China Development Brief, No.44 (Winter 2009)
Introduction: This article is part of our special issue on New Trends in Philanthropy and Civil Society in China (Summer, 2011). It provides a glimpse into the fluid, shifting nature of organizations in China. The One Foundation case highlights a peculiar feature of Chinese philanthropy that arises because private (literally: nonpublic fundraising) foundations are not allowed to engage in public fundraising. Instead they must depend on donations through private channels, such as a major gift from the corporate founder of the foundation. To be authorized to raise funds publicly, private foundations would need to be registered as a public (literally: public fundraising) foundation, but the requirements for a public foundation are higher than that of a private foundation. Moreover, because most public foundations tend to be GONGOs, many believe it is difficult to gain public foundation status without government connections. As this article shows, organizations set up by private individuals — even celebrities as well-connected as Jet Li, the martial arts action star — have a difficult time acquiring public foundation status. Some organizations are able to work around this obstacle by creating a “special fund” within a public foundation. Using this “special fund” mechanism, these organizations are able to raise funds publicly as long as they abide by the 2004 Regulations on Foundation Management that govern public foundations1.
On October 31, 2009, a statement of fewer than 150 words in Jet Li’s One Foundation’s (李连杰壹基金) Annual Report (Jan. 2008 – June 2009) caught my attention:
“In October of 2008, with the guidance and support of the Chinese Red Cross Society (中国红十字会总会), the Shanghai Civil Affairs Bureau, and other agencies, the Shanghai-based Jet Li One Public Welfare Foundation (上海李连杰壹基金公益基金会，hereafter the One Foundation), registered at the Shanghai Civil Affairs Bureau as a private foundation. The One Foundation acts as the implementing arm of the Chinese Red Cross Jet Li One Fund (中国红十字会李连杰壹基金，hereafter the Red Cross One Fund), and will carry out various activities according to the “Regulations on Foundation Management,” and submit reports, settle accounts, and accept annual audits to the Red Cross One Fund management committee.”
This statement may seem quite ordinary, but it reveals enough information to raise some questions.The One Foundation’s status as a private foundation has been verified by the Red Cross One Fund Executive Chairman Zhou Weiyan, who also acts as the legal representative of the One Foundation. “We’ve used the annual report to explain the relationship between the two (organizations),” she explained. In its annual report, the One Foundation publicly explains the financial reports and project expenses of the two accounts before and after the merger.
Back in 2007, the One Foundation used the Chinese Red Cross to legitimize its establishment and to raise funds publicly to support the development of domestic NGOs. Why then would Jet Li want to register a private foundation (in Shanghai) in addition to his public charity, the Red Cross One Fund?
“As an organization under the Chinese Red Cross, the Red Cross One Fund is not a legal entity, so it cannot recruit its own staff,” said Ms.Zhou, as she explained the challenges facing the Foundation. To address such challenges, the One Foundation was established as a legally-registered private foundation in Shanghai in order to hire staff and implement the Red Cross One Fund’s projects.Zhou added that the reason she did not want to set up a private company to implement the Red Cross One Fund’s projects was because it would likely be accused of profiteering. According to Ms. Zhou, it may appear that the One Foundation is restricting itself by establishing a private foundation under the Shanghai Municipal Government. But in fact, by placing itself under public and government scrutiny, it will be able to gain the same confidence from the public, as if it were a public charity.
By law, both the Red Cross One Fund and theOne Foundation can accept grants, but the difference is that the latter cannot fundraise publicly. When funds are deposited into their bank accounts, especially in the case of private foundations, these funds must be managed in a public and transparent manner consistent with guidelines for public foundations. Ms. Zhou said that the One Foundation must abide by these strict guidelines – it must operate according to the regulations of public foundations. For example, operating costs must be kept within 10 percent of the total budget, quarterly reports need to be submitted, and so forth.The One Foundation would like to register as a public foundation, but has so far been unable to do so because of political and legal constraints. The organization’s current hybrid private-public identity is a temporary solution, though one that it has adopted reluctantly. However, Ms. Zhou emphasized that “both the One Foundation’s public and private entities will operate strictly according to regulations for public foundations. In the future, the only way to eliminate the fundraising difficulties facing private foundations is to resolve the legal status issues surrounding independent public foundations.”
The One Foundation is not alone in its pursuit of establishing a national-level public foundation. In 2004 the Alxa SEE Ecological Association (阿拉善生态协会,hereafter SEE) had the same hope and agreed to establish the SEE Foundation at its first Board of Directors meeting. But because “it wasn’t convenient to register a foundation at that time, SEE was established first as an association,” explained SEE’s Secretary-General Yang Peng2.
At that time, SEE gathered together a large number of successful private entrepreneurs, causing quite a stir. These entrepreneurs joined SEE as members, bringing along with them substantial resources that made SEE the envy of many domestic NGOs. After several years of development, SEE has grown increasingly influential in the area of environmental protection. Starting with environmental projects in Alxa, Inner Mongolia and expanding to projects in other parts of the country, SEE’s reputation has grown steadily.
To better follow legal and management standards, SEE launched the Beijing Entrepreneurs Environmental Protection Foundation (北京市企业家环保基金会), better known as the SEE Foundation, in October 2008. SEE is the sole founder of the SEE Foundation (which is registered as a private foundation). This way SEE can attract entrepreneurs from around the country as members, while ensuring that its Foundation can engage in environmental protection projects throughout the country without regional restrictions.
SEE Foundation’s position, as set forth in SEE’s annual report, is that “SEE’s environmental projects outside of the Alxa region will be managed by the SEE Foundation.”
This set up is a sign of future changes to the Association’s structure and project management approach. Mr. Yang explained the changes as follows: “The future focus of the SEE Foundation is to support NGOs and to fund their development. As to how exactly we will support NGOs, the SEE Foundation is still exploring different options. SEE’s present focus will be on environmental projects in the Alxa region, as well as on membership projects such as training member businesses on how to be more ‘green’.”
As both Secretary-General of SEE and the SEE Foundation, Mr. Yang sees the two organizations as one team. Looking at the organization’s governance, aside from Wu Jinglian, the Chair of the Board who was brought in from the outside, the rest of SEE Foundation’s Board of Directors and Supervisory Board came from SEE’s Board of Directors and Supervisory Board. The only difference between SEE and the SEE Foundation is that SEE’s Board of Directors, Supervisory Board, and its Rules Committee, were created by SEE’s General Assembly. Through the General Assembly, each member has voting rights with regard to SEE’s major affairs. This system of governance — using such rules of procedure to manage a foundation’s public affairs — has garnered the admiration of others.
The more recently established SEE Foundation has transferred authority over its affairs to its Board of Directors and Supervisory Board. Therefore, SEE members have no voting rights with regard to the SEE Foundation’s policies. However, SEE members can vote to influence the Board of Directors or Supervisory Board, which in turn exercises influence on the SEE Foundation’s affairs.
In addition to these changes, SEE no longer accepts membership dues. Instead, individual members now make a donation to the SEE Foundation. Once a donation is made, the donor automatically becomes a member of SEE and, therefore, enjoys all basic rights of a SEE member. As Mr. Yang explained, SEE Foundation acts as a collection agency for SEE. In turn, SEE then applies to the SEE Foundation to obtain funding for its projects.
The two organizations, one a social organization and the other a private foundation, have the appearance of being independent, but they are in fact intertwined. While it is still possible to differentiate between the two organizations and separate their domains of activity, Mr. Yang hopes that, in the future, the SEE Foundation will be able to develop independently from SEE.
This desire can be seen in the SEE Foundation’s bylaws, which clearly states that “following a period of development and maturation, and in line with procedures for amending the bylaws, the Foundation can register under the Ministry of Civil Affairs as a national public charity foundation.” Whether or not the organization can achieve this status, says Mr. Yang, will depend on its capability. If the organization’s management cannot keep up, a hastily established public foundation will not necessarily be a good thing, since disbursing funds is no simple matter.
The SEE Foundation is currently “not short of money, but it must consider how to spend it effectively.” This belief is recognized by the Boards of both SEE and the SEE Foundation. Mr. Yang added, “As the SEE Foundation disburses funds, it will develop its reputation, structure and staff, thereby enhancing its ability to use its funds effectively. The SEE Foundation should base its expansion plans on its actual disbursement and management capability. That would be the ideal.”
The follow up to this story is even more interesting. In September of 2010, about a year after this article was published, Jet Li attracted media attention when he made a statement on CCTV that his three-year contract with the Red Cross might jeopardize the One Foundation’s ability to raise funds publicly. Some interpreted his remarks to mean that the One Foundation was in danger of closing. But then several months later, in January of 2011, the One Foundation announced that it was able to register as a public foundation in Shenzhen. That event marked the first time that a private foundation operating as a special fund was able to register as a public foundation, and was an encouraging sign for other private foundations that public foundation status was attainable. The SEE case is somewhat different. It shows how an association registered in Alxa, Inner Mongolia is able to operate elsewhere and even register a foundation in Beijing. SEE and the SEE Foundation are part of the same entity, and even share the same governing boards and secretary-general, yet are registered in different places. As in the One Foundation case, appearances are not always what they seem. The One Foundation and SEE cases also show the importance of being flexible and thinking local when registering. Both would have found it very difficult to register as national-level organizations. Instead, they registered as local organizations, in places where the barriers were lower. In the case of SEE, it registered in Alxa where it had the support of local officials, yet continued to operate nationally. In the case of the One Foundation, it registered in Shenzhen where the registration regulations for foundations had been relaxed. ↩
Editor’s Note: SEE stands for Society for Entrepreneurs and Ecology and is a NGO established by a group of entrepreneurs dedicated to environmental protection. Alxa is the Romanization of the Mongolian pronunciation of Alashan, a region in western Inner Mongoloia where SEE is registered. SEE is registered with Alxa Civil Affairs as a social organization (shehui tuanti), a category that enables it to have members. ↩