October 21, 2014

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Corporate Philanthropy In China: On The Rise But Significant Challenges Ahead

The final segment of a three part series reports on how corporations are playing a key role in advancing the nonprofit sector in China.

Anke_schrader

By Anke Schrader, Researcher, The Conference Board

Did you know that roughly two-thirds of charitable giving in China is made by corporations?

This stands in sharp contrast to the United States, where the largest share (73 percent in 2010) of charitable giving comes from individual donors, and corporate giving accounts for only 5 percent (based on data from Giving USA Foundation).

in China, less than a third of donations currently come from individual donors.

As I’ve discussed in my previous blog post, charitable giving in China has risen significantly in recent years. Generally rising living standards, accompanied by a growing middle class, and a growing number of successful private entrepreneurs, are important factors driving this change.

Growing Inequality in China Pushes Increase In Charitable Giving

Growing needs is another: China’s mounting socioeconomic disparities are manifest in a pronounced wealth gap, in inadequate government provided social services, as well as in unequal access to social services.

At the same time, because of higher average income levels, official development assistance (ODA) to China has been declining significantly; down from nearly USD 2.2 billion in 2001 to USD 670 million in 2010. This changing aid landscape is forcing domestic nonprofit organizations to look increasingly towards new donors, such as the government, (e.g., through outsourcing of social services) foundations, and corporations.

New Role For Business in China

Philanthropy has thus become not only a social imperative, but also an opportunity for business to engage, shape the debate, and influence social change in China. Opportunities exist for genuine corporate engagement; a growing number of examples exist that showcase successful corporate-NGO partnerships in China -- check out the case studies provided by BSR’s China philanthropy incubator initiative CiYuan. Indeed, lack of engagement arguably risks generating negative public perception.

Charitable Giving in China by Donor Type

But just how much do companies tend to give on average? And how does that compare to the U.S.?

Based on data extracted from Bloomberg, Chinese companies’ median annual spending on philanthropy is still significantly below that of U.S. companies. In 2011, median charitable spending was $13 million for publicly listed U.S. companies, but only $300,000 for Chinese companies. Note: This analysis is based on a selection of 3,000 U.S. and non U.S. companies for which Bloomberg tracks ESG data; we used median giving instead of average giving to avoid upward bias due to outliers.

Similarly, for Chinese companies listed on stock exchanges in Shanghai or Shenzhen, and for which such data is publicly available, median charitable spending was $250,000 million per year. Chinese companies also tend to spend a smaller share of their annual revenues on philanthropy. On average, U.S. companies analyzed using the Bloomberg ESG dataset spent 0.23 percent of their annual revenues on charitable giving, while Chinese companies spent, on average, only 0.02 percent.

Multinationals Participate In Philanthropy, But Challenges Exist

What about MNCs in China?

Based on a survey conducted by The Conference Board China Center among 120 foreign companies operating in China, many foreign companies already engage in some form of philanthropy in China. In Dairy Queen in China2010, 78 percent of foreign companies surveyed claimed to provide cash contributions in China, while 66 percent claimed to also provide in-kind contributions, although the actual levels of giving relative to the companies’ operational footprint in China may still be relatively low.

For MNCs operating in China, spending money on citizenship activities in a meaningful way – externally, internally, and strategically – remains a major challenge.

Foreign donors are often baffled by the complexity and opacity of China’s nonprofit sector. The structure and regulatory environment governing the sector is vastly different from the West, making it more difficult for foreign companies to navigate and gain comfort. Consequently, many MNCs run philanthropy programs that don’t effectively support strategic objectives or exploit the full benefits of the myriad of emerging local civil society resources.

Going forward, corporations will undoubtedly play a critical role in further advancing civil society engagement in China. Increased private sector involvement will inevitably increase and expand the debate about the role of civil society overall in China’s development, but also about the roles, linkages, and requirements for the sector’s expanding set of non-government participants.

MNCs need to begin to think seriously – and strategically – about the role they should play, and how they can maximize both societal and company benefits from the effort.

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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 2: Role of Public Perception in Corporate Philanthropy: A Spotlight on China

Part 1: Corporate Philanthropy in China: Who Is Doing What & How?

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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