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Why Giving is Harder than Earning: Philanthropy in China

Post Series: 2017: Volume 16, Number 1
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The year 2016 is an important milestone for China’s social development. China’s first charity law was passed in March and became effective in September. Moreover, China’s Foreign NGO Management Law was passed in April and takes effect in January 2017. Both laws indicate the intention of the Chinese government to strengthen regulations of the emerging fields of philanthropy and civic engagement.

China has enormous potential for philanthropy. Forbes reported in 2016 China has 251 billionaires, second only to the United States’ 540, and China has the most new billionaires, adding 70 to the list.1 Beijing has become the “Billionaire Capital of the World” with 100 billionaires, five more than New York City.2 Credit Suisse reported that China’s middle class is the largest in the world: 109 million Chinese adults have wealth between $50,000 and $500,000, well ahead of the 92 million in the U.S.3

Despite the explosive wealth accumulation, charitable giving in China is lagging far behind the U.S. In 2014, giving as a percentage of China’s GDP was only 0.1 percent, compared to two percent in the U.S.4 Chinese giving was about one-hundredth of what Americans donated per person.5 China ranked 144 among 145 countries in the 2015 World Giving Index; only Burundi ranked lower.6

Why such a huge gap between private wealth and private giving? Chinese billionaire Jack Ma, founder of Alibaba Group, said during the 2015 opening ceremony of a new degree program in nonprofit management at Peking University, “Giving donations to charities is much harder than earning money.” Ma commented that in China, it is particularly tough to figure out to whom one should give. China lacks the infrastructure, training, and proper legal framework to ensure that donations go to good use. Setting that up does not happen overnight.7

Ma’s concern is widely shared by Chinese people who wish to contribute to social services – not only the super-rich but also the rapidly growing middle class. Private, modern philanthropic practices that are entrenched in Western culture are new to both Chinese donors and charities. Just 20 years ago, a distinct socioeconomic middle class was virtually nonexistent in China8, not to mention the ultra-rich philanthropist class. Only in recent years has China started the journey of modernizing philanthropy and social organizations. Like many other systems in China, Chinese philanthropy will take on its special characteristics in the process of modernization. The following discussion provides a deeper understanding of the current state, as well as the challenges and opportunities for such development in China.

The Rebirth of Philanthropic Spirit

Philanthropy appears to be a new phenomenon in China, but it isn’t. Conventional wisdom holds that the donation of money to good causes or to the general well-being of society is a modern Western concept to which China is not accustomed. But the fact is China has a long history of charitable behaviors. For both Confucianism and Buddhism, benevolence is a core value. Traditionally, “helping and caring for others” is held in high esteem by the Chinese. The value of philanthropy has been rooted in Chinese culture for thousands of years.

China also has a tradition of government planning and guiding of charitable activities. Before the ninth century, charitable activities were largely religion-based and managed by temples or ancestral shrines, some of which functioned much like the civil society we know today. Since the mid-ninth century, the government has been playing a key role in funding charities, often appointing local notables as managers. In the early 20th century during the pre-Communist period, a number of prominent Chinese demonstrated remarkable generosity and charitable initiative. For example, former Premier of the Republic of China Xiong Xiling (1870–1937) pioneered China’s modern philanthropy by helping establish educational and human service institutions to confront natural disasters and the Japanese invasion. A group of Western foundations and missionaries introduced American-style philanthropy to China, including the Rockefeller Foundation’s contribution in medicine and John Leighton Stuart’s work with Yenching University.

However, during the first quarter-century of the People’s Republic – from the Socialist Revolution through the Cultural Revolution – wealth was completely nationalized. An ideal Communist state was believed to be able to provide comprehensive public services and resolve all social problems, so almost any recognition of the need for private charity was considered a sign of government failure and was not encouraged. As Zhang Xin, one of China’s richest women and billionaire CEO of the SOHO China real estate development company commented, “As children of that society we could not have imagined the possibility of becoming a philanthropist.”9

It was not until 1978 that China turned to economic reform and reopened its doors to global markets. The most significant social consequence of China’s economic growth is the increasing diversification of public resources, interests, and needs. A modern nation, regardless of its political system, must find a way to combine public and private efforts in providing social services for its citizens. The Chinese government has begun to realize the essentiality as well as the benefits of civic participation and private philanthropy. Now, the same entrepreneurial spirit that has been demonstrated in the business sector is beginning to have an impact in the civic arena.

In 2014, China received an estimated $16 billion from both domestic and overseas donors, surpassing the peak last seen in 2008, when Wenchuan earthquake killed nearly 70,000 people and triggered significant public giving.10 Several successful entrepreneurs such as Jack Ma and Zhang Xin made strong commitments in philanthropy. In 2014, Jack Ma set up a $3 billion charitable trust, and Zhang Xin and her husband set up a $100 million endowment for underprivileged Chinese students to attend leading universities around the world.

We should not take China’s philanthropic record of the last 60 years as proof that Chinese people are generally not philanthropic. With continued economic growth and social diversification, China’s philanthropic spirit will likely flourish in the future.

Philanthropy with Chinese Characteristics

Why has modern philanthropy been slow to take off in China? China faces unique challenges in cultivating philanthropy, not only because of historical and cultural factors, but also, more importantly, because of the underdeveloped social support system. Philanthropy in China today demonstrates three noteworthy characteristics.

One is that Chinese donors are more focused on addressing immediate social needs, as opposed to long-term issues. The latest Giving China report showed that the vast majority of donations – more than 75 percent – have been directed to urgent needs including medicine and disaster relief, education, and poverty alleviation.11 According to the research by Harvard Kennedy School Ash Center, the top 100 philanthropists in China gave most often to education (58 percent of total donations) and least often to environmental causes (0.9 percent), despite that China faces serious environmental challenges.12 Other long-term social areas such as public policy, international affairs, and arts, culture and humanities received little support. In education, most giving was in support of universities, and specifically focused on scholarships and building constructions. Areas such as research, teaching, and special initiatives received very limited funding.

Secondly, Chinese people tend to trust family members and neighbors much more than strangers, partly because of the country’s long history as an agrarian society. This is true in China both for conducting business and for philanthropy. It works fine for traditional charitable behaviors – donors give to people in need and immediately see the result. But modern philanthropy does not work that way. The concept of modern philanthropy is not just about giving fish to feed a hungry person; it seeks to empower those in need to fish for themselves and even work to improve the entire ecosystem for fishing. In other words, the goal of modern philanthropy is to make sustainable, systematic change. We are helping people we do not know and it will often take years to measure our results. Many Chinese may find it difficult to adopt such concept. They are generally less concerned about tackling the long-term, root causes of the social problem. This pattern poses a direct challenge to the development of philanthropy in China.

Another characteristic is the widespread “trust crisis” of Chinese donors toward Chinese charities. Chinese social organizations are traditionally affiliated with the government, run by government personnel and supported by government funding. Such structure has proven to be inefficient and ineffective in providing many social services. In recent years, a series of scandals among major state-run charities, including the Red Cross Society of China, further undermined their credibility. Partly because of the reform of registration procedures for social organizations that came into force in 2013, a great variety of new organizations have sprung up in China. Currently there are more than 511,000 legitimately registered NGOs.13 Many of them are still quasi-state institutions. Donors often find it difficult to identify appropriate or trustworthy organizations to which to contribute. At the same time, organizations that want to raise funds for meaningful causes do not have a clearly defined set of technical and ethical standards to conform to. Only 30 percent of registered charities in China meet basic international standards for transparency and disclosure.14

As a result, Chinese donors often choose to adopt a hands-on approach in giving, by establishing their own operating foundations to conduct charitable work by themselves, or even personally hand out donations to recipients. A great number of wealthy Chinese give to overseas nonprofits in the belief that investing in those reputable organizations will bring meaningful social returns. The new charity law attempted to address the issue by specifying some requirements in transparency and accountability for charities, as well as a few fundraising guidelines. However there is still a long way to go for Chinese social organizations to build professionalism and re-establish public trust.

Road Ahead: Infrastructure Building and Professionalization

Over the past 30 years, China has established a market economy system. The next critical agenda for China is to deepen the reform and open the social sector. China is in urgent need of philanthropic infrastructure.

First, the market economy needs to perform strongly, and personal wealth needs to be well-protected. People should not worry that giving to charities may draw public criticism or create trouble for themselves. For example, Chinese donors often choose to stay anonymous because they are afraid of public attention and jealousy about their wealth. Also, when Chinese donors give to the world’s leading universities, their actions often generate wide criticism among the Chinese as if the donors were not “patriotic” or their motivations are simply to gain admission for their children. The society as a whole needs to develop a reasonable expectation about philanthropy, and respect that giving is a personal choice and reflects individual interests.

Second, China needs to develop a mature financial system to ensure the sustainable development of philanthropic funds and endowments. It should require that each nonprofit create a board that acts as trustee of public assets and ensures that the organization is well-managed and remains fiscally sound. Many Chinese social organizations do not have formal governance structures in place to fulfill fiscal and strategic responsibilities. A modern accountability system should be constructed to ensure that endowment assets will be in the hands of ethical and professional investment managers. Nonprofits should be required to hire professional public accountants to conduct independent auditing based on internationally accepted standards. Strong financial management correlates strongly with institutional quality and sustainability.

Lastly, China needs to establish a legal system to regulate the social sector concerning philanthropy. The new charity law confirms charities’ legal status, makes it easier for charities to register and raise funds, and improves tax incentives. In the U.S., the tax-exempt status for public charities entails large obligations and heavy regulation of the sector. Nonprofits are regulated by the tax authority at the federal level, by law offices at the state level, and by independent industry associations and watchdogs, etc.  In China, none of this is fully in place yet, and it remains unclear whether the Ministry of Civil Affairs can effectively perform all the regulatory and administrative functions designated in the new law.

In order to make philanthropy work, it is also critical for China to professionalize the governance and management process of social organizations. The Chinese nonprofit world is not yet an independent “sector.” Fundraising is not yet an established “profession,” nor is nonprofit management. China will need to nurture a new generation of professionals who are dedicated to social sector management. Research shows that the main reason individuals give is because they are asked to and are presented with opportunities that motivate them to give.15 Nonprofit professionals are the servants of philanthropy. They provide essential guidance and service for people to donate. They teach people the joy of giving. They also need to steward the donation and assume responsibility for the public trust. China’s for-profit corporations have been adopting many international management standards and skills. Today, China’s social organizations are faced with an unprecedented opportunity to try the same. Without competent professional leadership that cares about the cause and properly runs the organizations, we will continue to hear the comments that it is easier to make money in China than to give it away.

  1. Forbes Corporate Communications, Forbes’ 30th Annual World’s Billionaires Issue, March 1, 2016.
  2. USA Today, “Beijing Overtakes NYC as ‘Billionaire Capital’,” February 24, 2016.
  3. Credit Suisse, Global Wealth Report 2015, October 2015.
  4. Harvard Kennedy School Ash Center for Democratic Governance and Innovation, China’s Most Generous 2015, January 2016.
  5. The Economist, “Panda Power,” December 19, 2015.
  6. CAF World Giving Index, November 2015.
  7. South China Morning Post, “’It’s harder to donate money to Chinese charities than earn it,’ says Alibaba billionaire Jack Ma” September 16, 2015.
  8. Cheng Li edited, China’s Emerging Middle Class, Brookings Institution Press, Washington, DC, 2010.
  9. Zhang Xin, “The Rise of the Chinese Philanthropist,” The New York Times, December 4, 2014.
  10. China Charity Information Center, Giving China 2014, Chinese Society Press, Beijing, 2015.
  11. Ibid.
  12. Harvard Kennedy School Ash Center for Democratic Governance and Innovation, China’s Most Generous 2015, January 2016.
  13. He Dan, “Reforms Give NGOs a Level Playing Field,” China Daily, March 31, 2014.
  14. China Charity Information Center, China Charity Transparency Report, September 2013.
  15. National Park Service, “Motivations for Giving,” www.nps.gov/partnerships/fundraising_individuals_motivations.htm.
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