The Give and Take of Charity

By CHU HAN

IN early 2010, a netizen posted on a well-known website forum his personal doubts regarding donations raised by Zhang Ziyi after the Wenchuan Earthquake. He raised two issues. First, Zhang Ziyi claimed that she donated RMB one million, but only RMB 910,000 was recorded. Second, no one knows the whereabouts of the US$ one million donation she raised in Cannes. Under pressure from the media, Zhang Ziyi coughed up the remaining sum, but the tide of outrage did not subside. People began to discover problems concerning her donations were not limited to this infraction, and her claims about the amounts donated changed from occasion to occasion.

Moral deficiency in certain public figures, and even enterprises, has to be suspected. Legitimate donors rightfully worry about donation channels that lack auditing, transparency and supervision mechanisms. In fact, there is a public outcry for a charity law to regulate charitable fundraising.

Top entertainers are either in the spotlight or the hotseat of charity fundraisers.

 

“Hidden Rules” of

Philanthropy

The phenomena of “charity fraud” like Zhang Ziyi’s have existed for quite some time. It involves not only public figures, but also wealthy entrepreneurs. Charity fraud refers to “promised donation unfulfilled” (simply not delivered), and “promised donation underfilled” (submit less than stated).

According to a bulletin released by the Civil Affairs Department of Hubei Province, after the 2008 snow disaster in southern China, only RMB 73.83 million of the RMB 106 million donations offered fell in place.

In April 2009, the sponsor of the China Charity List published for the first time a blacklist of more than 30 entrepreneurs who did not keep their word after they promised to donate. Under threat of public scorn, quite a number of them made up their deficit before the blacklist was published.

Famous writer Yu Qiuyu had his charity fraud exposed in June 2009 after the Wenchuan Earthquake. Under pressure from netizens and the media, Yu Qiuyu had to donate books to children in the disaster area to show that his impulse to give was genuine.

The regulations in China about charitable donations lack operational provisions, procedural rules for implementation, or measurable standards. As a result, charitable behaviors are not regulated by the law. Certain entrepreneurs and public figures use this institutional deficiency to conduct charity fraud. On one hand, they make idle promises just to build up their image as philanthropists; on the other, they are reluctant to keep their word, doing their utmost to delay donations. When they do come through, often the sums have dwindled down from the original.

An entrepreneur in Beijing said frankly: “Promising donations then withholding them” has become a kind of game in the philanthropic field. Some entrepreneurs and public figures have promised generous donations on public occasions, then offered various excuses for failing to keep their word.

“Ours is a medium-sized enterprise, which is not profitable every year. It’s not that we don’t want to make good on our promises. It is difficult for us to give out such a big sum,” an entrepreneur said helplessly. “We were moved by the atmosphere of the conference, and indeed wanted to donate. I promised a figure just out of excitement,” he said.

A website survey indicates that only 4.98 percent of respondents thought that the backing off was understandable due to the subsequent economic slowdown. “A promised donation should be within one’s reach. Otherwise it is merely hype.” Some respondents hold that the charities of entrepreneurs should be approached with a systematic analysis of validated conditions. “To those enterprises affected by the economic recession, if they cannot keep their word, this is forgivable. If they can and just refuse to do so, their promises should be regarded as so much attention-seeking and self-aggrandizement.”

Tu Feng, a doctor with the Chinese Academy of Social Sciences, believes that charity fraud should be eradicated by any means, but if the donor encounters a genuine emergency, a supervisory and management mechanism should be in place to check out the conditions.

Call for Philanthropic Legislation

According to the latest statistics released in the 2009 Blue Book on Charities, the 2008 donation tally in China totaled RMB 107 billion, 3.5 times the 2007 figure, and individual donations from the Chinese mainland totaled RMB 45.8 billion. People have never ceased to inquire about the whereabouts of donated funds and materials.

Transparency is still a problem for the departments implicated in the management of charitable funds. If charitable organizations cannot win the trust of the populace, why should they be entrusted with their money? The failure to apply funds to areas of need no doubt has something to do with a lack of supervision of charitable undertakings. Doctor Tu believes that distrust in organized donation reflects a regulatory and institutional deficiency.

The State Council issued a series of guidelines concerning donations for the Wenchuan Earthquake. The provisions stipulate the methods of information release, statistics and fund management. But this is only a special case receiving special attention. Obviously, China needs long-term institutional guarantees that apply to regular charity operations. Therefore, it is high time to put the draft of the Charity Law on the legislative agenda.

“China needs a basic law for the philanthropic field,” said Wang Zhenyao, chief of the Department of Social Welfare and Charity Promotion under the Ministry of Civil Affairs. At present, there are six laws and regulations concerning charities and donations for public welfare. They are: the Law of the People’s Republic of China on Donations for Public Welfare Undertakings, the Law of the People’s Republic of China on the Red Cross Society, Regulations on the Registration and Management of Social Organizations, Regulations on the Registration and Management of Foundations, the Corporate Income Tax Law, and Regulations for the Implementation of the Individual Income Tax Law. To better regulate charitable behaviors, a fundamental law is badly needed.

For instance, what is the destination of donations received by charitable organizations? There is a common belief that the government is best suited to handle donated funds, but this does not make everything legal. Deng Guosheng, president of the NGO Research Institute of the School of Public Policy and Management, Tsinghua University, remarks that it is possible that 80 percent of the funds donated by individuals and enterprises already flow into government accounts, becoming its “extra tax revenue,” which is used in disaster-hit areas as part of an overall plan.

Professor Wang Ming of Tsinghua University warns that people should be on guard against turning the charity law into a new tax law, “It should be a law to promote public welfare.”

 

Local Attempts

In fact, appeals for legislation on charitable undertakings appeared five or six years ago. This issue was also one of the preoccupations of the annual NPC and CPPCC sessions.

The Chinese government has long been aware of the importance of this kind of legislation. In 2005 the Ministry of Civil Affairs began drafting the Charity Law. In 2006, the Draft of the Law on Promoting Charity Undertakings was listed in the annual law-making plan of the State Council, to be submitted to the Standing Committee of the National People’s Congress for examination in 2007. The draft unexpectedly aroused vigorous internal debate, causing it to be revised time and again, and it has never made it to the next step.

Jiangsu Province adopted, at the 13th meeting of the Standing Committee of its 11th People’s Congress, the Provisions on Promoting Charity Undertakings. It has 60 articles in eight chapters, mainly stipulating recognized charity organizations, and other matters regarding charitable donations and fundraising, charitable assistance and service, supports and rewards, the fostering of a charity culture, and legal liabilities. This local statute was put in force on May 1, 2010. This means that a breakthrough has been made in local legislation on charities.

Following that, Beijing, Hunan and Ningbo also put legislation on charities into their legislation plans for the 2010 standing committee of local people’s congresses. It is hoped that the promulgation of the Provisions of Ningbo City on Promoting Charity Undertakings and the Provisions of Hunan Province on the Management of Donations will be seen this year.

Zheng Yuanchang, chief of the Charity and Social Donation Section under the Department of Social Welfare and Charity Promotion of the Ministry of Civil Affairs, said that before the national Charity Law takes effect, various localities can enforce local legislation on charities, which will in turn promote national legislation on charities.

Treading in International

Footsteps

“The operation of Hong Kong and overseas charities should also be taken into consideration in China,” said Chiu Tsang Hok Wan, a Hong Kong philanthropist known as “Empress Charity.” After the Wenchuan Earthquake, China received donations of nearly RMB 100 billion, but little of it came from overseas NGOs. This is far less than seen in international disaster relief cases.

Chiu Tsang Hok Wan stressed that China should learn from the experience of other countries, especially in transparency mechanisms adopted by the United States.

It is reported that the American charity rating organization has evaluated more than 5,300 charities, ranging from four-star to zero-star ones. Meanwhile, it provides various criteria for the top ten: quite a few concern negative indexes, such as the list of top ten in terms of rebate rates, financial instability, and CEO salaries.

It also fingers the top ten hoarders of charitable funds. Once the reputation of a charity organization is in doubt, it is likely to be abandoned by the general public. Under such supervision, charity organizations strive to improve the integrity of their operations. Furthermore, the American government conducts close supervision of social charity organizations. It stipulates that they should report in detail the sources of funds and itemize expenditures for every fiscal year, so that the government can determine whether they comply with tax exemption rules. Tax exemption is linked to the survival and development of a charity organization. Supervision like this is an important guarantee of organizational transparency.

“The legal supervision of charities by the British government is worth learning about,” asserts Chiu Tsang Hok Wan. Britain was the first nation to regulate the charitable undertakings of NGOs. In January 2008, the Charity Commission of the British government released the statute entitled Charities and Public Benefit: Summary Guidance for Charity Trustees. Together with the 2006 Charity Law, they are considered major milestones in the 400-year history of British legislation on charities.

Chiu Tsang Hok Wan holds that China should promulgate the Charity Law as soon as possible so as to promote the standardization of management, transparency in fund use and operational efficiency. Besides strengthening regulation and supervision of charities, it will in effect regulate the charity market and establish accountability criteria for the use and benefit of society at large. Meanwhile, public awareness of charities will then stimulate the social forces that drive successful charitable undertakings, and do so in a healthy way.