China Charity Law Guidebook – Chapter 2: Legislative Background of Charity Law (Pt. 3)

We continue with Part 3 of our series on the China Charity Law and other regulations in  China in partnership with Shanghai Legal Center for NGO (ForNGO) with Chapter 2: of the China Charity Guidebook on the legislative background of charity law. For a full list of articles part of this weekly series, please visit our intro article or sector news page.

The legislation process of the Charity Law can be dated back to September 2005, when the Ministry of Civil Affairs proposed the Law on the Promotion of Charity Causes to the National People’s Congress and Legal Affairs Office of the State Council. In the beginning of 2007, the Ministry of Civil Affairs announced that the Charity Law had been incorporated into the legislation plan of the National People’s Congress. In 2008, the legislation program of the Charity Law appeared in the first category of legislative programming of the Standing Committee of the 11th National People’s Congress. After developing the legislation, the Charity Law (Draft) was submitted to the National People’s Congress for deliberation. On March 16, 2016, the Fourth Session of the 12th National People’s Congress deliberated and passed the Charity Law, deciding to implement it formally on September 1, 2016.

The Charity Law includes general provisions, charitable organizations, charitable fund-raising, charitable donations, charitable trusts, charitable assets, charitable services, information disclosure, promotional measures, supervision and administration, legal liability, and supplementary provisions, totaling 12 chapters and 120 articles. On the basis of past experience, the Charity Law addresses problems which have been highlighted in the charity industry in years past and regulates against the continuation of such problems in the future.

This chapter intends to constructively criticize China’s charity legal system as it existed prior to the promulgation of the Charity Law, and reveal the relevant legislative background for the promulgation of it. The problems which arose in the charity industry application process in China under the aforementioned system will also be discussed.

1. Historical Background

Over the course of history, charitable causes in China were jointly fostered and promoted by the government, religion, and folk capitals.

As early as the pre-Qin period, a governor at the time realized the necessity of charity and began to provide relief to the elderly, women, and children. Although this did not prove an effective long-term social relief mechanism, it laid the foundation for the national idea that “those who are widowers, widows, orphans, childless, disabled and suffer from diseases all can be raised”.[1] In the Tang and Song dynasties, with the emergence of Buddhism, charitable relief conducted by religion was gradually recognized by the government and common society. Charitable organizations managed by temples accepted, for the most part, those who were orphans, old, poor, and suffering from illness. Their operational expenses were covered by donations from devotees and the daily affairs were managed by the temple monks.[2] In the Ming and Qing dynasties, with the development of the social economy, charitable organizations in folk capitals gradually replaced the relief provided by religion and the government; social organizations established in folk capitals included medical bureaus, relief halls, shelters, and foundling hospitals. They appeared in many places, had a wider reach than official organizations at the time, and enjoyed strong financial support[3]. However, even in the period during which folk capitals and religion were thriving, the centralized government was still dominant. Even in the late Qing Dynasty, when the management power of the central government became weak, the folk charity system was still prevalent; it was during this time that the so-called “official” running of charities appeared. The operation of such charities in folk capitals became a unique phenomenon in China at the end of the Qing Dynasty and the beginning of the Republic of China.[4]

At the beginning of the founding of the People’s Republic of China, the government advocated the arrangement of social organizations for purposes of serving the public welfare.  However, the scope of these organizations was limited[5]. In 1981, the China Children and Teenagers Foundation, China’s first public welfare foundation, was established. It was founded for the purpose of developing the welfare of and educational causes for children and teenagers. With the promulgation of the Foundation Management Measures (September 1988) and the Regulations on Administration of Registration of Social Groups (October 1989), charitable organizations have been on a positive developmental trajectory. On February 24, 1994, Sun Yuemu published an editorial on the Rectification of Names for Charity in the People’s Daily and was given a voice by the mainstream media, which reoriented public thought towards charity in all circles of society.[6] Over the next five years, 172 social organizations appeared nationwide, with the social influence of the charity industry and social organization expanding consistently.[7] However, some organizations, while bearing the title of a folk charity, were still official charitable organizations, established by and relying on the government. Their responsible persons and staff were taken directly from the ranks of government and they were operated similarly to the government[8].

In the 21st century, social groups, foundations, and private non-enterprise units have been active in various social efforts, including environmental protection, poverty reduction development, the protection of the rights and interests of women and children, educational support, public health, social benefit, and labor employment, with their popularity extending from urban to rural communities and gradually to online virtual spaces. These communities provide help for various social groups and use innovative donation methods and welfare programs, such as WeChat sports donation groups[9] and Alipay’s “love” donation[10]. With the broadening reach of charitable organizations, the expansion of charity coverage, and the increase of practitioners and volunteers, the early laws and regulations of the industry have been unable to meet the current demand for charitable organizations. Official forces have been unable to popularize the demand for charitable activity and the industry is now in urgent need of support by new laws and regulations.

The rapid development of charitable organizations brings with it challenges and opportunities. There are frequent occurrences of charitable organizations being operated in a sub-standard manner. Examples include mismanaging finances, publishing false facts, and betraying public trust. Financial mismanagement in the charity industry has seen an increase in public dissatisfaction. It has resulted in a decline in total money donations due to a growing lack of trust in charitable organizations[11]. Society demands a reform of the regulatory system, calling for an improvement in the way charitable organizations are managed.

2. China's Chaity Legal System before the Promulgation of the Charity Law

Before the promulgation of the Charity Law, China’s charity legal system was largely composed of mutually independent laws and regulations and grouped into four main legal systems.

2.1 Organizational Law System

Before the promulgation of the Charity Law, in order to both establish a code of conduct between social organizations and regulate their organizational structure, the government established a series of laws and regulations. These included both general laws like the General Provisions of Civil Laws and specialized laws and regulations, such as the Red Cross Law of the People’s Republic of China, as well as the means of registration for different private non-enterprise units. The former stipulates the establishment conditions, organizational structures, internal management, rights and obligations, and other important issues of social organizations; the latter stipulates the establishment and organization of a specific type of social organization. Relative to more general laws and regulations, these provisions play an important role in the treatment of specialized matters.

On October 1, 2017, before the implementation of the General Provisions of Civil Law, the General Principles of Civil Law stipulated that the establishment of social groups by “government authorities, business institutions and social group legal persons” must ensure their legal personhood[12]. The classification and definition of social groups in the General Principles of Civil Law were too broad and generalized, meaning that the regulation of codes of conduct and the management of social organizations were imposed on such specialized laws and regulations.

Before the promulgation of the Charity Law, there was a lack of legislation about codes of conduct and the management of social organizations. The most well-known regulations at the time—i.e. the Foundation Management Regulations, the Regulations on Administration of Registration of Social Groups, and the Provisional Regulations for Registration and Management of Private Non-enterprise Units—were all specialized regulations promulgated by the State Council, which stipulated the establishment, registration, change, and termination conditions of foundations, social groups, and private non-enterprise units. They made clear the organizational type, capacity, and behavior of each. These three types of social organizations are among the most prevalent in China.

There are not many regulations in China for private non-enterprise units. The Provisional Regulations for Registration and Management of Private Non-enterprise Units, promulgated in 1998, is classified into general provisions,  jurisdiction, registration, supervision and management, penalty, and supplementary provisions. These stressed the regulation of registration procedures, dissolution conditions, supervision and management of private non-enterprise units, and other rights and obligations linked to the administration of government. There were no specific requirements for internal governance, organizational settings, codes of conduct, the business scope, or the financial management of private non-enterprise units. According to Article 4[13] of the Provisional Measures for Private Non-enterprise Units, such units cover a wide range of industries, including but not limited to education, health, culture, science and technology, sports, labor, and legal services. The private non-enterprise units in various sectors of society and industry are to be registered with different governmental authorities and governed by the relevant administrative authority; if the organization of private non-enterprise units is stipulated in law, it is evidence that the laws are redundant. Therefore, the Ministry of Civil Affairs has different registration requirements and management provisions for private non-enterprise units in different industries.

In 2004, the Ministry of Civil Affairs published its Foundation Management Regulations and abolished the Foundation Management Measures published and implemented by the State Council in 1988, thus setting up a new legal framework for the development of the modern foundation. In 1988, the charity industry in China was still in its infancy, and the promulgation of the Foundation Management Measures played a key role in its development since, evidenced by the number of foundation registered in China from 1987 (0) to 1988 (11) to 1989 (54)[14]. Foundations were rare in China before 1988, and the lack of practical experience made the 14-article Foundation Management Measures an advanced legislation. To avoid stifling the development of foundations, only their administration was regulated, which referred to their establishment, change, and supervisory procedures. Basic behavioral regulations, the financial review of foundations, and the manner in which foundations accepted foreign donations were also regulated. By 2004, the total number of foundations registered in China approached nearly 5000[15], and the code of conduct and registration standards could not meet their development and expanding business scope. Corresponding management issues attracted the attention of authorities, leading to the publication of the Foundation Management Regulations. Considering the range of activities and broad business scope of foundations run on financial subsidies, in addition to the basic legal provisions—e.g. establishment, change, dissolution mechanism, organizational structure, supervision and management—foundation management regulations advocated strongly for financial management[16]. They also regulated how foundations are to accept donations, provide funds externally, distribute management expenses, use property, and conduct accounting.

Compared with the Regulations on the Administration of the Registration of Social Groups, the Charity Law refined the registration and filing system of social groups and strengthened the supervision of social groups.

2.2 Charity Tax Law System

The role of the charity tax law system is to encourage people from society to participate in charitable causes through preferential policies, the advocacy of charitable causes, and the reduction of financial burdens on social organizations and donors, thereby freeing them to focus on their objective to serve their target populations[17]. The charity tax law system can be divided into a public welfare donation tax preference system and a non-profit enterprise business income tax preference system.

Many of the assets of social organizations in China come from charitable donations incentivized through tax preferences. The charity tax law system, consisting of laws such as the Law of the People’s Republic of China on Public Welfare Causes, the Corporate Income Tax Law, and the Individual Income Tax Law, aims to establish a series of preferential policies for charitable donations. Individual Income Tax Law and Corporate Income Tax Law respectively stipulate about the public welfare donation expenditure tax of enterprises and individuals: “the part of the individual income for donations to educational causes and other public welfare causes shall be deducted from the taxable income in accordance with the relevant provisions of the State Council.”[18]; and “the public welfare donation expenditure incurred by enterprises, if within 12% of the annual total profit, is permitted to be deducted when calculating the taxable income; if more than 12% of the annual total profit, it is permitted to be deducted when calculating the taxable income within three years after carry-over.”[19] Chapter 4 of Law of the People’s Republic of China on Public-Welfare Cause Donation describes the preferential measures for donations and the natural persons and individual businesses who enjoy the individual income tax preferences for their donations to the public welfare[20]. The donations of overseas organizations qualify for an import tax and import VAT preference.[21] Various ministries and departments of the State Council, especially the Ministry of Finance and the State Tax Administration, carry out public welfare donation tax preference policies through the establishment of departmental regulations. The Notice on Issues of Income Policy of Public Welfare Donation Enterprises makes clear the tax preference of equity donations. The Notice on Relevant Issues of Tax Reduction and Exemption for Imported Charitable Donations Materials of Social Groups and Foundations presents the procedures for reducing and exempting imported charitable donation material.

Tax preferences for non-profit enterprises allows more of their income to be used for charity. According to the Corporate Income Tax Law, “the income of non-profit organizations meeting the conditions” shall be tax-free income[22]. Concerning such conditions[23], the Rules for Implementation of Corporate Income Tax makes clear the tax-exemption income range of non-profit organizations[24], i.e. except as otherwise stipulated by the financial and tax departments of the State Council, income obtained by non-profit organizations shall not be included in the tax-exemption scope. The Notice on Issues of Tax-exemption Income for Non-profit Organization Enterprises further limits the scope of tax-exempt income for non-profit organizations (e.g. the donation of other units or individuals, other government subsidies except for tax-exempted financial allocations, membership fees, and non-taxed income and bank deposit yields from tax-exempt income).[25] In short, tax-exempt income from non-profit organizations is limited to donation income, the government’s financial allocation income, and their yields.

With the further refining of laws and regulations, the tax-exemption range of non-profit organizations is gradually narrowing; the procedure for the application of tax exemption by non-profit organizations has been released. The Notice on Relevant Adjustment Matters of Confirmation and Approval of the Pre-tax Deduction Qualifications for Public Welfare Donations reforms the application for the pre-tax deduction qualifications, exempts application reports, and makes clear the confirmation procedures for obtaining such qualifications. However, until the promulgation of the Charity Law, there had been no change in the procedure for non-profit enterprises to qualify for tax exemption.

2.3 Charitable Donation Law System

The charitable donation law system is divided into two parts: the legal regulations for targeted donations and the system regulations for public fund-raising. Before the promulgation of the Charity Law, China had no independent laws or regulations for public fund-raising. Most of the laws and regulations— e.g. the Law of the People’s Republic of China on Public Welfare Donation, Measures for the Management of Disaster Relief Donation, and Provisional Measures for the Management and Use of Bills in Public Welfare Donation—were aimed at targeted donations.

The Law of the People’s Republic of China on Public Welfare Donations was passed by the National People’s Congress and issued for implementation in 1999. The Law on Public Welfare Donations regulates the fund-raising channels and methods of social organizations, makes clear the legal relations between donors and charitable organizations, and specifies the management and use of donations, the reception of donations, and donated property, as well as other relevant legal liabilities.[26] However, there is a lack of regulations on public donations in the Law on Public Welfare Donations, which has not been modified since its issuing. At the beginning of 2008, southern China suffered from a major snow emergency and growing social donations for relief attracted the attention of the government. To ensure the legal rights and obligations of both donors and recipients and to regulate public fund-raising, the Ministry of Civil Affairs issued its Measures for the Management of Disaster-relief Donation in April 2008. Chapter 2 of these Measures states that, “organizations engaged in fund-raising” that have a “mission of disaster relief” may carry out disaster-relief collection activities. Moreover, the “civil affairs authority of the State Council” may carry out nationwide disaster-relief donation activities. Upon approval of the people’s government, the Civil Affairs Department may carry out disaster relief donations within its administrative region.[27] The Measures for the Management of Disaster-Relief Donations specify the range of governmental organization and states that, while the government is allowed to organize and carry out disaster relief fund-raising, it also must regulate social organizations doing the same. Only public donations intended for disaster relief can be used to carry out disaster relief, however much this may limit the role played by social organizations in this area[28].

The Interim Measures on the Administration of Invoices for Donations for Public Welfare, promulgated by the Ministry of Finance in 2011, corresponded to laws like the Measures for Management of Disaster Relief Donation, which were used to regulate public welfare donations. The use and popularization of donation receipts regulated the account inflow and outflow of public welfare donors and disclosed the financial purpose and source of public donations. At the beginning of 2016, for the promulgation of the Charity Law, and considering the fact that it requires that charitable organizations which accept donations issue donation receipts under the supervision of their finance departments, the Ministry of Finance and the Ministry of Civil Affairs jointly issued their Notice on Further Making Clear Relevant Issues of Receiving Public Welfare Donation Bills by Public Welfare Social Organizations. This Notice made clear the conditions, procedures, and regulations concerning the application for donation bills by social organizations.

2.4 Supervision and Management Law System

According to current laws and regulations, the supervision of social organizations includes two parts: administrative supervision and social supervision. Administrative supervision is the direct supervision of social organizations by a registration authority or professional supervisory unit; social supervision, on the other hand, is achieved mainly by social organizations’ actively disclosing information to the public.

The dual management system involves a registration authority and a professional supervisory unit, jointly supervising a system which includes all social organizations in China. It should be noted that, although social organizations in China are under dual management, supervision and management is still delegated to the registration authority and Civil Affairs Department.

The most important principle of social supervision is information disclosure. The Red Cross Law of the People’s Republic of China, promulgated in 1993, opened the door to information disclosure for social organizations; subsequent social organization legislation specified an information disclosure obligation for social organizations. Thus, the legal sphere of social information disclosure took shape. Coming into force in 2006, the Measures for the Information Disclosure of Foundations gave substance to the legal regulation of social organizations. The Chinese government aids and guides social organizations in information disclosure through various regulations. During the Wenchuan Earthquake in 2008, the Ministry of Civil Affairs issued its Measures for Information Disclosure and the Management and Use of Disaster Relief Materials for the Wenchuan Earthquake, proposing specialized requirements for information disclosure and obliging social organizations to disclose information on the management and use of earthquake relief materials. In 2001, the Ministry of Civil Affairs promulgated its Guidelines for the Information Disclosure of Public Welfare Charitable Donations, thereby regulating the content of information disclosure and determining its time limit and method of publication.

As the first step in detailing the information disclosure legal system of social organizations in China, the Measures for Information Disclosure of Foundations are divided into regular information disclosure and temporary information disclosure, and specify the time limit, content, and method of publication. Regular information disclosure denotes when foundations submit their annual accounting and work report to the registration and management authority before March 31 every year; within 30 days after review, the obligor managing such disclosure shall announce the full text and abstract of the report through the designated media[29]. Temporary information disclosure, on the other hand, denotes the means by which public fund-raising foundations, the obligor responsible for information disclosure, shall publish their income and cost expenditures from public fund-raising activities. They are also responsible, at the conclusion of such activities, for disclosing the total income and describing the use of the amounts collected[30]. A foundation, when disclosing information, shall announce the type of public welfare funding projects it is engaged in and reveal its application review procedures.[31] The regular disclosure of information is beneficial to all of society, in that it helps supervise of the daily operations of social organizations. The disclosure of temporary information helps maintain the rights and interests of donors, prevents affiliated transactions, and supervises social organizations so that they spend their funds responsibly.

The Guidelines for the Information Disclosure of Public Welfare Charitable Donations propose “information disclosure as the standard organizational practice, with non-disclosure only being allowed in special cases”, to urge social organizations toward embracing such disclosure as the means for efficient social supervision[32]. Society should be made aware of the operations of social organizations. Information pertaining to the application of charitable funds should be equally transparent by online or offline means—e.g. institutional publications, official websites, and public welfare charity project reports—so as to effectively supervise social organizations while guaranteeing the interests of donors.

The four major legal systems above have been gradually established over the course of the development of social organizations in China, as a response to the problem of a lack of consciousness about charity. One example is that many laws and regulations have a relatively low legislative hierarchy, being simply departmental regulations issued by the Ministry of Civil Affairs, Ministry of Finance, and other ministries and commissions under the State Council. However, these do not directly regulate the problems occurring in the charity industry. In addition, over the past 20 years, while private forces in China have been prosperous, existing laws and regulations have been unable to regulate social groups, foundations, private non-enterprise units, and charity trusts, nor preserve their social value. Moreover, online charity and other new phenomena also require legislation. Demand from society and the charity industry for an effective charity law system is rising. It is against this background that the Charity Law and its supporting legal systems were born.

3. Challenges Faced by China’s Charity Legal System

3.1 Unclear Definition

Before the promulgation of the Charity Law, the Law of the People's Republic of China on Donation for Public Welfare defined the social organizations working on public charity as “public welfare social groups”. It described them as “social groups, such as foundations and charitable organizations, which are established for the purpose of serving the public good”[33]. The concept of “public welfare social groups” has been used in many related laws and regulations, including the Regulations on the Implementation of Enterprise Income Tax Law[34]. It’s worth noting that before the promulgation of the Charity Law, the term “charitable organization” didn’t have a defined legal identity. In the abovementioned laws and regulations, social organizations were taken as a larger concept inclusive of foundations and charitable organizations, and regarded as equal to public welfare social groups, despite the fact that the Regulations on the Registration and Administration of Social Groups stipulates that a social group is merely a form of social organization. Charitable organizations were viewed as subordinate to public welfare social groups. Though, all social groups, save foundations, were to “aim to develop programs for the public good”.

The Enterprise Income Tax Law of the People’s Republic of China and Law of the People’s Republic of China on Donations for Public Welfare both give confused definitions of “charitable organization” and “social group”, hence local laws without a clear example to follow. In the Regulations on Charity Promotion of Jiangsu Province, “charitable organization” is taken as a new kind of social organization type, as stipulated in Article 9: “citizens, legal persons, and other organizations may apply for establishing charitable organizations according to the law”. A charitable organization’s governance structure, property management, information disclosure and other basic content are additionally stipulated. The Regulations on Charity Promotion of Ningbo City imitated the provisions of Jiangsu Province. In the Regulations on Charity Promotion of the Ningxia Hui Autonomous Region, “charitable organizations” are defined as non-profit social organizations possessing independent legal qualifications and working to develop programs for the public good; it includes social groups, foundations, and private non-enterprise units.

“Charitable organizations” have different definitions in different regions. Even within the concept of “charitable organizations”, the legal definition of “charity” is not clear. Due to the presently-lacking legal definition of charitable, many private non-enterprise units and social groups cannot sufficiently develop effectively or enjoy preferential measures, even though they are essentially charitable organizations.

Such a phenomenon is made clear in the preliminary chapters of the Charity Law. According to the Charity Law, “charitable organizations” are defined as non-profit organizations “aimed at developing charity activities in society”[35]. The vague concepts of “social groups” and “public welfare social groups” are eliminated, and instead foundations, social groups, and social service organizations (i.e. private non-enterprise units) are all placed under the larger concept of “charitable organizations”. Charity is thus made concrete. However, “charity”, “public welfare”, and “non-profit” are still too vaguely defined, and need further legal clarification.

3.2 Unsound Legal System Regarding Charitable Fund-raising

In China’s charity legal system, few laws and regulations relate to charitable fund-raising. With the recent popularization of online donations, the Internet has become the main means for donations from the general public via Sina Weibo, Alibaba, and WeChat. Online fund-raising has broken through the geographical limitations of traditional fund-raising[36]. It provides donors with a convenient channel to donate. From 2011 to 2013, donations obtained via “Alibaba charity baby” reached 0.37 billion; online donations comprised one-tenth of the total. Moreover, over 16 million people donated through the Tencent online platform[37].

However, only those social organizations with public fund-raising qualifications can raise donations from the general public, and such organizations are few. Many network platforms initiating projects don’t actually possess such qualifications, and also lack effective information disclosure channels. Provisions for online public fund-raising have always been a legal grey area, with had virtually no representation in state laws or regulatory venues, thereby causing issues such as charity fraud. Thus, while laws and regulations give the appearance of strict management, online fund-raising is in practice governed inadequately.

Next-generation online fund-raising platforms are classified into two types: (1) Online fund-raising platforms initiated by enterprises like Sina Weibo, Tencent and Alibaba; (2) Joint donation websites established by social organizations such as Lianquan, the Shanghai United Foundation, and the Guangzhou Charity Association. These social organizations set up network platforms to serve other social organizations, but do not withdraw any expenses from the raised money.[38] The second kind of online fund-raising platform is dominated by foundations and social organizations with public fund-raising qualifications; online fund-raising has changed the traditional fund-raising form, as it employs the Internet and online payment means. Although it is not essentially different from traditional fund-raising, the volume of people involved in online charity has made the requirement for information disclosure much more important. The former kind of online fund-raising has become the focus of the Charity Law. 

Feedback for online fund-raising is given in Article 23 (3) of the Charity Law, stipulating that, “charitable organizations using the internet to carry out public fund-raising shall publish their information on the charity information platforms agreed-upon or designated by the Civil Affairs Department and use their own website to publish as well.” In the Measures for the Service Management of Public Fund-raising Platforms, “public fund-raising platforms” are defined as “the service platforms of broadcast, television, newspaper, and network service providers and telecom operators serving charitable organizations to develop public fund-raising activities or release information related to fund-raising.”[39]According to the above interpretation, “developing public fund-raising activities” and “releasing fund-raising information” are different. “Developing public fund-raising activities” refers to conducting fund-raising via online fund-raising platforms, while “releasing fund-raising information” refers to disclosing the information to the public. Thus, according to Article 23 of the Charity Law, only charitable organizations are required to disclose information on the websites stipulated by the Civil Affairs Ministry of the State Council after the completion of online fund-raising activities. Charitable organizations utilizing online fund-raising activities are free from stipulation.

3.3 Charity Incentive Mechanisms Are Not Widespread

As mentioned above, charity incentives are realized via reductions in and exemptions from taxes. China has formed a set of tax relief mechanisms for donors and donation receiving organizations; however, social organizations and donors cannot enjoy such tax relief incentives. 

Only those donating to social organizations with pre-tax deduction qualifications can enjoy the privilege of tax exemption on donations. The obtaining of such pre-tax deduction is specified in the Regulations on the Administration of Foundations. Public fund-raising foundations shall have their expenditures used for the public welfare projects stipulated in their Articles of Association, using no less than 70% of their total revenue from the last year. Non-public foundations shall have their expenditures used for the public welfare projects stipulated in their Articles of Association, using no less than 8% of their fund balances of the last year. For other organizations, the method for obtaining pre-tax deduction qualifications is stipulated in Article 52 (1)~(8) of the Regulations on the Implementation of the Enterprise Income Tax Law. In addition, in the Notice on Related Problems of the Pre-tax Deduction of Public Welfare Donations, the Civil Affairs Ministry requires that, “a public welfare social group legally registered with the Civil Affairs Ministry for more than three years must have net assets no less than the registered active amount, have passed annual inspection for two continuous years before application, and have a social organization evaluation registration at or above 3A (inclusive of 3A); annual expenditures used for public benefit activities must be no less than 70% (70% included) for the three years before application, but at or over 50% of the annual total expenditures”. Only be meeting these requirements can a public welfare social group receive pre-tax deduction qualifications. Thus, only foundations and social groups are entitled to apply for pre-tax deduction qualifications. Private non-enterprise units are not included.

Based on this limitation, private non-enterprise units cannot receive pre-tax deduction qualifications; therefore, compared with foundations or social groups, private non-enterprise units have disadvantages in their incentives for social donations.

According to the Charity Law, although private non-enterprise units are allowed to receive charitable organization identification, the tax problems remaining from years past have not been clearly revised, nor has there been substantial improvement to the preferential tax policy.

3.4 Unreasonable Supervision and Management System of Social Organizations

As mentioned above, the supervision and management of social organizations can be classified into active supervision by administrative departments and collective supervision by social forces.

As to the active supervision by administrative departments, the dual management system has existed for a long time and has played an important role in the development of China’s social organizations. However, under the dual management system, it is not easy for social organizations to obtain registration. As there is an increasing demand for social organizations throughout society, there are calls for simplified legislation and a more direct registration system for social organizations[40]. On the other hand, although the registration authorities of social organizations have legal survey and law enforcement power, they have rarely exercised their supervisory powers. Professional supervisory units are the ones to frequently supervise and manage social organizations. This results in a conspicuous pattern. The registration authority has power but cannot implement it, while the professional supervisory unit knows well the daily operation of social organizations but has no right to enforce the law—this dynamic further hinders the government’s effective supervision of social organizations.[41]

Before the promulgation of the Charity Law, some regions already tried to break through the limitations of the regulations on the dual management system, and preliminary attempts to use the direct registration system were made. It’s stipulated by the government of Guangdong Province that, except for specialized fields and provisions, “professional supervisory units” were to be renamed “professional guidance units” and would not take part in the direct supervision of social organizations[42]. Shenzhen City stipulates that public welfare organizations may be registered directly[43]. In 2013, at the second plenary session of the 18th CPC Central Committee, social organization management system reform was discussed. Four kinds of social organizations were enabled to be registered directly. Subsequently, a direct registration system for public welfare organizations was established in Shanghai[44], Zhejiang[45], and other provinces and cities, so that the social organizations there could apply to the Civil Affairs Department for supervision. The Civil Affairs Department, as a supervision and management authority, is the proper depository of law enforcement powers, and is responsible for the operation of the social organizations under its jurisdiction. The functions which were originally separated are now integrated, so as to make the effective supervision of social organizations possible.[46]

Information disclosure is the precondition for the effective supervision of social organizations. According to the Research Report on the Transparent Development of Non-governmental Public Welfare Organizations of China in 2015[47], the basic information disclosure systems of China’s social organizations are barely satisfactory, reaching only 13.87 (a full mark being 18.58). Both governance and management and financial and project information disclosure require substantial improvement.


(Information disclosure conditions of various indexes of charitable organizations in 2015)[48]

The information disclosure of social organizations is unsatisfactory. On the one hand, the legal basis for approaching relief is lacking, and on the other, the information platform is lacking. Before the promulgation of the Charity Law, although related laws and regulations like the Guidelines for Public Welfare Charitable Donations Information Disclosure provided some guiding principles, neither the content of nor channels for information disclosure were stipulated or standardized. Related punitive measures were also conspicuously absent. As of the official promulgation of the Charity Law, although regional information disclosure platforms for social organizations were established in some areas, 71% of provinces and cities didn’t establish provincial-level informational platforms. There also lacked a national information disclosure platform for social organizations[49]. Due to the lack of information disclosure channels, social organizations wanting to publicly disclose this kind of information had no way to do so. Moreover, the desire for a new approach to relief further aggravated the inertia of social organizations’ information disclosure systems, finally triggering their near-total breakdown.

The legal basis for approaching relief (in terms of information disclosure) is stipulated in the Charity Law. The requirement for information disclosure via a “unified information platform” was also promoted, with a suggestion to design an industry-wide information sharing platform for China’s social welfare organizations. After the promulgation of the Charity Law, China has indeed gradually established information sharing platforms for charitable organizations. The perfection of these information disclosure channels will help all sectors of society supervise social organizations.

Apart from the abovementioned two supervision methods, Article 19 of the Charity Law requires that the charity industry establish an industry association to strengthen industry self-regulation on the basis of social and administrative supervision, and encourage self-governance in order to build a three-in-one supervision and management system.

3.5 Charitable Trusts and Charitable Services—Legislation Challenges in the New Era

Outside the existing legal system, the development of the charity industry has brought new challenges to legislation. In view of the rapid development of foundations, the topics of charitable trust, preservation, and appreciation have been raised, given that the original legislation cannot satisfy the demands of today’s charitable services.

Charitable trusts and the preservation of the value of social organizations are brand new topics in China. However, they are already developed in countries where the charity industry is relatively mature. According to the Blue Book of Charity, China’s Charity Development Report, issued by Chinese Academy of Social Sciences in 2016, stated that there were 4,871 foundations in China at the end of 2015, including 1,547 fund-raising foundations and 3,324 private fund-raising foundations, with total donations reaching 0.1 billion[50]. Different foundations had various ways of accepting donations, including stock rights, immovable properties, and intellectual property rights. This caused foundations to renew their methods for managing and using donations. China discovered this tendency in 2001. The concept of “charitable trust” was introduced in the Trust Law published in 2001, which was at the time expected to provide a new path for social organizations, especially foundations, to manage and use their properties. However, the development of charitable trusts has been stagnant for years, and very few institutions have implemented them.[51] After the promulgation of the Charity Law, the trust system has been further elaborated upon and grouped with the larger concept of “public welfare trust”. This specified that the charitable trust founding procedures were determined, the supervision authority appointed, the information disclosure mechanism designed, and the supervisor chosen. Charitable trusts thus became a concrete reality in China.

Before the promulgation of the Charity Law, China’s legislation on charity services was limited to the Volunteer Service Regulations. In fact, the scope of the charity service industry has gone so far beyond mere volunteer service that the redistribution of charitable resources is no longer only realized through volunteer service operations. The government’s purchasing of services, community medical services, a community sports center, and a vocational training center are all examples of the redistribution of charitable resources—evidence that although the charity service industry is not free, it is a force for good. The Charity Law has not yet regulated the related volunteer service industry, given that further planning is needed.

Mass participation is needed in charity service provisions. Dependence on volunteers is ultimately insufficient. Professionals engaging in charitable causes are the driving forces in the charity service industry. In charity-related laws and regulations, voluntary unpaid service is only stipulated in Article 2 of the Volunteer Service Regulations, while paid charity service and classified charity service lack corresponding regulations. The relationship between charitable organizations and their employees and volunteers is not clearly defined, which causes a vague delegation of responsibility and difficulties dealing with behavioral infringements and the occasional claim for compensation. The Charity Law has been relatively clear on the institutional framework for volunteer service, requiring a unified information database for the registration of volunteers[52], and specifying the problem of liability fixation in the event of infringement. However, regulations on the protection of the rights and interests of volunteers and labor relations between employees and social organizations are still lacking.

4. Further Developing China's Charity Law

After the promulgation of the Charity Law, the civil affairs administration department released its Regulations on the Administration of  Registration of Social Groups  (Draft for comment), Social Service Organization Registration Management Regulations (Interim Regulations on the Registration and Administration of Private Non-enterprise Units) (revised exposure draft), and Foundation Management Regulations (revised exposure draft) to solicit opinions from society for the purpose of constructing a registration management system for social organizations.

Although the abovementioned regulations have not yet been promulgated, to guarantee the effective implementation of the Charity Law, the Ministry of Civil Affairs has published more than 10 departmental regulations and normative documents, including Charitable Organization Identification Measures, Management Measures for Raising Donations from the Public, Measures for the Service Management of Platforms for Raising Donations from the Public, Notice on the Work on Charitable Trust Registration, and the Announcement on Appointing the First Group of Internet-based Information Platforms for Charitable Organizations. After the official promulgation of the Charity Law, supporting regulations such as the Guidelines on the Application for Charitable Organization Recognition, Guidelines on Charitable Organization’s Application for Obtaining the Qualifications for Raising Donations from the Public, and Notice on the Synchronized Development of Party Construction Work of Social Organizations upon Their Establishment and Registration will be published.

In addition, the General Rules of the Civil Law, implemented on October 1, 2017, determine the classification system of profit-making corporate entities, non-profit corporate entities, and special legal persons. It also defines public institutions, social groups, foundations, and social service organizations as non-profit corporate entities.

To summarize, after the promulgation of the Charity Law, China now views charitable organizations as more important than ever and has established a legal system to support their further development.


[1]Zhao Qian, Yi Jianjun: Development Course and Characteristics of Charitable Organizations in Ancient China, Xiangchao, Issue 6 of 2007, Page 19

[2]Zhou Qiuguang, Zeng Guilin: Brief History of Charity of China, People’s Publishing House, Edition of 2006, Pages 94-95.

[3]XueJianwen: Migration and Role of Folk Charity Relief Cause in Ancient China, Journal of Shanxi University (Philosophy and Social Science, May 2013, Page 96

[4]Wu Tao: Community and Local Society in the South Yangtze River Region in the Qing Dynasty, April 2001, Page 191

[5]Tian Kai, Organization Externality: Running of Organization under Non-coordinated Restriction- A Theoretical Framework of Researching the Relation between Charitable Organization of China and Government, Social Science Research, Issue 4 of 2004, Page 64

[6]Sun Yuemu, Rectification of Name for Charity, People’s Daily, February 24, 1994


[8]Zhou Qiuguang, Zeng Guilin: Brief History of Charity of China, People’s Publishing House, Edition of 2006, Pages 94-95.

[9]A donation activity was jointly launched by “WeChat Sports” and “Tencent Public Welfare” on the WeChat platform. People could calculate their daily steps with the small programs in the WeChat platform. When the steps reached 10,000, the donation could be launched, and the Tencent Fund would match the corresponding amount according to the number of steps decided to be donated by each user.

[10]The certified organization could publish the donation information through the “Alipay” network platform and Alipay users could donate money by clicking the link.

[11]The Charitable Donations Report of China in 2012 showed that the total donation amount in 2011 and 2012 had declined.

[12]Section III of General Principles of Civil Law of the People’s Republic of China, “Government authorities, business institutions and social group legal persons” Article 50: “The government authorities with independent funds shall obtain legal person qualification from the date of establishment. The business institutions and social groups with legal personhood, if not needing to handle legal person registration, shall obtain legal person qualification from the date of establishment; if it is needed to handle legal person registration, the legal person qualification shall be obtained upon approval of registration.”

[13]Article 4 of the Provisional Measures for Private Non-enterprise Units, the opening of private non-enterprise units shall be registered according to the following industries (businesses):

(1) Educational causes, such as private kindergartens, private primary schools, middle schools, schools, colleges, universities, private professional continuing education, private training (cramming) schools or centers;

(2) Health causes, such as private clinics, hospitals, private rehabilitation, health care, health, nursing homes;

(3) Cultural causes, such as private art performance groups, cultural clubs (activity centers), libraries, museums, galleries, celebrity memorial halls, art collection museums, and art academies etc.;

(4) Scientific and technological causes, such as private scientific research institutes (institutions, centers), private scientific and technological communication or popularization centers, scientific service centers, technical estimation institutes;

(5) Sports causes, such as private sports clubs, private stadiums, playgrounds, associations, and schools;

(6) Labor cause, such as private occupational training schools or centers, private employment agencies;

(7) Civil affairs causes, such as private welfare houses, nursing homes, geracomium, senior apartment, private marriage agency, private community service center (stations);

(8) Social intermediary services, such as private evaluation consulting service centers (institutions), private information consulting investigation centers (institutions), private talents exchange centers;

(9) Legal service industry

(10) Others

[14]Data source: foundation center network

[15]Data source: foundation center network

[16]Chapter V of Foundation Management Regulations, “Management and Use of Property”.

[17]Edited by Yang Tuanzhu, Charity Bluebook: Report on Charity Development of China (2014), Social Sciences Academic Press, May 2014, Page 35

[18]Article 6 of Individual Income Tax Law of the People’s Republic of China

[19]Article 9 of Corporate Income Tax Law of the People’s Republic of China

[20]Article 25 of Law of the People’s Republic of China on Public Welfare Cause Donation

[21]Article 26 of Law of the People’s Republic of China on Public Welfare Cause Donation

[22]Article 26 of Law of the People’s Republic of China on Public Welfare Cause Donation

[23]Article 84 of Implementation Regulations of Corporate Income Tax of the People’s Republic of China, “The non-profit organizations meeting the conditions referred to in Clause 26(4) of Corporate Income Tax Law shall mean the following organizations meeting the conditions:

(1) Perform the formalities for registration of non-profit organizations;

(2) Engage in public welfare or non-profit activities;

(3) The incomes obtained, except for the reasonable expenditure related to the organization, are all used for registration approval or the public welfare or non-profit cause in the Articles of Association;

(4) The property and its yields are not used for distribution;

(5) According to the registration approval or provisions of the Articles of Association, the remaining property of the organization after cancellation is used for public welfare or non-profit purposes, or re-donated by the registration authority to a purpose similar to the organization’s;

(6) The investors do not reserve or enjoy any property right for the property invested;

(7) The salary and welfare expenditure of the staff shall be controlled within the proportion specified, and the property of the organization shall not be distributed in a disguised form.

The management measures of non-profit organizations stipulated in the clause above shall be established by the financial and tax authorities of the State Council together with relevant departments of the State Council.”

[24]Article 85 of Implementation Regulations for Corporate Income Tax Law of the People’s Republic of China, “the income of the non-profit organizations meeting the condition referred to in Clause 26(4) of Corporate Income Tax Law does not include the income obtained by the non-profit organizations in engagement of profitable activities, except as otherwise stipulated by the financial and tax competent departments of the State Council.”

[25]Article 1 of Notice of the Ministry of Finance and State Tax Administration on Issues of Income Tax-exempted Income for Non-profit Organization Enterprises

[26]Zhang Lei, Wang Haidong, “Brief Discussion on Charity Legislation of China, Chinese Merchants, Page 64.

[27]Article 8 of Measures for Management of Disaster Relief Donation

[28]Article 10 of Management Measures for Disaster Relief Management

[29]Article 5 of Measures for Information Disclosure of Foundation

[30]Article 6 of Measures for Information Disclosure of Foundation

[31]Article 7of Measures for Information Disclosure of Foundation

[32]Article 9 of Guideline for Information Disclosure of Charitable Donations

[33]Article 10 of Law of the People's Republic of China on Donation for Public Welfare

[34]Article 51 of Regulations on the Implementation of Enterprise Income Tax Law: “the foundations, charitable organizations, and other social groups satisfying the 9 provisions given in Article 52 hereof”

[35]Article 8 of Charity Law of the People’s Republic of China

[36]Many places specify that the donation shall not exceed their administrative areas, such as Regulations on Promotion of Charity Cause in Ningbo, Regulations on Promotion of Charity Cause in Jiangsu and Regulations on Donation Collection of Shanghai

[37]Jin Jinping: Legal provisions on online fund-raising after implementation of the Charity Law, Journal of Fudan University (Social Science Edition), Issue 4 of 2017, Page 162.

[38]Jin Jinping: Legal provisions on online fund-raising after implementation of the Charity Law, Journal of Fudan University (Social Science Edition), Issue 4 of 2017, Page 162.

[39]Article 2 of Measures for Service Management of Public fund-raising Platforms

[40]Yang Sibin: “Concept Definition, Institutional Innovation and Implementation Prospect of Charitable Organizations”, Journal of Hebei University (philosophical and social sciences), September 2016, Issue 5, Page 18.

[41]Liu Peifeng, “Several Thoughts on Supervision System of Non-profit Organizations”; Chen Jinluo, Liu Peifeng: Supervision of Non-profit Organizations in the Transitional Society, Social Sciences Academic Press, first print on January 2010, Page 73.

[42]Article 2 (1) of Implementation Opinions of the People’s Government of Guangdong Province on Promoting the Sound Development of Charity Career

[43]Article 50 of Social Construction Promotion Regulations of Shenzhen Special Economic Zone

[44]Implementation Opinions of the People’s Government of Shanghai City on Promoting the Sound Development of Charity Career

[45]Article 1 of Notice of Zhejiang Provincial Department of Civil Affairs on Developing the Direct Registration Work of Four Kinds of Social Organizations

[46]Yang Sibin, Li Peiyao: “Concept Definition, Institutional Innovation and Implementation Prospect of Charitable Organizations”, Journal of Hebei University (philosophical and social sciences), Issue 9 of 2016, Page 18.

[47]Research Report on Transparency Development of Non-Governmental Public Welfare Organizations of China (2015) [EB/OL]. report. pdf

[48]Research Report on Transparency Development of Non-governmental Public Welfare Organizations of China (2015) [EB/OL].

[49]He Huabin: “Current Situation and Problem Research of Legislation on Information Disclosure of Charitable Organizations Under the Background of the Charity Law”, Issue 1 of 2017 of Chinese Public Administration, Page 39.

[50]Yang Tuan: Blue Book of Charity: China’s Charity Development Report (2016), Social Sciences Academic Press, first edition of June 2016.

[51]Wang Yuguo: “Development and Business Model of Charitable Trust in China”, Observation and Thinking, Issue of 2017, Page 65.

[52]Article 65 of Charity Law of the People’s Republic of China