Identifier
Created
Classification
Origin
06GUANGZHOU12155
2006-04-21 08:53:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Guangzhou
Cable title:  

(SBU) Heart of Gold: "Business NGO" Legislation

Tags:  EAID ECON PGOV PHUM SOCI CH 
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ZNR UUUUU ZZH
R 210853Z APR 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5505
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHEHNSC/NSC WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI
UNCLAS SECTION 01 OF 04 GUANGZHOU 012155 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB, DRL, R, E, EAP/CM, EAP/PD, DRL
STATE PASS USTR FOR STRATFORD
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE
USPACOM FOR FPA

E.O. 12958: N/A
TAGS: EAID ECON PGOV PHUM SOCI CH
SUBJECT: (SBU) Heart of Gold: "Business NGO" Legislation
Tightens in South China


REF: A) Beijing 1599 B) Guangzhou 011657 C) Chengdu 000742


Summary
-------

UNCLAS SECTION 01 OF 04 GUANGZHOU 012155

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB, DRL, R, E, EAP/CM, EAP/PD, DRL
STATE PASS USTR FOR STRATFORD
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE
USPACOM FOR FPA

E.O. 12958: N/A
TAGS: EAID ECON PGOV PHUM SOCI CH
SUBJECT: (SBU) Heart of Gold: "Business NGO" Legislation
Tightens in South China


REF: A) Beijing 1599 B) Guangzhou 011657 C) Chengdu 000742


Summary
--------------


1. (SBU) Faced with nearly insurmountable legal
registration requirements foreign and domestic NGOs often
turn to registering as a normal for-profit business, which
is technically illegal. While widespread enforcement is
rare, authorities in South China take advantage of the
illegal status of the majority of NGOs to selectively target
the ones deemed to be too controversial. NGOs themselves
limit their activities by either informally working with the
government on service activities (mainly health NGOs) or
working independently (mainly labor, environmental NGOs) but
avoiding activities that would cause undue attention on
their organization. While new business registration
guidelines which were issued in March 2005 did not have the
effect of causing droves of unregistered NGOs to flock to
the Ministry of Civil Affairs to register or shut down their
`illegal' activities they did contribute to an already
unfriendly climate for NGOs in South China.


2. (SBU) Searching for relief from difficult formal
registration laws many NGOs sought normal for-profit
business registration as a way to have a legal entity in
South China. One year after revised business regulations
were promulgated we look at the impact of the rules that
were meant to edge NGOs out from underneath the (illegal)
umbrella of normal business registration to under the
Ministry of Civil Affairs' (MCA) specialized NGO
registration.

Registration by the book
--------------


3. (SBU) According to the Ministry of Civil Affairs'
regulations all NGOs or non-profit groups are required to
register with the MCA (ref A). Official NGO registration
involves finding a government department or mass
organization (such as the Communist Youth League or All
Women's Federation) to sponsor the NGO and the NGO must
adhere to a strict series of legal and organizational

requirements. Sponsorship formally means that the
government department reviews the NGO's finances and
operations yearly but informally means the sponsor is going
to be held liable if the NGO hosts controversial activities.
This makes government departments extremely reluctant to
sponsor a NGO; it is seen as a high-risk, low-return
proposition (ref B). There are also requirements that
stipulate property requirements, a certain level of
registration capital, a list of members must be submitted,
and the NGO can only do activities delineated in the
charter. During the course of this lengthy investigation
every prospective NGO office is personally visited by a MCA
investigator. In addition, foreign NGOs are only allowed to
register as foundations, which carries an even more onerous
set of restrictions (septel). Foreign NGOs are not allowed
to register for the two other types of NGOs, social
organizations and non-profit professional units.

A Back Door for NGOs?
--------------


4. (SBU) Since most local (Chinese-founded) NGOs cannot
find a government sponsor and most foreign NGOs cannot find
a sponsor or meet the strict foundation regulations many
NGOs turn to for-profit (normal) business registration as
the way to have a legal identity. NGOs registered as normal
businesses (business NGOs) are technically illegal (because
they should register with the MCA) and the head of the NGO
registration bureau for Guangdong Province flatly denies the
existence of this kind of `back door.' However, because
there is little enforcement many NGOs openly choose this
method of registration because it allows them to have an
organizational bank account and an official chop/seal
without going through the onerous formal NGO regulations.

Business Registration 101
--------------

GUANGZHOU 00012155 002 OF 004




5. (SBU) The process of registering as a business is fairly
straightforward. It usually takes about 20 days and
involves no site visits, inspections or need for a
government sponsor. According to one Guangzhou MCA
official, registering as a social organization requires a
six-month pre-registration phase; two foreign NGOs that were
trying to register as a foundation (a different sub-type)
stated they have been waiting for well over a year for their
registration review to be complete (septel).


6. (SBU) There is a registration capital requirement of RMB
30,000 - 100,000 (USD 3,750 - USD 12,500) for business
registration, but it is quite a bit less than the RMB
two-eight million (USD 250,000 - USD one million) required
for NGO foundations (the only way a foreign NGO can
register). In addition, several NGOs stated that there are
companies that regularly provide the service of (illegally)
providing the funds for business registration capital and
retaking it after the business license is approved. There
are even legal ways of getting around the requirement as one
legal-aid NGO said they were able to get the registration
capital requirement waived because they were only setting up
a small consulting company. Some NGOs have also been able
to work out systems for avoiding the payment of business
taxes. Business NGOs usually try to spend all of their
yearly funds before the tax-year ends and therefore claim no
profit and thus avoid paying taxes.

The Government Attempts to Shut the Back Door
--------------


7. (SBU) This route became more difficult March of last
year when the business registration regulations were amended
so that `businesses' could no longer use the name "research
institute" or "association" in their name. This action was
clearly directed at NGOs that sailed under the `flag of
convenience' of business registration. This notice was
placed on a local MCA website and most business NGOs were
aware of the change. Enforcement of the new regulations was
not widespread however. According to local MCA officials
there is no formal enforcement structure and only if an
illegal NGO comes to their attention will they address the
problem. Two municipal officials and one provincial MCA
official separately confirmed that there was no spike in MCA
registrations after the rule was changed. Based solely on
numbers, the rule seemed generally ineffective as a tool for
promoting MCA registration or causing the widespread
shutdown of business NGOs.

However, It Is Not Quite Closed Yet
--------------


8. (SBU) While most business NGOs were aware of the new
rules, few knew organizations that had shutdown or had re-
registered. One independent HIV/AIDS business NGO in Guangxi
said it had such close cooperation with the government
(health department) that it was not concerned about being
shut down or otherwise penalized. It is common in South
China for some unregistered NGOs to cooperate with the
government on an informal basis, particularly in the health
sector (ref B). NGOs that have this kind of informal
cooperation with the government often focus mainly on
service activities and care of people with illnesses. For
example unregistered NGOs in South China cooperate with
government departments to give free counseling to AIDS/HIV
patients, to provide medical assistance to leprosy victims,
to provide medical care to children orphaned due to AIDS,
and prostheses to handicapped children. All NGOs
interviewed separately concurred that unless you hosted (or
were suspected of) very controversial activities there was
little chance of being shut down or heavily pressured by the
police. The penalties for not registering with the MCA
mainly seem to entail having a business registration revoked
or, if unregistered, your office and bank accounts can be
closed. Few representatives from unregistered NGOs had
concerns about being jailed, even though several believe
that they are under active surveillance by the government.

CWWN: The Tale of One "Controversial NGO"
--------------


GUANGZHOU 00012155 003 OF 004



9. (SBU) The Chinese Working Women's Network (CWWN) is a
progressive `business NGO' that works on legal aid, health
education and labor organization. While it had coordinated
with the Ministry of Health in the past for its health bus
(a traveling van equipped with health and labor information
for female migrant laborers),last year the Ministry's
provincial-level department in Guangdong had begun to ask
for its registration documents. The NGO's officials were
told that its business license, which had always been
sufficient in the past, was no longer enough. After this,
CWWN received a notice at their Shenzhen (Guangdong
Province) female migrant labor center that it needed to
immediately report to the MCA to register. The project
coordinator stated that the increased scrutiny and
registration notice was probably due to their identified
contributions to reporting in the Hong Kong press about
labor conditions in Shenzhen.

CWWN: Actively Organizing Underground
-------------- --------------


10. (SBU) With no hope of finding a government department to
as act as a sponsor, CWWN officials closed their center and
began operating secretly, moving their drop-in center office
3-4 times in the past year. After closing the Bao'An center
they also shifted to focusing more on factory activities.
They target medium-size Chinese factories of at least 300
people that have minimal security around their dormitories.
CWWN's staff intensively works with the group of workers
educating them about their rights and helping them to
organize into a community support network. They currently
work with approximately ten factories and have 16 support
networks of 15-100 workers already established throughout
the corridor between Guangzhou and Hong Kong. When entering
a new factory they help the workers to identify a leader and
work on training and gradually move from social topics to
health and labor topics. Funds are mainly raised in Hong
Kong and are physically brought over when employees travel
back and forth. CWWN also maintains its previous activities
such as the health bus but the staff states the NGO
environment in general is much more difficult to work in.
Interestingly, with all the problems it faces, CWWN still
enjoys the support of a local university, which allows it to
store the health bus and training materials on campus.

CWWN: Plans For The Future
--------------


11. (SBU) Realizing that it needs a more permanent base of
operations the organization is considering a move to a
neighboring city, Dongguan. Its previous business
registration was as a company in Shenzhen but CWWN staff are
now looking to open a bookstore in Dongguan. The project
coordinator thinks the bookstore will give them good cover
and a traceable stream of income to bolster its business
registration. Dongguan is also widely recognized as the
city with the worst labor conditions and relatively lax
government controls on labor infractions.

Comment: Just Another Hammer in the Toolbox
--------------


12. (SBU) While the majority of NGOs in South China
anecdotally seem to be unregistered, business registration
still seems to be the next most popular method of operating,
despite government disapproval of the method. Over the past
year the government seems to be constricting the space
improperly registered NGOs can operate in while releasing
tantalizing hints of new, broad NGO legislation that is
supposed to be in the pipeline (ref C). This aura of legal
uncertainty seems to push NGOs into one of two camps; in
both camps their activities veer away from the controversial
or confrontational. In one camp are NGOs that are able to
work out an informal understanding with a local health
department or disabled association and end up mainly focused
on providing services with only a limited or non-existent
`traditional' advocacy role. In the second are NGOs that
operate more independently (mainly labor, environmental
NGOs) and rely on staying off the official radar screen by
hosting low-key or uncontroversial activities. CWWN seemed
to break two important rules; it focused too intently on
direct labor organizing and went to the press with

GUANGZHOU 00012155 004 OF 004


embarrassing information. When a NGO gets too out of line,
like CWWN did, it can easily be punished with one of the
many legal tools from the registration toolbox.

Dong