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2019 Second Quarter Report on Civil Society Organizations

The second quarter of 2019 once again saw expansion of party building into civil society organizations (CSOs), which could soon permeate every step of CSO management, including registration, ratification of by-laws, annual inspections, and evaluations. Controversy over fundraising by charitable organizations also continued:clothes recycling programs are to be required to qualify for public fundraising;with the growth of foundations, both publicly and privately funded organizations have been implicated in illegal fundraising;and several businesses that have engaged in crowdfunding are suspected of fraud. As these conflicts test the public's trust in the philanthropic and charitable professions, they also lay bare the inadequacies of the existing laws and regulations on fundraising. Three heavyweight industry reports were also released during this period: the China Civil Society Organization Report; the Charity Bluebook: Philanthropic Developments in China (2019); and the China Third Sector Survey (2019). While the reports are fundamentally positive, they also reveal the structural challenges that the charitable sector continues to face, despite the outward appearance of healthy growth. None of these reports mention the ongoing suppression and arrests of public welfare and legal [aid] workers.

This report is divided into four sections: I. Party Building Advances on CSOs II. Fundraising Management and Emergent Controversies III. Publication of China Civil Society Organization Report, Charity Bluebook: Philanthropic Developments in China (2019), and China Third Sector Survey (2019) IV. Public Welfare and Legal Aid Workers Arrested on Charges of "Subverting State Power"

I. Party Building Advances on CSOs

On May 8, the Ministry of Civil Affairs announced that civil affairs bureaus at all levels of government must completely fulfill the Chinese Communist Party (CCP) Central Committee's demand to strengthen party building in CSOs. [1]As of the date of this announcement, social organizations, foundations, and social service organizations are required to promptly provide the government office where they are registered with language in their by-laws clearly upholding the comprehensive leadership of the CCP; and representative offices are to take greater care reviewing CSO by-laws when they are up for ratification. The announcement integrates the strengthening CCP leadership of CSOs with all aspects of CSO registration and management. Civil affairs bureaus must reinforce party building work in what the announcement calls the "three synchronized steps" (san tongbu jizhi 三同步机制), namely registration, annual inspection, and evaluation. In addition, party groups and party members within a CSO must promptly report and ask for instructions regarding items of importance in the work of the CSO, as stipulated by CCP regulations.

In the implementation of these rules, Civil Affairs must put all their weight into party building, taking the "five synchronized steps" (wu tongbu 五同步) when registering and managing CSOs [2]:

At the same time, the CCP Leading Group of the Ministry of Civil Affairs resolved to launch a pilot inspection program for the Party branch of the China Social Welfare Foundation (CSWF), turning inspection into a juncture for CSO reorganization and reform by installing inspection units, and imposing strict Party governance, inside CSOs. [3]Civil Affairs and the ministry's CSO inspection leading group entered CSWF on June 15, marking the first time that Party supervision has been extended to a CSO Party group, signifying experimentation with the CSO inspection system.

II. Fundraising Management and Emergent Controversies

Charitable fundraising has rapidly expanded over the past few years, and a variety of methods for collecting donations have sprung up.At the same time, many controversies have arisen over fundraising, touching on the management of publicly and privately funded organizations; management of, and standards for, online fundraising; and corporate contributions and corporate fundraising.

In keeping with the relevant provisions of the Charity Law, the Ministry of Civil Affairs has designated two groups of online fundraising platforms, including 20 platforms in total.In 2018 Civil Affairs released 21,000 memorandums on over 1400 publicly funded charities: they report that internet users spent over 8.46 billion man-hours clicking through, following, and participating in online fundraisers, while total charitable collections exceeded 3.17 billion yuan, an increase of 26.8% from 2017. In April of 2019, Civil Affairs conducted an assessment of 2018 activity on online fundraising platforms. Based on two professional standards -- [the platform's own] monitoring of daily activity, and reports and complaints gathered [from users] -- Civil Affairs evaluated and commented on the past activities and ongoing operations of these 20 platforms, with the following results:The assessment committee [strongly] approved five platforms, including those of Tencent and Alibaba. The committee believes these platforms draw on their own unique features to actively provide fundraising information and advertising services to charities. Their outstanding results make them leaders in the field;The committee also approved 11 other platforms, among them Sina and JD.com's services. The committee cited their standardized operations, proactive service, and relatively good outcomes. The committee recommended improvements to four platforms, for instance calling on Bangbang Gongyi to further standardize their [position], serve more charities, and expand their impact;and demanding that the website Social Participation in Poverty Alleviation and Development of China (Zhongguo shehui pinfu wang 中国社会扶贫网 fpmai.com) better understand their role and properly serve charitable organizations. [4] In April, the Ministry of Civil Affairs released a notice stating that local civil affairs bureaus, as well as the masses, had reported that certain CSOs, enterprises, and institutions which do not qualify to publicly fund raise had been collecting old clothes and other used goods as "charity," in some cases selling these goods for a profit. Civil Affairs believes this violates the provisions of the Charity Law, hurting the lawful rights and interests of those who had made donations, and [negatively] impacting the image of philanthropy. The notice stated that recycling used goods in the name of charity is public fundraising. According to the Charity Law, only registered charities or organizations that are recognized as charities, and CSOs that have received authorization to solicit donations, are permitted to publicly fund raise. Other organizations or individuals may not undertake such activities. [5]The Hunan Province Civil Affairs Bureau went a step further in welcoming public accountability by setting a deadline for charities to clearly mark on donation receptacles the organization's name, their public fundraising credentials, fundraising plan, contact information, and where to find further information.

This measure will directly impact many charities that currently collect used goods, as these organizations may no longer qualify to do so. They will have to reassess the feasibility of running secondhand shops and other related programs. If they cannot publicly fund raise, they will have to partner with an organization that is qualified to do so. Controversies over charitable fundraising were big news in the second quarter of 2019. With the growth of publicly and privately funded foundations and the rise of corporate involvement in charitable activities and fundraising, civil affairs bureaus have been unable to effectively and promptly manage charitable giving. In addition, many cases go beyond the purview of civil affairs and CSO administrators.

Case 1: Yellow River Culture Foundation Implicated in Illegal Fundraising, Multiple Branch Offices Put Under Investigation

The Yellow River Culture Foundation (Huang he wenhua jijinhui 黄河文化基金会, hereafter YRCF) is a publicly funded provincial-level organization in Henan Province that grew out of the Nanyang Culture Foundation (Nanyang wenhua jijinhui 南阳文化基金会, hereafter NCF), an organization that was active from 2007 to 2009. NCF's charitable work included building rural culture halls, cultivating new cultural talent, and saving historic cultural heritage. In 2009, the Henan provincial bureaus of culture and and civil affairs approved upgrading the Nanyang City Cultural Development Foundation to the provincial-level YRCF, and broadened the scope of charitable work to encompass "raising funds, saving cultural heritage, and launching cultural enterprises in accordance with the law."

According to a report by The Paper (thepaper.cn), the foundation (offices) attracted donors with a high monthly interest rate of 0.012%, then turned around and invested the funds into the "Nanyang City Tongbai County Scenic Area (a code name for the Tongbaishan Huaiheyuan National Tourism and Vacation Area Project), then allegedly invested in Hainan real estate projects." [Translator's note: Tongbai County is under the jurisdiction of Nanyang, a prefecture-level city.]The foundation began to have problems withdrawing funds in 2015. In 2016, several business managers at YRCF's Baofeng branch office were convicted of illegal fundraising.However, the court judged the Baofeng branch office to be an illegal organization, thus leaving YRCF untouched. In March of 2018, the Nanyang municipal Party committee responded to reports about the foundation on the local leaders comment board of the People's Daily website (people.com.cn), stating, "The Public Security Bureau (PSB) has verified that YRCF is suspected of illegal fundraising. Both participants and members of the organization have committed unlawful acts and will not receive legal protection."According to The Paper, the Nanyang PSB is currently investigating this case.

After the YRCF case came to light, the private Shenzhen City Liaojian Friends Educational Foundation (Shenzhenshi Liaojianyou jiaoyu jijinhui 辽建友基金会, hereafter LFEF) was also exposed for using similar techniques to illegally amass funds. LFEF's "treasury investment fund" used "charitable donation saving" to publicly raise money for the Shenyang Jianzhu University alumni community, promising expected returns. After the scheme was reported in the trade publication - China Philanthropy Times (gongyishibao.com), it became known that the Ministry of Civil Affairs Office of Enforcement had already passed the case to Shenzhen civil affairs to investigate and process.

Case 2: Dali Group Publishes False Ads, Raises Funds for Non-Existent Recipient

In July of 2019, the Market Regulation Administration (MRA) of Lianshui County, Jiangsu Province fined Dali Food Group 36.7 million yuan for false advertising. The MRA stated that of the two organizations benefiting from Dali's "Red Packets for Intangible Heritage" campaign (Kuaile zhe feiyi, hongbao qiangbuting 快乐助非遗,红包抢不停), the China Intangible Cultural Heritage Charitable Fund (Zhongguo feiwuzhe wenhua yichan gongyi jijin 中国非物质文化遗产公益基金 and the "China Cultural Protection Foundation," one no longer existed, and the other had never existed in the first place. From December 8, 2017 to July 31, 2018, Copico Potato Chips ran a charity campaign under the banner of Dali Group. Anyone who purchased a bag of chips marked as part of the campaign would have the chance to win a WeChat red packet or a digital coupon. Once the customer had scanned the QR code to get their red packet, they could either redeem the cash or donate it to the "China Cultural Protection Foundation" through Dali Group.

When the incident was made public, Dali Group claimed that carelessness on the part of their staff had resulted in QR code errors on some chip packages, and that the related donations did in fact exist. The Ministry of Civil Affairs CSO Management Administration stated on their official WeChat account,"It is improper to attribute a crisis of public sentiment to such low-level mistakes as 'QR code errors.' This could easily be interpreted as disdain for the public's trust, and a lack of faith in philanthropy."

III. Publication of China Civil Society Organization Report, Charity Bluebook:

Philanthropic Developments in China (2019), and China Third Sector Survey (2019)

Three new reports take stock of CSO/third sector developments in 2018. The China Civil Society Organization Report describes the deceleration of CSO sector growth. According to quantitative data released by the Ministry of Civil Affairs, there were 816,000 CSOs nationwide as of the end of 2018, compared with 762,000 at the end of 2017. The total number of CSOs added was 54,000, a growth rate of 7.1%. The rate of growth fell about 1.3% from 2017. However, the report points out that the total number of CSOs in China has nearly doubled in the past decade. A substantial number of CSOs were added in the past year, despite the slowdown in the pace of growth.

At a press conference, Prof. Cai Liqiang, the executive editor of the report, brought up three causes of this moderate slowdown: (1) Transition from a period of high growth in the number of CSOs to development of existing organizations. The stress is now on standardization, dynamism, development of functions, and other "qualitative" improvements; (2) Strict registration procedures and rigorous monitoring, raising the bar to entry; (3) Intensified crackdown on illegal activities carried out by legally registered CSOs. A massive number of "zombie" and "dormant" organizations which have not had activities for a long period of time, have not conducted annual inspections, or do not regularly turn over their leadership have had their registration revoked, a form of administrative punishment that has diminished the total number of CSOs. [6]

The 2019 Charity Bluebook reports that, after adjustments, 146 billion yuan was donated to charity in 2016 nationwide, compared to 153 billion in 2017. Charitable donations in 2018 are projected to be 113 billion yuan, a decline from the previous year. The report attributes this drop primarily to a lack of data on contributions outside of the civil administrative system, as well as to the halving of the value of donations of pharmaceuticals and medical equipment (due to controls on the price of medical treatments). On the one hand, the current statistical model primarily uses samples of online data to calculate charitable contributions from the government (not including civil affairs bureaus), professional, religious, and civic organizations. Since contributions to the civil administrative system, which formerly was the primary recipient of donations, has dropped to about 1% of the total, their statistics are no longer released to the public,while no accurate, credible system has been devised for evaluating donations to primary recipients.This further complicates surveys of the available data. On the other hand, material donations have traditionally accounted for 30% of total contributions, of which 90% came from donations of pharmaceuticals and medical equipment. The halving of the prices for medical materials has thus directly affected the calculation of total contributions. [7]

The 2019 edition of the China Third Sector Survey provides analysis and critique of third sector relations with business and the government. This issue of the report starts from the current trends of "social enterprise" and the "public interest commercialization," pointing out that the rise of social enterprise in China marks the convergence of authoritarianism and market fundamentalism on the public interest sector, and that social enterprise is in fact the "handle" of the knife with which government and commerce are castrating public welfare. According to the report, the abuse of social enterprise leads to four major problems: (1) The emphasis on "fees" limits CSOs to providing services, greatly restricting their functionality. (2) When commercial forms of ownership rights, decision-making authority, and incentive mechanisms enter into the field of public interest, they strengthen and expand the role of money and limit space for the "living world."(3) Overemphasis on social enterprise, belittling of public interest organizations, and blurring of the lines between public welfare and commerce all dampen the public's enthusiasm for social welfare and drain resources away from organizations that already operate on shoestrings into for-profit operations. (4) This bolstering of egotism and diminishing of altruism threatens the very foundation of public interest in the name of convenience.

The report analyzes the interaction between the government and non-governmental organizations (NGOs) based on case studies from two trial cities for the Recommendations on Accelerating Community and Social Work Services, put forward by the Ministry of Civil Affairs and other official organs. The Recommendations require the establishment of joint-action service mechanisms to promote talent in the fields of community, CSO, and social work, called the Three Social Joint-Actions (san she liandong 三社联动). The report found that in this system CSOs can gain specially designated space for growth, but that they also face limits and regulation of their core functions, professional work, and specialties. The development of a CSO after it enters into a community, however, is the outcome of negotiation for decision-making power among the neighborhood authorities and other parties. The report concludes that the simultaneous growth and subordination of CSOs is turning China's third sector into an ever-expanding body with an ever-shrinking soul. [8]

IV. Public Welfare and Legal Aid Workers Arrested on Charges of "Subverting State Power"

At noon on July 22, contact was lost with three members of the public interest advocacy NGO Changsha Funeng. On July 25, the Changsha National Security Bureau confirmed that it had taken the three NGO workers into custody on suspicion of "subverting state power" and had barred lawyers and family from visiting them. On July 31, a letter jointly signed by 61 international organizations was submitted to the Chinese delegation of the Joint United Nations Programme on HIV/AIDS (UNAIDS), calling on China to immediately release Cheng Yuan, Liu Yongze, and Xiao Wu (Wu Gejianxiong), and to revoke all charges against them. [Trans.: China currently chairs the UNAIDS Programme Coordinating Board.]The letter was also sent to the directors of UNAIDS, several UN human rights working groups, The Global Fund to Fight AIDS, Tuberculosis and Malaria, and other organizations.

This is the most severe charge against public welfare workers to date. Previously, NGO workers have often been charged with "picking quarrels and provoking trouble" (such as the Feminist Five), "gathering a crowd to disturb social order" (as in the mass arrests of workers in 2016 and 2019), and "illegal business activity" (as in the crackdown on Yirenping).If the Changsha Three are convicted of "subverting state power," they will face 10 or more years in prison.