Law and Policy Trends that Affect NGOs and Social Enterprises in China

There are several types of non-governmental organization (NGOs) in China which can be divided into various categories:

• NGOs registered under Industry and Commerce as business enterprises
• NGOs that are not registered
• NGOs registered with the Civil Affairs Department
• pure grass-roots organizations (a large number with non-official background or non-governmental), not recognized by the government.

NGOs’ Relationships with the Government

There are two types of relationships between the NGOs in China and the Chinese government. NGOs that enjoy a good relationship with the government are mainly civil organizations that are formally registered; most of them are part of the institutionalized system.

As for other types of NGOs, their relationship with the Chinese government is delicate, full of uncertainties and tensions. These NGOs are mainly civil organizations that are not registered; as a result they cannot openly exist as an NGO in China. Under the high threshold of the current regulations, many of these organizations choose to register as business enterprises. This provides a special way for them to survive in China, but they cannot enjoy any benefits or privileges of an NGO.

The Current Situation of NGO Survival in China

NGOs are developing rapidly in China and are making many contributions to society. However, they are also facing many restrictions and tight controls from the government. As many as 74.4 percent of existing NGOs that are recognized by society are unable to register with the Civil Affairs Department.

A major reason for the survival difficulty of NGOs in China is that unlike in some Western countries that have a democratic political system, in China the inherent political system runs in a way that any power or organized operation has to be approved or initiated from the top-down. In other words, these operations must be given from the government to the society or be approved by the government for the people, rather than come from the bottom-up. Hence, a bottom-up, self-initiated “non-governmental” operation, which may have influence over society, can therefore be seen as a potential challenge to the existing “top-down” system. In addition, if it is a non-profit NGO coming from outside China, its motivation will certainly be questioned. Thus, the government’s approval of an NGO is often considered in light of these political factors rather than on the actual interests or benefits to the people. The tight controls over NGOs are, therefore, the manifestations of the inherent political system and its accompanied mindsetto avoid any undesirable influences that may undermine the existing power structure or weaken the current governance, which is the main concern of the government.

Another related political concern of the government is that if the number of NGOs continues to grow, and if NGOs develop high quality, they will build up their own network and will be able to connect, mobilize and organize people. These connections and their potential power are valuable political resources that can be possible threats to the government. In addition, approving NGOs’ development may also imply loosening the governmental controls over freedom of association. These challenges or threats to the current power structure make it inevitable for the government to impose constraints on the development of NGOs rather than to encourage them to develop freely.

As NGOs cannot survive publicly as NGOs, one of their choices for survival is to become a business enterprise, that is, to register under Industry and Commerce. NGOs of this type will need to comply with the regulations for business and commerce in China; they shall be under the supervision of the Industry and Commerce Department. In other words, such a status often implies difficulties and complications for the NGOs’ operations and their financial arrangements. These complications often involve eligibility for tax exemptions or tax credits, procedures on accepting donations and the public reputation and credibility of the NGOs. All these can directly affect the sources of income, financial situations and activities of an NGO. They also indicate the current imperfect laws and incompatible policies for the existence of NGOs in China.

As China is still in a transition period and has not yet become a civil society, there will not be any fundamental changes in the way NGOs exist in China in the short run. The government is unlikely to introduce new laws to encourage the development of NGOs in the near future.

Social Enterprises

Social enterprises refer to organizations that integrate social goals and commercial activities. They are different from traditional enterprises and NGOs. They are a blend of social organization and business with clear goals combined with entrepreneurial spirit and innovative business models. They can also be protected by the law.

In China, there are two modes of operation in societywithin the business sector and outside it. Operation within the business domain is relatively free. Individuals can set up businesses without much difficulty. Private funds and capital can flow and operate relatively freely in this area. The usually rigid and complicated administrative commands and procedures that restrict operations in non-business areas are often relaxed for businesses, to the point that the areas of restrictions over the sector are mainly for tax regulations and controls for industry standards. On the other hand, while the development and supervision of activities within the economic sector are more in accord with laws and regulations and are driven by market forces, operations in the non-commercial sector in China are still largely driven by administrative orders and are under the close management of government authorities. Hence, in China, to be a social enterprise is a more ideal form of existence when compared to being a traditional type of NGO.

However, given the political system, socio-economic and cultural background of China, the future development of social enterprises in China can still be affected by a number of unpredictable factors. Following are a few:

1. Economic development of China: When normal economic development is not working properly (e.g., high property prices, economic bubbles), it will be harder for the innovative model of social enterprise to survive and function properly.
2. Political reform: To what extent is the Chinese government or political parties willing to share their power with civil organizations in the area of power allocation, law protection, institutional arrangements and so on? In other words, to what extent and in what direction does power transmission take place?
3. Religious policy: Many social enterprises are not motivated by profits but by higher moral goals, spiritual pursuits and a strong desire to solve social problems. All these are difficult to express and to act proactively and publicly without an open religious policy.
4. Population policy: An aging population is one of the greatest challenges China is facing. Social structures will greatly influence the entire Chinese society.
5. China’s international environment: Relationships between China and other countries in the world, especially when China is in a developmental stage, will have an impact.
6. Globalization: A large number of global enterprises coming into or leaving China will definitely affect the society.

All of the above factors will affect the development of social enterprises in different aspects. Social enterprises must adapt to the complex challenges during the transition process of the Chinese community based on the needs of social development and national conditions in China. They must explore their own way to develop in China.

Image credit: Chinese flag by Philip Jägenstedt, on Flickr