that future starts. It is the Year of Regulation when two national laws regulating the nonprofit, NGO, social organization sector were passed within the space of two months – the Charity Law in April and the Overseas NGO Law in May. These are the most consequential nonprofit laws passed in the history of the PRC.  Before this, you have to go back to the more esoteric Public Welfare Donations Law (PWDL, 公益事业捐赠法) passed in 1998 for a national law regulating the nonprofit, social organization sector. In contrast to the more narrow PWDL, the Charity Law and Overseas NGO Law are more detailed and comprehensive in scope. The former defines the scope of domestic nonprofit, charitable work in China, and regulates the establishment and operation of domestic charitable organizations and the sources and uses of charitable property and services. The Overseas NGO Law regulates the operations and activities of overseas nonprofit, non-governmental organizations and their represenative offices in China.

If these two laws had been the only legislation passed this year, one could still legitimately claim 2016 as the Year of Regulation. But we now have news that there is more on the way. In late May, the Ministry of Civil Affairs issued draft revisions of regulations for registration and management of two of the three types of “social organizations” (the Chinese term for nonprofit organizations): Civil Non-Enterprise Institutions (CNIs, 民办非企业单位) and Foundations (基金会). (Note: These draft revisions are being issued for public comment, so if you are interested in commenting, you can go to the Civil Affairs website here and here to download a copy of the revised regulations.) In the revised regulations, CNIs are now going to be called Social Service Organizations (社会服务机构), which is a more accurate description of this type of nonprofit and in line with the Charity Law which uses the new term instead of CNI. A draft of revised registration and management regulations for the third type – Social Associations (e.g. membership associations, 社会团体) – will most likely follow soon. 

We have been expecting revisions of these three sets of regulations since 2014 and thought they would be out earlier. What we did not expect was for the sequence to be reversed and have the Charity Law and Overseas NGO Law approved first, followed by revisions of these three regulations. If the revisions of the three regulations are all approved this year, then we will have seen passage of almost all the significant nonprofit laws and regulations in the time span of just one year.  This is unprecedented in the history of the PRC. A review of the history of regulation in the nonprofit, social organization sector shows three major peaks of regulation (See the table below). The first peak (in orange) comes in the 1988-89 period with the appearance of three regulations, two of which were issued after the demonstrations in June 1989. The second peak (in yellow) comes in the 1998-2004 period with the appearance of one new regulation, one new national and two revised regulations. The year 2016 (in blue) eclipses both of these peaks, with two comprehensive national laws, and potentially revised regulations on the registration and management of all three types of social organizations.

Year	Major Laws and Regulations Governing Social Organizations in China
1988	Regulations on Management of Foundations
1989	Provisional Measures on Management of Foreign Chambers of Commerce
1989	Regulations on Registration and Management of Social Associations
1998	Regulations on the Registration and Management of Social Assocaitions (revision of the 1989 regulations)
1998	Provisional Regulations on the Registration and Management of Civil, Non-Enterprise Institutions
1999	Public Welfare Donations Law
2004	Regulations on the Management of Foundations (revision of the 1998 regulations)
2016	Charity Law
2016	Overseas NGO Law
2016?	Regulations on the Registration and Management of Social Service Organizations (revision of the 1998 Provisional Regulations on the Registration and Management of Civil, Non-Enterprise Institutions)
2016 ?	Regulations on the Management of Foundations (revision of the 2004 regulations)
2016?	Regulations on the Registration and Management of Social Associations (revision of the 1998 regulations)

The Overseas NGO Management Law is Now Official

The Overseas NGO Management Law was passed yesterday at the 12^th session of the Standing Committee of the 12^th National People’s Congress by a overwhelming margin and will go into effect January 1, 2017. The final version of the law bears a slightly different name from the previous drafts: Law on the Management of Overseas NGOs’ Activities in Mainland China  (境外非政府组织境内活动管理法). It’s quite a mouthful, and in the future I’ll refer to it simply as the Overseas NGO Law[i]. We're fortunate to now have two unofficial English-language translations of the law at China Development Brief's English-language website and ChinaLawTranslate.

Over the last two months, we have now seen two major national laws passed regulating the nonprofit, NGO sector in China: the Charity Law (慈善法) and the Overseas NGO Management Law (see Tables 1 and 2 below). We are also expecting revised regulations later this year for the registration and management of the three different types of social organizations (China’s official term for nonprofit, nongovernmental organizations).  This state of affairs is unprecedented. The last national law passed in this sector was the Public Welfare Donations Law (公益事业捐赠法) in 1999, nearly 17 years ago. Since then, we’ve seen very few regulations governing this sector come out. The most recent was the Foundation Management Regulations 基金会管理条例 issued in 2004. During this period of time, we’ve seen the rapid growth of both Chinese and overseas nonprofit, nongovernmental social organizations. Yet the large majority of these organizations have operated in a grey legal area due to the lack of regulation. In short, as many experts have noted, these two laws address a serious need to regulate what has largely been an unregulated sector. The real question is whether they will do so in a way that will foster the healthy development of both Chinese and overseas nonprofit, nongovernmental organizations in China. An answer to this question requires taking a close look at the two laws, and more importantly, seeing how they are implemented and enforced over the next few years.

I’ve already provided an analysis of the Charity Law in past posts, and will continue to update that analysis in future posts. In my next post, I’ll provide my analysis of the Overseas NGO Law, with an eye on how it will affect grassroots NGOs in China.

Table 1: Timetable of national security-related NPC legislation

	1st reading	2nd reading	3rd reading	Approved	In Effect
Counterespionage Law		October 2014		November 1, 2014	November 1, 2014
Counterterrorism Law	November 3, 2014 (public comments)	March, 2015	December 2014	Dec 24, 2015	January 1, 2016
National Security Law	December 2014 (internal)	May 7, 2015 (public comments)	July 1, 2015	July 1, 2015	July 1, 2015
Overseas NGO Management Law	December 22, 2014 (internal)	May 5, 2015 (public comments)	April 25-28, 2016	April 28, 2016	January 1, 2017
Cybersecurity Law	July 6, 2015 (public comment)	N/A	N/A	November  6, 2016	June 1, 2017

Table 2: Timetable of other civil society-related NPC legislation

	1st reading	2nd reading	3rd reading	Approved	In Effect
Anti-Domestic Violence Law	November 25, 2014 (State Council, public comments)	August 2015 (NPC, public comments)	October 2015	December 27, 2015	March 1, 2016
Charity Law	October 2015 (public comments)	December 2015	March 2016	March 16, 2016	September 1, 2016

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[i] Two minor points on the translation of the Chinese name. The Chinese term jingwai (境外) really means anything outside of mainland China, including Hong Kong, Macao and Taiwan, so this is why I use the term “overseas” rather than “foreign”. Whether Hong Kong, Macao and Taiwan are really foreign would get us into a endless debate over the international legal status of these territories/countries. The same goes for the term jingnei (境内) which really refers to mainland China.

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

      welfare/interest/benefit.

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.

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[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.”