Just finished reading a great article on NGOCN summarizing the pioneering efforts of a new family of foundations in China that we have been following closely, 非公募基金会 (translated: private foundations). Actually the term "private foundations" can be somewhat misleading to a Western audience since the term in China has little in common with the Western meaning. They are only similar in that they are endowed by the foundation principals for charitable causes; the rest of the regulatory framework in China changes the picture quite dramatically.
According to the article, many business tycoons in China are now experimenting with the idea of setting up private foundations after years of using other channels to donate into charitable causes in China. According to the article, the main reason is a growing wariness with dealing with opque government-backed foundations and non-profits and a desire to more directly control programs. There are several well-known private foundations which have started, such as Narada Foundation, headed by Xu Yongguang (which we've mentioned on this blog before), which has ties to Narada Group, a large conglomerate. The timing is ripe for large businesses in China to set up foundations to manage their charitable giving, especially in light of the Sichuan earthquake, where 60% of donations came from Chinese companies. “The reality is that the rise of private foundations now closely mirrors the rise of private enterprises right after Reform and Opening,” says Dou Reigang, executive secretary of Tencent's charitable foundation (Tencent owns QQ, a popular online chat program in China).
A recent more high profile case is that of Cao Dewang of Fuyao Glass Group in Fujian province, who wishes to endow his newly established He Ren Foundation with 60% of his family's holdings in the company, which is proving to be a regulatory nightmare since stock transfers into charitable organizations have never been successfully completed before in China. To give you a sense of the legal and regulatory hurdles that all new private foundations in China face, consider that they are required by law to have an initial registered capital (cash in the bank) of 2 million RMB (US$295,000), and pay corporate tax rates of 33% on all disbursements and capital gains. This means that on Cao Dewang's stock donation valued in the market at 3.8 billion RMB, will require payment of taxes of nearly 1 billion RMB. He is currently appealing the process and appears optimistic of the outcome. In the article Xu Yongguang is quoted as giving Cao advice on how to sidestep this issue, using the legal steps that Warren Buffett used to give his massive inheritance to the Gates Foundation as an example. One thing is clear, the pioneers in setting up these private foundations are now spending a long time appealing various policies and tax implications at various levels of government. Like Cao, most remain optimistic that the tide is changing and are happy to be carving out the path for others to follow.
Finally the article closes with a strong encouragement to have private foundations be run by well-managed Boards instead of solely through the director's office. Again Narada Foundation serves as a strong example as all strategy-setting happens at the Board level, with Xu acting as executor with reporting responsibilities. This again stands in stark contrast with the way many government-backed charitable groups are run in China.
So it appears that despite significant regulatory hurdles, private foundations in China are here to stay- a very welcome trend for the emerging philanthropic scene here. Who else is better suited to bust through the remaining barriers except China's titans of industry?
-- Grace
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