Part 2 of a three part series examines reputational risks in China’s nonprofit sector.
By Anke Schrader, Researcher, The Conference Board
Charitable giving has increased rapidly over the past five years in China, albeit from a very low base (only 0.26 percent of GDP in 2010, versus 2 percent in the U.S., for example). Nevertheless, based on data published by the government-affiliated China Charity Donation Information Center (CCDIC) from 2006 to 2010, total cash and in-kind contributions have grown from $1.6 billion to $15.2 billion, a seven-fold increase in less than five years.
Dominant giving causes are education, poverty alleviation, and disaster relief. Recent natural disasters, especially the two large earthquakes that shook China in 2008 and 2010, have significantly driven charitable spending. In both years, charitable giving to disaster relief efforts soared. In 2008, total aid for the Wenchuan earthquake totaled $10.8 billion, more than double other charitable giving for that year. Moreover, the two earthquakes also helped to significantly raise general public awareness of charitable giving.
Charitable Giving Growing In China
While there is arguably, as yet, no “culture of giving” in China, engagement by private citizens and companies alike is growing, accompanied by increased public scrutiny over how donations are being used.
In the wake of a series of large-scale and widely publicized scandals alleging fund misappropriations among several large, domestic, government-vested nonprofits, giving in 2011 appears to have dropped significantly, highlighting the increasing, deeply rooted mistrust among the public towards government-managed NPOs, as well as the increased attention companies pay to public opinion in China.
Preliminary estimations by CCDIC put charitable giving in 2011 at RMB 84.5 billion (around $13.1 billion), which would constitute a 18 percent drop compared to 2010, a year that had seen a double-digit rise in donations. Some of this decline is clearly associated with reductions in disaster relief efforts. However, excluding giving to disaster relief efforts, giving to other causes still increased significantly in 2009 and 2010, but stagnated in 2011.
Public Awareness and Debate About Social Needs Grows
Rising living standards, accompanied by rising inequality, have not only focused Chinese citizenry attention on satisfying material needs such as housing, transportation, quality goods, education, or social security, but have also increased public debate about “immaterial needs,” such as social justice, values, rights, morality, and participation, etc. China’s large and rapidly growing micro-blogging sphere (through websites like Sina Weibo) has substantially altered the ability of Chinese citizens to engage in public debate. Because of this, public perception and opinion has also become more diverse, unpredictable, and influential.
As I’ve discussed in my previous blog post, the Chinese government maintains tight control over the nonprofit sector; a large share of the licensed NPOs in China today was either set-up by or is affiliated with the Chinese government. Most charitable donations are still channeled through large, government-led organizations, such as the Chinese Red Cross and the China Charity Federation, and through organizations with strong state supervision, such as university-affiliated research centers. Only a very small fraction goes directly to implementing NPOs.
Reputational Challenges For China’s Nonprofit Sector
Lack of transparency and accountability as to how donated funds are used constitute huge challenges for the sector. Several large-scale organizations like the Chinese Red Cross are also governed by their own set of rules and exempted from current nonprofit regulations, which creates numerous additional problems around supervision and accountability.
The speed and scale with which public discontent can now spread across “Online-China” has significantly changed the way companies need to engage with and respond to public opinion. In the worst case, bad corporate conduct, perceived or real, can now inflict serious damage upon a company’s public image, brand value, government relations, and employee trust in China. The drop in corporate donations in 2011 (nearly a 30 percent drop among donations from domestic private companies) underscores the challenges companies face to adequately respond to this new market influencer.
The contents of this blog post are extracts from the research report “Corporate Philanthropy in China: A Practitioner’s Guide for Foreign Donors”, published by The Conference Board. The full report can be downloaded here.
[A word of caution on officially reported data. The general lack of transparency, oversight, and good governance in the Chinese nonprofit sector, and the large number of unregistered NPOs, severely limits the availability of accurate sector data and organizational and financial information on NPOs. Data from official sources like the Ministry of Civil Affairs or CCDID is problematic as it is often inconsistent, necessitating caution when interpreting the results.]
Next: Businesses are increasing their philanthropic activities in China but face challenges
Part 1: Corporate Philanthropy in China: Who Is Doing What & How?