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Foreign NGOs In China. New Regulations Make It Even More Difficult To Get There From Here.

By Dan Harris on Posted in China Business, Legal News

Meg Davis, founder and Executive Director of Asia Catalyst, just came out with a post nicely updating the sitauation for Non Governmental Organizations (NGOs) in China. The post is entitled, “China’s New Nonprofit Regulations: Season of Instability,” and it focuses on China’s new regulations for NGOs.

The post starts out discussing how NGOs can register as a not for profit in China only via government sponsorship, which effectively places the new NGO under the government’s control. To avoid having this massive weight on its back, many NGOs simply register in China as a commercial enterprise (typically a WFOE), which in turn subjects it to normal commercial tax burdens.

China’s new regulations create a two-step hurdle that makes it more difficult for these “commercial enterprises” to get funding:  

- All NGOs have to open a special bank account for the foreign donations they receive.

- To open one of these special bank accounts, the NGO has to provide an application, a copy of their business license, a notarized contract with the overseas donor explaining the purpose of the donation, documents proving the overseas donor is legally registered in its home country, and, if the notary is unsatisfied with the documentation, other materials.

The notarization requirement is the real roadblock because “notarization of the contract between donor and grantee” requires “both the donor and the grantee . . . to have representatives physically present at the notarization office in person.” Obviously, having representatives for both the FOREIGN donor and the Chinese LOCAL NGO physically present at the notarization office is, at the least, a significant inconvenience, and at worst, a deal-breaker. All of which is leading to a serious drought of funding for NGOs in China.

All of which begs these questions: why stifle NGOs and why now? What do you think?

  • http://www.chinalawandbusiness.com Thomas Chow

    Ultimately, China wants to control every sector: SOEs, NGOs, the media, etc. Having control of GONGOs is no longer good enough for the government and particularly the Ministry of Civil Affairs. NGOs need to be governed to as closely as possible too.
    It’s a sad reality, and I blogged a little about this issue in April when Dr. Wang Zhenyao had to respond to criticisms about international NGOs coming into China, but I have a feeling that the same concerns apply: NGOs end up taking positions that are not 100% in line with the government and they take PR positions that end up opposing/criticizing the government.
    It’s ironic b/c the Chinese government is allegedly looking to hand out money to good NGOs, and supposedly can’t find enough in country to work with. (something I didn’t blog about, but that Dr. Wang stated many times) The government will be the government, which has its ups and downs. It’s just a major downer for NGOs. Obviously I have no good solution since it’s a Catch 22 for NGOs trying to exist as WFOEs.

  • James G

    Lots of NGO’s are just window dressing for govt. agencies, political or religious organizations, etc. I don’t think it is that China is stifling NGO’s as much as they are regulating the increasingly large amounts of capital that they involve. Personally, I think it’s prudent to keep an eye on the crusaders, especially when they have deep pockets.
    The NGO sector is now the eighth largest economy in the world — worth over $1 trillion a year globally. It employs nearly 19 million paid workers, not to mention countless volunteers[1]. NGOs spend about $US15 billion on development each year, about the same as the World Bank[2]. But while the NGO movement has been growing rapidly since the 1980s, the union movement has been in decline. Why, and what does this mean for unions and public services?
    http://www.world-psi.org/Template.cfm?Section=Home&CONTENTID=11738&TEMPLATE=/ContentManagement/ContentDisplay.cfm
    “But we’re here to help you!” spoke the horse…

  • http://www.allroadsleadtochina.com All roads

    Dan.
    As I posted on Thomas’s site a while back, and on my own site, I am seeing this in a very different light. That, while there are certainly going to be annecdotal cases of where this new regulation is going to be a problem ,the fact is that this regulation is one that shows maturity in the system. Not something to fear.
    First, a bit of context surrounding the regulation. IT is geared not at NGOs who are registered in China as NGOs, but at NGOs who are NOT registered, and those registered as companies (primarily through rep offices and WOFEs).
    Second, given the loosely worded regulation, the regulation itself is almost certainly going to be used on an ad hoc basis. i.e. your NGO / cause found itself outside the bounds of someones lines, and they will use this as a tool against you. The banks are simply not set up to vet which funds are coming from overseas foundations on a systematic basis. It is possible tht there are a few groups whose accounts are tagged, but it is certainly not all of them.
    Third, any international NGO operating in China is more than likely going to have a HK structure, and that structure (acting as a filter for China business) will allow it to receive foundational money into the HK account.. and then transfer into China. Which would remove the need to haul a US donor over with their original business license.
    That being said, this regulation is again pointed at organizations that are not licensed as NGOs, and is another way that the government is trying to push NGOs to formally register with their system. There is a belief that registering with Big Brother is some nasty process that will open one’s group up to the influence of external parties who do not have the NGOs best interests at heart, but that is a GROSS misunderstanding of the system that is in place. Many groups, foreign and domestic, hav partnerships that are not just strong, but mutually beneficial.
    It is not a partnership process that results in the iNGO is handing over control of management and money to the partner organization, but typically one where the iNGO has worked with that GONGO on a project before and has developed a measure of comfort. For the larger iNGOs (WWF for example), they may have a ministerial partnership at the national level, and then a series of local partnerships for projects. All of which would have (ok.. should have) been built on the merits of the arrangement.
    Over the last 8 years, what I have seen is nothing short of a transformation in the way that NGOs are treated in China. NGOs were completely underground 8 years ago across China, but that is certainly not true now. Sure, there are the annecdotal closures that take place, but the fact is that NGOs are being trusted on a far higher level to not only do their work, but to do their work in partnership with the government.
    This regulation for me is simply one more step in the right direction. It is a step that will hurt some short term, but again, the question of impact should not be solely focused on the iNGOs and small NGOs to begin with. It should be viewed at from the system, and whether or not this regulation will create NGOs that are more stable, less reliant upon foreign donations, in the best position to scale their programs, and develop improved integration with the local needs that exist.
    To read more about my thought on the regulation, you may click here: http://collectiveresponsibility.org/en/new-donation-regulations-governing-overseas-dontions-chinese-ngos-released-2
    R

  • http://www.chinalawandbusiness.com Thomas Chow

    In response to Rich, I would agree with all of his comments that things are definitely better. It’s very true, and that’s one thing that Chinese officials have maintained truthfully–there is a lot more respect for NGOs. Rich’s perspective comes from working directly in the Chinese NGO sector, both with domestic and international NGOs. My perspective comes from the broader international NGO sector, which I have been working with for the past 2 years, and there is a great deal of frustration because there are few places that seem to boggle the minds of NGO leaders as China. (though to be honest, I can’t say that I’m all that surprised)
    Many NGOs do use the HK structure, but one thing I’m hearing from the major banks (usually with Donor Advised Funds–DAFs and their own charity divisions), Charitable service providers, and the international NGOs themselves, is that they no longer want to use this method. They want in to China directly, and they want in as NGOs. But the Chinese government control scares them. (since NGOs are usually by default and nearly by definition against close government intervention)
    So they go in as rep offices and WFOEs, and are being targeted by the regulation. And of course, as Rich mentions, the regulation will probably used at an ad hoc basis, which doesn’t help easy any anxiety.
    So in sum, I agree things are much better and this officializes Chinese NGOs. It just isn’t enough for the international sector, and all I ever hear is griping from them because “positive” change isn’t happening fast enough.

  • Abe A.

    China does not want foreign powers getting up all in its business. How would the US feel if a whole bunch of Chinese NGOs started to take up issues in the United States?