China Charity Law Guidebook – Chapter 5: Charitable Fund-raising & Chapter 6: Charitable Donations (Pt. 6)

We continue with Part 6 of our series on the China Charity Law and other regulations in China in partnership with Shanghai Legal Center for NGO (ForNGO) with Chapters 5 and 6 of the China Charity Guidebook with an overview of charitable fund-raising and charitable donations (click the corresponding links to jump to each section). For a full list of articles part of this series, please visit our intro article or sector news page.​​​​​

Chapter 5: Charitable Fund-raising

1. Charitable Fund-raising ABC

1.1. Charitable Fund-raising Does Not Mean Public Fund-raising

According to Article 21 of the Charity Law, fund-raising refers to the collection of financial assets by charitable organizations, including both public fund-raising and targeted fund-raising.

Charitable organizations may carry out targeted fund-raising as of their date of registration. Those intending to carry out public fund-raising activities need to acquire the qualifications to do so. Article 22 of the Charity Law states that charitable organizations that have been legally registered for two years may apply for a public fund-raising certificate with the Civil Affairs Department with which they registered. As an exception, however, Civil Affairs Departments may issue public fund-raising certificates directly to foundations and social organizations. 

Prior to the enactment of the Charity Law, there were six local regulations[1] covering public fund-raising, broadly defined. For example, Article 3 of the Shanghai Fund Raising Regulations states that public fund-raising refers to “the funding contribution solicitation to the public for the public welfare purpose”; Article 2 of the Guangzhou Fund Raising Regulations provides that “the Regulations are applicable to open public fund-raising to the public by the charitable organizations in its municipal administrative region to be used for public welfare undertaking and the relevant administration activities”.

Therefore, after the enactment of the Charity Law, we must distinguish between what fund-raising means (public fund-raising, to be used for the public welfare, and targeted fund-raising, to be used for a specific purpose) and how it is understood societally or colloquially (general fund-raising from the public).

1.2 Distinguishing between Personal Help-seeking and Fund-raising

Personal help-seeking is not within the purview of the Charity Law, given that the essential feature of personal help-seeking is “self-interest”. To be covered by the Charity Law, an activity must be related to the “public-interest”.

The Charity Law states that “organizations or individuals that do not have a public fund-raising certificate cannot carry out public fund-raising activities”, which implies that personal help-seeking is forbidden by law. However, although personal help-seeking (including begging, making a living by performance, etc.) is not charitable activity as such, it is not forbidden. It would be impossible to forbid individuals from seeking help from the public.

It is important to note that “it is illegal for individuals to carry out public fund-raising”. This is because personal help-seeking is not public fund-raising, legally speaking.

On August 30, 2016, to coordinate with the enactment of the Charity Law, the Ministry of Civil Affairs, State Administration of Radio, Film, and Television, Ministry of Information and Technology, and the Cyberspace Administration of China jointly issued their Measures on Administration of Public Fund-raising Platform Services. The Measures have distinguished charitable fund-raising from personal help-seeking, stating that “whenever the individuals release help-seeking information by radio, television, newspaper and network service providers, telecommunication operator for solving its own or family difficulties, the radio, television, newspaper, network service provider, telecommunication operator shall mark the risk prevention notice to the public in the prominent position and notify that the information is not for charitable public fund-raising and the publisher shall be liable for its truthfulness.”

The aforementioned provision also indicates that on the legal public fundraising platform, there is fund-raising information released by charitable organizations as well as personal help-seeking information released by individuals. Public fundraising and personal help-seeking are different in terms of their obligations. The information released by charitable organizations usually has the organization as its supervising party.

1.3 Public Donations Shall Not Be Solicited Without Public Fundraising Qualifications

The Charity Law requires charitable organizations to obtain public fundraising qualifications. Article 22 states that “where the organization meets the requirements of having a sound internal management system and is operating according to the rule, the Civil Affairs Department shall issue the public fund-raising certificate; where the requirements are not met, the Civil Affairs Department shall not issue the public fund-raising certificate and the reasons shall be explained in writing.”

Measures on Administration of Public Fund-raising by Charitable Organizations released by Ministry of Civil Affairs (effective as of September, 1 2016) defined the threshold for charitable organizations to obtain public fund-raising qualifications in detail. “Organizations that have been legally registered and recognized for two years may apply for a public fund-raising certificate after meeting the following conditions:

  1. Set up an internal governance structure based on the relevant laws and regulations, as well as the Articles of Association. The council could then make a decision about whether the executive person’s qualifications meet the relevant regulations, and also if all the members are performing their duties in good faith;
  2. No more than one-third of the board members are serving in the same or affiliated organizations and none of them are close relatives;
  3. No more than one-third of the board members are non-local citizens; the organization’s legal representative shall be a local citizen;
  4. The secretary-general is full-time. The chairman of the board cannot serve concurrently as the secretary-general. There are full-time workers liable for the activities of their organization;
  5. Charitable organizations registered with the Civil Affairs Department of the people’s government above the provincial level should have their board of supervisors consisting of more than three supervisors;
  6. They are registered for taxation and performed tax payment liabilities;
  7. They participated in the social organization rating with a rating of 3A or above;
  8. They have not been enlisted in the abnormal catalogue at the time of application;
  9. No administrative penalties due to the violation of relevant laws or regulations have been imposed within two years of an organization’s application for public-fundraising qualifications.”

1.4 Organizations and Individuals Without Public Fund-raising Qualifications May Adopt the Form of Cooperative Fund-raising

According to the Charity Law, organizations and individuals without public fund-raising qualifications have no right to solicit funds from the public; however, Article 26 states describes the cooperative fund-raising model for organizations and individuals without such qualifications and offers a channel for them to participate in public fund-raising. Article 26 states that “organizations or individuals that do not have a public fund-raising certificate may cooperate with charitable organizations that have a public fund-raising certificate. The charitable organization shall carry out the public fund-raising and manage the donations collected.”

1.5 Public Fund-raising Information on the Internet Shall Be Released in the Platform Designated by the Ministry of Civil Affairs

According to Article 27 of the Charity Law, radio broadcasters, television stations, newspapers and journals, as well as internet service providers and telecommunication operators shall inspect and verify the registration certificates and public fund-raising certificates of charitable organizations using their platforms. This assumes that public media platforms will supervise the activity of such organizations using the Internet for fund-raising.

On December 18, 2014, the Guiding Opinions of the State Council on the Promotion of Sound Development of Charitable Undertaking, released by the State Council, provides that radio broadcasters, television stations, newspapers and journals, as well as internet service providers and telecommunication operators shall inspect and verify the legality of fund-raising activities organized by charitable organizations using their platforms. This process includes verifying registration certificates and fund-raising qualification certificates. In other words, two years prior to the enactment of the Charity Law, the State Council detailed the supervisory duties for those managing public media platforms.

After the enactment of the Charity Law, a series of regulations relating to public fund-raising through public media platforms have been promulgated:

  1. Measures on Administration of Public Fund-raising Platform Service (effective as of September 1, 2016)
  2. Basic Technology Regulations on Internet Public Fund-raising Information Platform of Charitable Organizations (effective as of August 1, 2017)
  3. Basic Administration Regulations on Internet Public Fund-raising Information Platform of Charitable Organizations (effective as of August 1, 2017)

2. Practical Guide

2.1 Do All Fund-raising Activities Directed at Specific Targets by Charitable Organizations Fall Under the Category of Targeted Fund-raising?

According to the Charity Law, charitable organizations engaged in targeted fund-raising activities shall specify the scope of their targets, such as the initiators, members of the board, and members of the group. The article states that the meaning of public fund-raising is the same as the public fund-raising definition provided in the Regulations on the Administration of Foundations, but the scope of targeted fund-raising is narrower than the definition of non-public fund-raising. Targeted fund-raising organized by charitable organizations is only to be carried out among the initiators, members of the board, and members of the group. At present, even though there is no official written document to interpret the concept of targeted fund-raising, the Ministry of Civil Affairs has provided one, however narrow it may be.

There are different opinions in academic circles on this subject. Some believe that the scope of targeted fund-raising is not limited to the kind of targets listed above, and thus might include other considerations, such as the interests of entities or individuals looking to engage in charity. An example of such an entity would be the working unit of an individual initiator or an entity transacting frequently with charitable organizations[2].

Article 29 of the Charity Law states that targeted fund-raising shall not use the methods stipulated in Article 23. The purpose of this provision is to prevent public fund-raising from being conducted under the guise of targeted fund-raising.

The form of public fund-raising as described in Article 23 of the Charity Law is shown in the following table:

No.

Type

Specific Form

1

Field fund-raising

Setting up a collection box for donations in a local public space.

2

Organizing local charitable performances, competitions, sales, exhibitions, auctions and gala dinners for the public.

3

Fund-raising through public media

Radio, television, newspaper and journals, and the Internet.

4

Other means

Other public fund-raising methods.

According to the Interpretation of the Ministry of Civil Affairs, the form of public fund-raising above cannot be adopted and used for targeted fund-raising.

Nevertheless, based on alternative interpretations, the forms of public fund-raising presented in Article 23 must have indefinite targets. Thus, such forms must not be adopted for targeted fund-raising. In practice, the forms of public fund-raising used by charitable organizations, such as sales, exhibitions, auctions, and gala dinners, may also be adopted for use in targeted fund-raising, insofar as it has a specific target. Only public sales, exhibitions, auctions, and gala dinners can be regarded as public fund-raising.

Charitable organizations should thus limit their use of targeted fund-raising, based on the Opinion from the Ministry of Civil Affairs and prior to the promulgation of further official policies.

2.2 Besides Identifying Specific Targets, What Should Targeted Fund-raising Pay Attention To?

According to Articles 28 (2) and 74 of the Charity Law, targeted fund-raising must meet the following requirements:

  1. Charitable organizations should state clearly the purpose of their fund-raising to their prospective donors. A fund-raising purpose refers to the objective of fund-raising. Purposes may vary so long as they fall within the scope of charitable activities as defined in Article 3 of the Charity Law (such as the promotion of education in rural areas and environmental protection).
  2. Charitable organizations shall disclose how they will use the funds received from donors. Examples include paying the life allowance of teachers in rural areas or providing financial support to charities engaged in environmental protection. The difference between the purpose of fund-raising and the use of the funds raised is that the purpose is more general, whereas the use is more specific.
  3. When carrying out targeted fund–raising activities, charitable organizations have information disclosure duties. These include notifying donors before beginning fund-raising, stating explicitly the fund-raising purpose, describing how funds and property will be used, indicating the start and end date of fund-raising campaigns, describing the method for accepting donations, and providing all relevant contact information. After the completion of fund-raising activities, organizations shall disclose to their donors the details of their campaigns. This includes details about the amount of money and property raised. The administration and use of funds and property include management fees, value maintenance and appreciation, project implementation costs, descriptions of project implementation progress, and whether donated property is being used according to relevant regulations or the donation agreement.

2.3 Are There Different Timing Requirements for Each Type of Social Organization to Apply for Public Fund-raising Certificates? How to Apply for Public Fund-raising Certificates?

Based on the Charity Law and the Measures on Administration of Public Fund-raising by Charitable Organizations, there are different provisions on the timing for different types of charitable organizations to apply for public fund-raising certificates. Please refer to the following table for details:

No.

Types of Charitable Organizations

Requirements on Application Time

1

Non-public foundations and social groups with pre-tax deduction qualifications for public welfare donations prior to the enactment of the Charity Law.

Charitable organizations that have been legally registered for two years may apply for a public fund-raising certificate.

2

Other social groups and social service organizations (i.e. private non-enterprise units) except type 1.

Charitable organizations that have been legally registered for two years may apply for a public fund-raising certificate.

3

Public foundations registered before the Charity Law.

There is no timing requirement (apply for a public fund-raising certificate with the Civil Affairs Department with which they registered).

Based on the Charity Law, charitable organizations falling into type 1 and type 2 shall submit to the relevant Civil Affairs Department the following materials when applying for public fund-raising certificates:

  1. Application, including a statement and written warranty in conformity with the conditions as provided in Article 5 of the Charity Law;
  2. A financial audit report going back two years issued by a certified accountant, including a special audit on the expenditures and annual management fees from charity activities;
  3. Meeting minutes from board of director’s meetings;

Charitable organizations with a professional supervisory unit shall submit certifying materials approved by a business authority entity.

Charitable organizations with a rating of 4A or above are exempted from submitting materials as provided in items 2 and 3.

2.4 What Requirements Should Charitable Organizations Follow While Carrying Out Public Fund-raising Activities?

According to Articles 24 and 25, charitable organizations should pay attention to the following requirements while carrying out public fund-raising activities:

First, a fund-raising proposal shall be drafted when carrying out public fund-raising. The proposal must include the goals, duration and location of fund-raising activities, the name and office address of the person-in-charge, the method of receiving donations, as well as bank details, a list of beneficiaries, the use of assets collected, the cost of fund-raising activities, and method of dealing with excess funds.

Second, the fund-raising proposal shall be recorded with the Civil Affairs Department with which the organization registered before fund-raising activities are carried out. They shall use the national charity information platform organized by the Social Organization Administration Bureau of the Ministry of Civil Affairs - “Charity China” Internet.

Third, information disclosure (including the site to be used) shall be performed while carrying out public fund-raising activities. The Charity Law states that “when carrying out public fund-raising activities, information such as the name of the organization carrying out the activity, the public fund-raising certificate, the fund-raising proposal, the contact information, and the means of inquiry for further information regarding the activity shall be displayed in a prominent place at the site of the activity or on the medium used for fund-raising.”

2.5 What Institutions May Apply to be Operators of Public Fund-Raising Information Platforms on the Internet?

According to the Circular of the General Office of the Ministry of Civil Affairs on Selecting the Second Group of Internet Public Fund-raising Information Platforms for Charitable Organizations (No. 2 (2018) Letter of General Office of Ministry of Civil Affairs), released on Jan. 4, 2018, operators applying to manage Internet-based public fund-raising information platforms shall meet the following conditions:

 

Abstract

Content

1

Requirements on influence or representation

The platform and its operator must have influence or be representative in the Internet industry or public welfare charity field.

2

Credit information records show it is an independent legal person

The platform operator must be an independent legal person without a dishonest record on “Credit China”, or any other enterprise credit information system; also, the platform operator must not have committed any violations or crimes. If the platform operator is a social organization, there is no administrative fine imposed by the registration authority within 3 years.

3

Have ICP certificate or ICP record filing

The platform operator must have the relevant Internet information service certificate. Among these, the enterprise shall obtain a Permit of the People’s Republic of China for the Operation of a Value-Added Telecommunication Business (ICP Certificate) approved and issued by the Telecommunication Management Authority within the specified term. The subject name on the ICP certificate must be consistent with that of the platform. Non-profit legal persons, such as public institutions and social organizations, shall file for a non-operative Internet information service record and obtain an ICP filing number and electronic certificate. During the specified term, the subject name on the ICP certificate must be consistent with that of the platform.

4

Conformity with the Basic Technical Specifications of Online Fund-raising Platforms for Charitable Organizations

The technical level of the platform must meet the basic requirements outlined in Part 4 of the Basic Technical Specifications of Online Fund-raising Platforms for Charitable Organizations and ensure a high level of Internet responsiveness and risk prevention. Security protection for the system shall be no less than grade 3, as described in the Measures on the Administration of Information Security Grading Protection. The operator must obtain the certifying documents available at any relevant authority or professional testing institution.

5

Simulated page must meet the test requirements

The platform should make their simulated page available for remote access, such as fund-raising information release, inquiry, and management (access by testing address - no official online external operation and no online payment function is required); to meet such testing requirements, technology such as computers, iPads, and cell phone terminals may be used.

At present, there are 12 online public fund-raising information platforms for charitable organizations in the first grouping:

No.

Name of Platform

Operator

1

“Tencent Charity” online fund-raising platform

Tencent Charity Foundation

2

Taobao

Zhejiang Taobao Network Co., Ltd.

3

Ant Financial Public Welfare Platform

Zhejiang Ant Financial Service Group Co., Ltd.

4

Sina-Weibo (Wei public welfare)

Beijing Weimeng Chuangke Internet Technology Co., Ltd.

5

Easy Financing

Beijing Easy Financing Internet Technology Co., Ltd.

6

JD Public Welfare

Chinabank Payments (Beijing) Science and Technology Co., Ltd.

7

Beijing Enjiu Non-profit Organization Development Research Center

Foundation Central Network

8

Baidu Charity Fund-raising Platform

Baidu Online Internet Technology (Beijing) Co., Ltd.

9

Gongyibao

Beijing Goupu Juyi Science and Technology Co., Ltd.

10

Xinhua Public Welfare Service Platform

Xinhua Net Co., Ltd.

11

Lianquan Net

Shanghai Lianquan Public Welfare Foundation

12

Guangzhou Charity Association Charity Information Platform

Guangzhou Charity Association

On April 19, 2018, the appraisal committee created the Social Organization Management Authority of the Ministry of Civil Affairs and proposed a second group of online public fund-raising information platforms, listed as follows. The deadline for the announcement shall be April 25, 2018:

No.

Name of platform

Operator

1

Meituan Pubic Welfare

Beijing Sankuai Cloud Computation Co., Ltd.

2

Didi Public Welfare

Beijing Xiaoju Science and Technology Co., Ltd.

3

Shanyuan Public Welfare

Beijing Shanyuan Public Welfare Foundation (sponsored and promoted by Bank of China)

4

Rong e Gou Public Welfare

Industry and Commerce Bank of China Co., Ltd. Science and Technology Co., Ltd.

5

Shuidi Public Welfare

Beijing Shuidi Hubao Co., Ltd.

6

Suning Public Welfare

Jiangsu Suning E-commerce Co., Ltd.

7

Bangbang Public Welfare

China Siyuan Foundation for Poverty Alleviation

8

Yeepay Public Welfare

Yeepay Co., Ltd.

9

China Network for Poverty Alleviation

Beijing Bangyiba Network Science and Technology Co., Ltd.

(under the guidance of the Poverty Alleviation Office of State Council)

There are in total 21 online fund-raising information platforms as designated by Ministry of Civil Affairs.

2.6 Could Apportionment Be Made While Carrying out Fund-Raising Activities?

Article 32 of the Charity Law stipulates that those carrying out fund-raising activities are not permitted to engage in apportionment, nor can they obstruct public order, corporate production or the lives of the people.

This is not the first provision concerning apportionment. Article 4 of Law of Donation for Public Welfare provides that “Donations should be made on a voluntary and non-reimbursable basis. Any forced apportionment or any covert act of apportion will be prohibited, and no one may engage in profit-making activities of any kind under the guise of charity.”

2.7 How to Deal with Acts That Obtain Financial Assets by Fraudulent Means in the Name of Charity?

Article 37 of the Charity Law stipulates that it is forbidden for any organization or individual to obtain financial assets and carry out fund-raising activities by fraudulent means (e.g. posing as a charitable organization). Obtaining financial assets by fraudulent means in the name of charity is in violation of the Law on Public Security Administration Punishments. Such behavior may warrant a criminal arrest according to the Criminal Law. The law enforcement authority for illegal acts is public security authority, rather than a Civil Affairs Department.

Article 107 states that, “public security authorities shall investigate and punish natural persons, legal persons or other organizations who illegally gain assets in the name of charity or disguised as charitable organizations”.

The Law on Public Security Administration states that anyone who obtains private or public property by fraudulent means shall be detained for more than 5 days but less than 10 days and fined less than RMB 500; if the case is serious, the person shall be detained for more than 10 days but less than 15 days and fined less than RMB 1,000.

Article 266 of the Criminal Law states that, “whoever swindles public or private money or property, if the amount is relatively large, shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention or public surveillance and shall also, or shall only, be fined; if the amount is greater, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined; for the greatest offences, he shall be sentenced to fixed-term imprisonment of not less than 10 years to life imprisonment and shall also be fined or required to confiscate property.

Obtaining financial assets by fraudulent means in the name of charity applies to the legal provision above.

Concerning criminal liabilities, the Interpretation of Supreme People’s Court and Supreme People’s Procuratorate on Several Issues Concerning Specific Law Applications to Fraudulent Criminal Cases (effective as of April 8, 2011) states that:

“Anyone swindles public or private money or property worthy of over RMB 3,000 to RMB 10,000; RMB 30,000, RMB 100,000, and RMB 500,000, correspond to the three degrees of offences stated in Article 266 of Criminal Law”.

Violations of this sort are to be punished in accordance with Article 266 of Criminal Law

  • Swindling funds and property for disaster relief, emergency rescue, flood prevention and control, support to disabled servicemen and families of revolutionary martyrs and servicemen, aid to the poor, migration and social relief, and medical services;
  • Swindling in the name of fund-raising for disaster relief.

2.8 What Legal Liabilities Should Be Assumed in the Case of Carrying Out Fund-raising Activities Illegally?

Article 101 of the Charity Law states that if any of the following situations occur in the process of fund-raising, the Civil Affairs Department shall give warning and/or order cessation of fund-raising activities. Unlawfully solicited assets shall be returned to the donor. Where there is difficulty in returning them, the Civil Affairs Department shall seize and transfer them to other charitable organizations and may impose a fine of between RMB 20,000 and 200,000 on the relevant organization or persons:

  1. Conducting public fund-raising by organizations and individuals without public fund-raising qualifications;
  2. Using false information or other methods to trick or coax fund-raising targets into making donations;
  3. Overtly or covertly engaging in forcible apportionment;
  4. Causing obstruction to the public order, corporate production or the lives of residents.

In accordance with Article 101 of the Charity Law, if radio broadcasters, television stations, newspapers, journals, network service providers, or telecommunications operators do not fulfill their verification duties (including verification of the registration certificates and public fund-raising certificates of charitable organizations), their respective managing departments shall give a warning and order deadlines for amendments. If no amendments are made by the deadline, a notice of criticism shall be issued and circulated.

Chapter 6 Charitable Donations

1. Charitable Donations ABC

1.1 The Charitable, Voluntary, and Not-for-profit Nature of Charitable Donations

Article 34 of the Charity Law stipulates that, “charitable donations refer to the voluntary, non-compensated donation of property by natural persons, legal persons, or other organizations for charitable purposes.”

Accordingly, charitable donation have the following legal characteristics:

First, charitable donations serve charitable purposes. Article 3 of the Charity Law stipulates that, “charitable activities refer to the following public interest activities voluntarily carried out by natural persons, legal persons, and other organizations through the donation of property, the provision of services, or other means:

  1. Helping the poor and the needy;
  2. Assisting the elderly, orphans, the ill, the disabled, and providing special care;
  3. Alleviating losses incurred by natural disasters, accidents, public health incidents, and other emergencies;
  4. Promoting the development of education, science, culture, health, sports, and other causes;
  5. Preventing and alleviating pollution and other public hazards, as well as protecting and improving the environment;
  6. Other public welfare activities prescribed in the law.”

Donations made to conduct the abovementioned activities are all for charitable purposes. Donations for other purposes are not subject to the Charity Law. This difference will be elaborated in the next section.

Second, charitable donation are made voluntarily. It is the right of the donor to decide whether to donate, what and how much to donate, the means and duration of the donation, and to which charitable organization to give. For example, corporations can make adjustments on their equity donations when taking into account the stability of the stock price of a holding company, investor confidence, and capital controls. They can donate several times over multiple years rather than in a lump sum, and in the case that the voting right is separated from the holding right, they can choose to donate the non-voting stock and keep the voting-stock.

The Law of the People’s Republic of China on Donations for Public Welfare, implemented on September 1, 1999, stipulates in Article 4 that, “donations shall be made voluntarily and not-for-profit. No forced or disguised apportionment is allowed for donations, and it is prohibited to carry out for-profit activities in the name of charity.” Currently, most of the social organizations in China are supervised by administrative authorities. These authorities prohibit by law the apportionment of donations by way of administrative orders to individuals, units, or organizations.

Charitable organizations shall respect their donors’ will and provide them sufficient flexibility in their giving.

Third, non-compensated charitable donations are a form of civil gift giving. This means that when a donor grants their property to a recipient, the recipient does not need to pay the corresponding fee for the property received. While some corporations make authentic donations to charity, others are merely investing in their public image—thinly-veiled commercial promotion with compensated sponsorships which do not qualify as charitable donations. Some may even receive commissions from recipients, a practice that runs against the non-profit spirit and is not allowed by law.

1.2 The Difference between Charitable Donations and Civil Gift Giving

Charitable donations fall under the category of civil gift giving, but are a special kind of it. The civil gift contract has five characteristics. First, the grant contract is a consensual one, formed as long as the parties concerned have a unanimous declaration of intention and it does not depend on the delivery of the donor’s property. Second, the donor shall grant to the recipient their own property free of charge. Third, the grant contract is a property-transfer contract. Fourth, the grant contract is a unilateral contract; that said, a gift contract is not necessarily without any conditions or obligations, only that such obligations need not be delivered reciprocally against the grant. Thus, the donor in a grant contract does not have the right of simultaneous performance in the same way as the parties in a bilateral contract do. Fifth, the gift contract is an informal contract and does not require a written or otherwise special form. According to the Contract Law, a gift contract can be made in oral or written forms.

Charitable donations differ in the following aspects:

First, charitable donations serve the kind of charitable purposes found in Article 3 of the Charity Law. For example, during the LUO Er event in Shenzhen in November and December of 2016[3], the reward given for LUO Er’s article, Stop! LUO Yixiao, was over RMB 2,000,000. This reward is not a charitable donation, but rather as a kind of civil gift, as the donor was not giving to an unspecified target (as stipulated in Article 3 of the Charity Law), but rather to a specific one.

Second, in addition to the donor and recipient, donations also involve a beneficiary, as all donations are a contract relation formed for the public welfare. The recipient is usually the beneficiary in civil gift giving activities, but they are not the ultimate beneficiary for donations.

Third, laws such as the Law on Donations for Public Welfare and the Charity Law apply first to charitable donations. If there is no provision in such laws, the Contract Law will apply. Civil gift giving shall only apply to the Contract Law.

1.3 Charitable Donations Can be Demanded for Specific Purposes

Charitable donations, as a special form of civil gift giving, also apply to the Contract Law if there is no special provision. The Contract Law stipulates the right for donors to rescind donations at will in Article 186 (1): “a donor can revoke the grant before the right to the property is transferred.” However, the Contract Law also stipulates that donors cannot revoke such gift contracts when they are related to causes such as disaster or poverty relief or are notarized grant contracts.

As charitable donations are meant to serve the public welfare, stricter stipulations for donors are necessary. Based on the Contract Law, the Charity Law outlines donor obligations under two important circumstances. The first is when a donor publicly promises to donate via media channels such as television, newspapers, magazines, and the Internet. The second is when property is used for causes such as poverty relief, financial aid, elderly support, orphan rescue, illness compensation, aid for the disabled, preferential treatment for entitled groups, and aid for emergencies like natural disasters, accidents, public health crises. In these circumstances, charitable organizations may claim for delivery if the property is not received by the date specified in the donation agreement.

Charitable donations are characterized by their voluntary nature. If the economic situation of a donor deteriorates after they publicly promise to donate or enter into a written agreement, requiring the performance of the donation would only worsen the situation and go against the voluntary character of charitable work. In such circumstances, the donor should be released from their obligations. Thus, the Charity Law stipulates that “if the economic situation of the donor deteriorates significantly after they publicly promise to donate or sign an donation agreement, after reporting to the local civil affairs authority and explaining the situation to the public, the donor may be released from their donation obligations.”

The Contract Law also has a similar stipulation, stating that “if a donor's economic situation has deteriorated significantly, thereby seriously impacting their professional or family life, they may be released from their donation obligations.” In order to preserve the integrity of charitable activities, the Charity Law requires donors to report to the local civil affairs authority at which the public promise was made or the donation agreement signed and explain the situation to the public. This is to subject donors to the supervision of both the government and the public.

1.4 Charity Donor’s Conditional Rescission Right

There are different views on whether donors have the right to rescind property in the event of a breach of contract.

Some think that the donor has rescission rights.

According to Article 192 of the Contract Law, donors may rescind donations if the recipient fails to perform their obligations as stipulated in the gift contract. According to Article 58 of the Contract Law, “after the contract is invalid or rescinded, all property obtained under the contract shall be returned; if the property cannot be returned or a return is unnecessary, compensation shall be made at a fair price. The party at fault shall compensate the other party’s loss. In a case where both parties are at fault, each party shall bear its corresponding liability.” On this basis, if a recipient fails to perform their contractual obligations, donors may rescind their donations.

According to Article 42 (2) of the Charity Law, if recipient organizations misuse donated property in violation of their donation agreement, donors are entitled to request correction; donors may also report or complain to the Civil Affairs Department or bring forth prosecution to the people’s court.

The abovementioned provisions emphasize that donors may resort to a administrative as well as a judicial remedy. It also secures a donor’s rights, including the right of rescission. Thus, barring any legal prohibitions, donors have the right to rescission under the Contract Law.

Others think that donors do not have rescission rights.

While the Charity Law does not explicitly grant donors rescission rights, Article 28 of the Law on Donations for Public Wefare stipulates that if recipients change the nature or use of donated property without the consent of the donor, the people’s government shall order a correction and issue a warning. If the recipient refuses to correct the error, after seeking the donor’s consent, the people’s government shall turn over the property to a public welfare organization with a similar purpose, or to a non-profit institution of welfare management. Thus, charitable donations and civil gifts are legally different. If a recipient violates a donation agreement, the donor can only choose between an administrative or judicial remedy (granted by the Charity Law and the Law on Donations for Public Welfare), but cannot request the return of their property. The purpose and use of donated property cannot be changed.

During the donation contract dispute between the United Moms Charity Association and the Lijiang Moms Charity Association from 2000 to 2002, the Yunnan High People’s Court held that the Lijiang Intermediate People’s Court failed to award the return of property based on the donor’s right of rescission. The High Court thus ruled that the Lijiang Moms Charity Association return RMB 907,890 to the United Moms Charity Association, funds which were not used according to the latter’s will.

Although there is no explicit judicial or legislative interpretation at present, the former application seems the most just.

2. Practical Guide

2.1 Are There Any Special Requirements for Charitable Organizations to Receive Donations?

In addition to other legal requirements, charitable organizations must pay attention to the compliance demands in the Charity Law concerning the reception of donations:

No.

Title

Compliance requirement

1

Legal property

The property donated should be legal property which the donor is entitled to dispose.

2

Donation receipt

The charitable organization shall issue a donation receipt under the supervision of the finance department to the donor after reception of their property.

3

Written donation agreement

The charitable organization shall sign a written donation agreement with the donor per the donor’s request.

4

Interested party

When the donor and organization specify the use of the donated property, they shall not designate any interested parties (for example, those related the donor) as the beneficiary.

5

Tobacco products

No organization or individual is allowed to make use of charitable donations to promote tobacco products, nor are they allowed to promote legally forbidden products under the mantle of charitable donations.

It is necessary to explain what constitutes an interested party and define who a beneficiary is. An interested party is defined by the relationship between donor and beneficiary. For example, the close relatives of individual donors and employers and the affiliate organizations of corporate givers all fall into the definition of an interested party. The law does not allow such parties to be beneficiaries because it compromises the purpose of charity as such—it is tantamount to turning public welfare into private interest, and gives all the tax benefits to the donor, who isn’t supposed to receive them.

2.2 How Can Charitable Organizations Sign Donation Agreements in Order to Protect Their Legitimate Rights and Interests?

Please refer to the template in Appendix 1-TK-8 Donation Agreement-Money/Property 

2.3 What Should Corporations Pay Attention to When Making Donations?

According to the Notice by the Ministry of Finance on Improving the Financial Management of Corporate External Donations, promulgated in 2003, corporations have a lot to remain aware of. Although these are not Charity Law provisions per se, they are nonetheless very important. Below we chose some of the most frequent violations:

No.

Title

Compliance requirement

1

Voluntary and non-compensated

After making external donations, corporations should not require recipients to provide favors in financing, market access, or administrative license, a practice which would lead to unfair competition in the market.

2

Property prohibited for donation

The following kinds of property are not allowed to be donated externally: major fixed assets for corporate production and operation, equity (equity prohibitions have been abolished in the new regulations) obligations, national special reserves, state financial allocations, entrusted property, property with security interests, property with unclear ownership, and commodities that have been contaminated, damaged, expired, or scrapped.

3

Beneficiary cannot be interested party

The beneficiary of a corporate donation should be an organization outside of the corporation itself, disadvantaged groups, or individuals in society. Corporate donations shall not be made to its own employees or entities that have control over, or are in financial or operational relationships with, the donor.

4

Sponsorship fee is not donation

Sponsorship expenses incurred for promoting a corporation’s public image and products shall be managed as advertisement fees.

5

Comply to the internal management procedure

For major external donations, state-owned and state-controlled enterprises shall submit a donation proposal to the employee representatives’ congress for deliberation. They should also report to the state-owned capital holders for recording. Corporations shall act in accordance with the relevant provisions of the Company Law and the company's articles of incorporation.

It is recommended that every corporation regulate its external corporate donations responsibly so as to avoid any violation of laws or regulations.


[1]Including Measures of Jiangsu Province on Permits of Charitable Fund-raising, Hunan Fund-raising Regulations, Regulations of Ningbo on Promotion of Charitable Undertakings and Guangzhou Fund-raising Regulations, Shanghai Fund-raising Regulations and Regulations of Shantou Economic Special Region on Fund-raising etc.

[2]Interpretations on Charity Law of the People’s Republic of China edited by Kan Ke, P87, Law Press 2016

[3]Please refer to https://baike.so.com/doc/486141-24842308.htmlfor the whole LUO Er event (latest login on April 14, 2018 15:40)