Heart of Gold: A Solid "Foundation" for NGO Work?

UNCLAS SECTION 01 OF 04 GUANGZHOU 014712

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: PHUM ECON SOCI KPAO PINR CH
SUBJECT: Heart of Gold: A Solid "Foundation" for NGO Work?

REF: A) 03 Beijing 1599 (notal) B) Guangzhou 7743 (notal) C)
Guangzhou 11657 (notal)

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE
PROTECT ACCORDINGLY. NOT FOR RELEASE OUTSIDE U.S.GOVERNMENT
CHANNELS. NOT FOR INTERNET PUBLICATION


1. (SBU) Summary: If the Foundation Law serves as an
example, non-governmental organization (NGO) legislation is
in for a slow, twisting, uneven ride. One and a half years
after new regulations were issued by the Ministry of Civil
Affairs (MCA),foundations in South China still are trying
to realize the gains promised in the new law. Despite
promises of great leaps forward by national leaders in 2001
the new NGO foundation legislation has proven to be
incremental, complicated and difficult to implement. End
Summary.

What is a Foundation?
--------------


2. (SBU) Foundations in this context are legally registered
organizations that are established to disburse funds from
overseas or individuals to carry out public benefit
activities. They are one of three types of NGO that are
allowed to register legally in China; one of those types is
foundations. With the foundation regulations there are
three types of foundations: non-public foundations that
operate from an endowment, public foundations that are
allowed to raise money through fundraising, and
representative offices of foreign foundations that are
allowed to register but are not allowed to do domestic
fundraising.

What Types of NGOs Are Legal in China?
--------------


3. (SBU) While the number of NGOs in China are reported to
be in the millions only a small fraction of them are fully
registered with the MCA due to strict registration laws (ref
A). While many NGOs, foreign and domestic, operate in this
legal gray area, there are technically only three major
avenues for legal registration: registering as a foundation,
a social organization, or a non-profit professional unit
(ref A). All three ways require a NGO to find a government
department to serve as a sponsor and to register with the
MCA. Social organizations are membership groups that are
set up (foreigners/foreign NGOs are not allowed to register
as social organizations) for a defined set of activities.
They are required to have office space, a defined charter of
activities, defined membership and have to follow certain
financial guidelines. Social organizations not only
include traditional service and advocacy NGOs but also
professional, commercial and academic associations (i.e.
elevator technology association, mathematics association
etc.). Non-profit professional units generally encompass
private schools, private social service research institutes
and private hospitals (again, foreigners/foreign NGOs need
not apply). They have requirements that are similar to the
social organization but do not have the ability to expand
their membership the way a social organization can.
Foundations have much higher registration capital and
stricter financial regulations than the other two but they
are the only category where foreign NGOs are allowed to
legally register.

A Long Wait for Legal Revision
--------------


4. (SBU) While a wave of liberal NGO registration laws was
widely hinted at in 2001 they never materialized in the
aftermath of a Falun Gong crackdown and the "color
revolutions" in Europe. The foundations sector is the only
area where there has been liberalization as the Chinese
government is eager to cash in on donations from foreign
NGOs, overseas Chinese and private businessmen (ref B).
Foundations are numerically the smallest NGO sector (about
.06% of total registrations in Guangdong Province) and one
of the most noncontroversial as they mainly focus on funds
disbursement. In 2004, the "Regulations on the Management

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of Foundations" law was promulgated to give a new legal
framework to foundations (the law for social organizations
and non-profit professional units remains unchanged). The
law changed the requirements for which authority a
foundation could register with, how much money was needed to
register and more clearly defined the role of foreign and
private NGOs. Most importantly, all foundations were
required to re-register by December 2004, a date which was
later extended to September 2005.

The MCA Centralizes Administration - and Control
-------------- ---


5. (SBU) According to the new law, it was no longer possible
to register on the municipal level - all registrations had
to be moved to the provincial or national level of
authority. Where a foundation registers defines its area of
activity. If a foundation wants to operate nationally, (or
use China in its name, such as China's Disabled Orphans
Foundation) it needs to register on the national-level and
have someone from the national office of the China Disabled
Person's Federation agree to serve as its sponsor.
Foundations wishing to operate in either a specific
municipality or province now both register at the provincial
level (such as Guangzhou City's or Guangdong Province's
Disabled Orphans Foundation),and need to find an
appropriate government sponsor (Guangzhou city or Guangdong
province Disabled Person's Foundation). This means that
even if a foundation wants to operate in only one city it
must have provincial level approval (before they only needed
municipal level). A researcher at a local NGO center
(recently renamed the "Institute for Civil Society") stated
that this renewed emphasis on location-appropriate
registration presented problems as many foundations had
grown and were operating programs outside of their
`registration area.' The central government's efforts to
assert control over foundations adds another of bureaucracy
to an already complicated process.

Did Everyone Listen?
--------------


6. (SBU) Implementation of the new registration regulations
varied in Guangzhou and Shenzhen, two of the largest cities
in our consular district. Guangzhou's MCA required all
foundations to change their registration to the provincial
level but stated it had absolutely no involvement with the
transfer or subsequent re-registration. In Shenzhen
however, anyone that was registered before 2002 was allowed
to keep their current registration at the municipal level
(which technically violates the new rules). According to
researchers, on the national scale there was even more
variation in implementation with certain requirements
(particularly financial) being ignored for favored
foundations.

It Costs a Pretty Penny to Help the Poor
--------------


7. (SBU) While the new foundation regulation gave a more
detailed description of the role of foreign NGOs, (foreign
NGOs were allowed to register before 2004 as well, but had
exhaustive background checks into the source of their funds)
it also laid out a strict series of financial guidelines for
domestic and foreign foundations; in total 37 new sections
were added to the regulations. Foreign foundations were
unequivocally barred from fundraising on the mainland though
domestic `public-fundraising foundations' were not. A
national-level foundation (foreign or domestic) requires RMB
eight million (USD one million) and a provincial-level
foundation requires RMB four million (USD $500,000) in
registration capital. Private Chinese citizens can for the
first time set up a private foundation in their name with
RMB two million (USD $250,000) of registration capital but
that level must be consistently maintained in their account
(an endowment) and they are not allowed to do public
fundraising. The 1998 rules had the highest needed level of
capital registration at RMB 100,000 (USD $12,500). The huge
spike ensured that smaller foreign NGOs (Note: foreign NGOs
can not register at all as social organizations or non-

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profit professional units) could not try to use the new
foundation law as any easy way to get official registration
status.

More Important Than Money
--------------


8. (SBU) Most importantly, the 2004 Foundation Law did not
eliminate the notorious requirement for every foundation to
have a government department or Communist Party-affiliated
mass organization to serve as a professional leading
organization (government sponsor)(ref C). While the only
legal requirement is that the sponsor reviews the
foundation's annual report, in reality the sponsor becomes
responsible if the foundation does something controversial.
In 30 interviews with government officials, NGO officials,
and researchers, this requirement was listed as the biggest
impediment to more NGOs being able to register.

Operating in South China but Still Waiting in Beijing
-------------- --------------


9. (SBU) Even some of those that could meet the new rules
have not been able to fully re-register. The country
director of one foreign orphan care foundation that operates
locally, is registered nationally, and enjoys an unusually
close relationship with the Chinese Center for Adoption
Affairs (CCAA),said the foundation was required to
completely re-register after the 2004 law, but has not yet
received final approval. Its Chinese sponsor (CCAA) has
advised her to be patient and not to call attention to the
lengthy time period. While the foundation had originally
planned to continue expanding, with an urban and rural
project in every province and a new Henan HIV orphan
project, it has put the plans on hold indefinitely.


10. (SBU) World Vision is one of the largest foundations
that operates in South China, and according to its Hong Kong-
based director, it is Hong Kong's largest fundraising
foundation, raising HKD 500 million (USD $68.3million)
between 1998-2003. It is a Christian organization that does
everything from relief operations (it has a nine-person
emergency deployment team),to HIV/AIDS education, to
`values' training for workers. While World Vision was given
a "Charity China Award" in the first MCA and China Charity
Foundation awards ceremony, the MCA still has not been able
to finish its application for foundation registration. The
director stated that after he submitted the original
documents he had to submit some additional financial
information but it has been many months and he has had no
word about the expected completion date.

Smooth sailing in Guangdong?
--------------


11. (SBU) On the provincial level, the Guangdong Department
of Civil Affairs (DCA) stated that in order to come into
compliance with the new act, a foundation only had to show a
financial statement showing the new registration capital
requirements have been met. A Guangdong DCA official stated
that there are no foundations that have had to discontinue
their operations, transfers are all complete, and that the
numbers of foundations have increased 50% after the new
regulations were implemented, now at 132 registered
foundations province-wide. (Note: this includes foundations
that have had to transfer their registration from the
municipal level to the provincial level. The Guangzhou
Municipal Bureau of Civil Affairs (BCA) alone had to
transfer 20 cases to the province level, which accounts for
one-third of the `growth'). It is surprising that the
province could be done on time when the well-respected China
Development Brief reported that as of May 2005 only 84 out
of 1,000 national-level foundations had been re-registered.

Comment: Raising the Bar
--------------


12. (SBU) While the Chinese government is eager to reach out
for foreign and domestic funding for social programs it
seems unwilling to relinquish any control of the sector, and

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is tightening its control instead. Furthermore, the new
registration capital requirements shows the emphasis on
`quality' (read: deep pockets) NGOs, a point that has been
popular in the press. While government leaders used to hint
that the requirement for a government sponsor and the
prohibition on foreign NGOs registering as social
organizations and non-profit professional units might become
a thing of the past, five years later none of this has
occurred. The 2004 foundation legislation provided limited
change, and functioned more to raise economic barriers to
registering as a foundation, thus ensuring that only the
wealthiest foundations could apply. In addition, the fact
that foreign foundations cannot publicly fundraise prevents
them not only from raising funds but from taking advantage
of an opportunity to promote and engage the general populace
in a discussion about what is going on in their own country.
Despite the claims of growth from the Guangdong BCA, it
seems that the new foundation law has not spawned a huge
growth in the number of foundations applying for
registration, at least at the provincial level.
Implementation shows that there are always rules that can be
bent for a favored foundation, but that the process of
meeting the requirements of the rules outlined in the
additional 37 sections of the law can be grueling. Nor is
the MCA in a rush to approve the 1,000 reported national-
level foundation cases that have been waiting since 2004.
Its approach to reform in this area has been slow and
cumbersome, and the biggest impediment to registration - the
professional leading organization requirement - appears to
be here to stay. While this kind of complicated process
might be feasible for the 132 foundations registered in
Guangdong Province it would mean chaos to try a similar
style of `reform' for the 17,000 social organizations and
non-profit professional units that are already registered in
Guangdong Province alone.

ROCK