Philanthropy in China

The Asian Venture Philanthropy Network (AVPN) has recently published the Philanthropy in China report, which they prepared with the support of the Rockefeller Foundation and which looks at the state of philanthropy in modern China.

Just like in Russia philanthropy is growing in leaps and bounds in China. The turning point came in 2008, the year when China hosted the Olympics and Sichuan province was hit by a devastating earthquake. And while these two events were extremely different in nature, they both played a key role in boosting donations to the non profit sector by a factor of 35 from USD 440 million in 2007 to USD 16.1 billion in 2008. The thing is that the Olympics allowed China to seriously strengthen its positions as a global power while the most devastating natural disaster in the past 25 years helped the country mobilize public resources as never before. In 2017 overall contributions to non-profit organizations in China reached USD 23.4 billion. It still constitutes only a very small portion of China's total GDP (0.2%) but the rate at which charity contributions have been growing in recent years has consistently outpaced GDP growth in the same period. 

*converted using the annual average exchange rate for 2017
** an estimate

Sources: The Federal State Statistics Service, National Bureau of Statistics of China. Data for 2017.

The biggest role here is played by corporations and corporate foundations, their total contribution to charity donations amounted to USD 14.2 billion or 65% of all contributions in 2016. Half of them come from private companies and the rest come from state corporations. Corporations registered in Taiwan, Honk Kong and Macao are counted separately, as well as foreign businesses. The fact that corporate donations make up such a sizable percentage of the total is a result of, among other things, the growing pressure being put on businesses regarding their contribution to effecting social change. In addition, tax benefits offered to companies that donate to charity are also having a positive impact. The tax deduction for charity contributions can be as high as 12% of the annual profit while the corporate income tax is 25%. When it comes to what the 75 largest corporate charity foundations donate money to, the bulk goes to education, combating poverty, natural disaster relief, environmental protection and healthcare. By comparison, in Russia leading corporations focus their charity efforts on education, social projects, development of local communities and environmental protection. As of 2016 China had 1,002 officially registered corporate charity foundations. In Russia there are no official statistics on the number of foundations but it's unlikely that there are more than a few dozens.

Private donations, including sizable donations by individuals come second in total charity contributions. In 2016 they totalled some USD 4 billion or 21%, of total charity contributions. The more recent statistics for 2018 indicates that the top 100 Chinese philanthropists donated USD 3.3 billion to various charity organization and educational institutions. And according to the Annual Report on China's Philanthropy Development the 12 leading fund raising platforms in China helped raise about USD 387 million in 2017. What is interesting is that unlike businesses major private philanthropists are far more active when it comes to supporting educational projects, with 41% of their donations going to education, compared with just 25% of the total given to charity by businesses. To a large extent this stems from the fact that most wealthy individuals prefer to support their alma mater and the amount of money they donate to this cause is quite significant. These funds are being primarily directed towards development of new university facilities, construction of libraries and research laboratories, as well as towards scholarships. And by contrast, when it comes to environmental protection individual philanthropists seem not to be interested in it at all.

Let's compare these data with our country (2016-2017)

*According to an estimate of the experts of the Center for the Management of Welfare and Philanthropy of the Moscow School of Management at Skolkovo
**Converted using the annual average exchange rate for the year

These statistics make for a most interesting comparison. The first thing that stands out is the sheer difference in the amount of mass donations, which are 5 times greater for Russia even though Russia has only a 10th of China's population. Even if we allow for the fact that we're only dealing with ballpark estimates here, the difference is still staggering. If we go by data provided by the CAF World Giving Index 2018, only 14% of China's population aged 15 or older (83% of the total population) ever give money to charity through donations to non-profit organizations. It's easy to calculate that on average they give less than USD 2.5 per year.

If we look at the difference in corporate donations, there are no surprises there, as the difference correlates to the difference in the size of the two economies and that makes perfect sense.

As for the large private donations, the difference we find there makes sense too. Even given the fact that the information about donations by major Russian capitalists is rather opaque, very approximate and the actual donations can be both bigger and smaller than these estimates. By the way, in 2018 China had 819 dollar billionaires while Russia had 106 according to the Forbes Ranking of the 200 Wealthiest Business People (in 2019 Russia only has 100).

And while the mechanisms used in corporate and mass donations are fairly standard in both Russia and China, in terms of big private donations China's pulled far ahead of Russia. Most capital owners allocate their funds to charity through four main channels: their own private foundations, charity trusts, special funds run by third party platforms, donor-advised funds and direct donations to non-profit organizations.

It's rather curious that charity trusts appeared in 1996, and by 2018 a total of 105 such trusts had been registered and they had USD 239 billion under management, with experts noting that those are very modest figures indeed. The main reason is the lack of any tax policy aimed at promoting the development of this mechanism. Meanwhile, special funds set up under the auspices of state run or simply very famous foundations enjoy tremendous popularity. They allow philanthropists not only to get tax exemptions but also reduce risks on account that the use of the funds that get donated is overseen by a professional team. And in the case of state foundations, the added bonus is good relations with the government.  

Donor-advised funds appeared in China only in 2017 thanks to the contribution that Social Venture Group made to the development of this mechanism. The first two donor-advised family funds were set up by the Bejing Yongyuan Foundation with USD 1.5 million being donated to them. Unlike special funds, donor-advised funds have no requirement that the money can only be donated to a single organization, philanthropists can pick and choose various projects or organizations they want to donate money to. In addition, donor advised funds can be managed by a third party, for example, an investment company while special funds are fully controlled and managed by the non-profit organization that sets them up. Just like in the case of charity trusts, the development of donor advised funds depends primarily on the quality and efficiency of incentive tax reforms.

The private charity foundation is by far the easiest to understand donation vehicle. In 2017 China had 6,332 registered charity foundations, which under Chinese law were categorized as fund raising foundations (32%) or private fund raising foundations (68%). But that's not the main difference between them. The thing is that according to expert estimates only 1% of private charity foundations offer grants, the rest are operating foundations that implement their own projects. This is a clear evidence of the lack of trust in non profit organization and serious doubts regarding their real effectiveness. Compare that to: In the US 92% of all foundations offer grants. Key areas that private funds direct the bulk of their donations to are education, combating poverty, healthcare, welfare, sustainable cities and communities. According to the Ministry of Justice of Russia, in Russia there are over 11 thousand organizations registered as foundations. The exact number of private charity foundations is unknown but there is growing interest in private charity, which is evidenced, for example, by the first Forbes ranking of the Top-20 Charity Foundations Set up by Russia's Wealthiest Business People.

In China the charity infrastructure or the ecosystem for supporting the sector is just emerging. It comprises foundations, incubators and accelerators, as well as state agencies, financial institutions, network organizations, foreign non-government organizations, academic institutions and analytical centers. But just like in the developed nations, the charity support infrastructure in China is suffering from lack of investments and its development is thus lagging behind the overall growth in the non-profit sector. This situation is made more complicated by the lack of reliable data about what's going on in the sector as a whole as well as in specific areas that charity organizations work in. By the way, this is cited as one of the reasons why foundations choose to work on their own projects rather than offer grants to outside parties. Nevertheless, the Chinese government is implementing a number of initiatives to change the situation. For example, the 2016 charity bill aims to formalize and professionalize the charity sector. The bill defines criteria that must be met by socially-oriented organizations that want to be treated as charities, and creates a framework for the development of charity trusts, however, the lack of a charity promoting taxation policy still remains the main obstacle to the development of the sector. In 2018 amendments were passed to the bill under which all charity organization must disclose certain information about their activities, including their financial records, information about their projects and fund raising activities.

The key trends and opportunities in the development of the non-profit sector in China include:

- The formalization and professionalization of the sector. The new legislation is part of the overall policy aimed at creating standards in the sector. There is a growing need for professional service providers and intermediaries that can make the sector more efficient.

- Directing funds to areas that were unpopular in the past. For example, the development and support of youth has surprisingly only recently drawn the interest of professional donors as a possible focus for their efforts. Environmental protection and combating climate change are also gathering momentum as targets for charity efforts. And even investments in the infrastructure of the sector are growing, slowly but surely.

- Creating sustainable financial models and scaling. Municipal authorities are increasing support of non-profit organizations and social entrepreneurs not through grants but by means of hiring non-profit organizations as providers of social services. Many foundations are experimenting with new social investment tools such as interest free loans or purchase of stakes in socially oriented companies. There is a growing number of businesses that focus on implementing sustainable business models and creating positive social effects.

- Going outside China. Chinese charity organizations are not exactly going global en masse, but there already do exist several precedents of Chinese organizations getting involved with international efforts. As a rule, these are Chinese corporations. One good example is Fosun Group, a major conglomerate and investment company that owns Club Med and Thomas Cook. They participate in healthcare, education, youth entrepreneurship programs in the markets where they operate, including the US and Europe. Or take the famous Chinese philanthropist Mr Chen, who heads up Shanda Group and who has donated along with his wife USD 115 million to create a neural sciences research center at the California Institute of Technology.

- Revolutionary development of technology. Like in the rest of the world, new technologies are lowering the barriers to philanthropy. As was mentioned above, crowd funding platforms are already raising almost USD 400 million per year. Gamificaiton of charity is underway, new creative solutions are being released to bring new mass donors on board with charity projects.

At the same time the sector is facing a number of challenges that are yet to be tackled and that are closely linked with the current trends and opportunities. These include the development of infrastructure for the charity sector, the wider introduction of the grant-based model as replacement for charity foundations running their own projects, setting up partnerships with progressive Chinese companies which can bring some valuable resources to bear and act as a bridge between China and the rest of the world. And, naturally, it is the development of human capital because the sector badly needs new professionals and future generation leaders.

On the whole, this quick overview of the modern day Chinese philanthropy demonstrates that philanthropy in China and Russia are currently roughly at the same level of development with one country being ahead of the other in some areas and lagging behind in others. In terms of development and maturity the two country's charity sectors are quite comparable. And this conclusion can be drawn not just from the purely quantitative data, but also from the similar challenges faced by the non-profit sectors in both Russia and China. On the one hand, this means that studying each other's experience can certainly help implement innovative solutions in less time and with greater efficiency. On the other, it means both countries need to find new ways to give an impetus to the development of their non-profit sector and quite often such new incentives can only be found outside the community of the equals.