CAF America Connections Blog

The Changing Landscape of NGOs in China

August 8, 2014

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Posted by Elizabeth Walker Sobhani on August 8, 2014.
Written by: Elizabeth Walker Sobhani and Diana Dai

All eyes have been on China, with one fifth of the world’s population, the second largest economy in the world, and an annual GDP growth rate of ~10%. However, in tandem with such tremendous growth there has been a parallel increase in social and environmental challenges. From excessive coal burning and dangerous levels of pollution (to the point where it is affecting the ability to attract employees in large cities), to huge income disparities and migrant worker challenges as workers flee to the cities to earn a livelihood but do not have the legal right to reside in those cities.

The good news is that the Chinese government is recognizing the important role that nonprofits, and to a lesser extent companies, can play in addressing some of these social issues. There are encouraging signs that the government wants to involve more social resources to resolve social problems together. For example, there are now laws that enable local nonprofits to legally register in China and raise funds. More organizations are actively supporting the development of the sector through capacity building and knowledge sharing, such as the China Philanthropy Research Institute at Beijing Normal University, foreign embassies, and even private Foundations. Another encouraging sign is the increase in the number of foundations and donors wanting to “do good” by addressing social issues. Since the second half of 2013 a new Private Foundation is registered in China approximately every 3 days! All of these indicators show progress in the sector, but it is worthwhile to review the current nonprofit sector landscape in terms of size and participation.

According to the 2012 Conference Board report on philanthropy in China, there is one legal nonprofit organization for every 2,900 citizens in China, while the United States has one for every 200 citizens [1]. The number of registered NPOs in China has more than doubled over the past decade, but many still do not register and continue to remain as incorporated companies. There are also large government operated NGOs (referred to as GONGOs) that continue to have a significant presence, but they face increased competition for funds with the increase in nonprofits and a relatively steady funding pool of ~14B US [2] in annual charitable donations into China. In 2012 the top three areas for giving (representing 67% of donations), were concentrated in education, poverty alleviation, and healthcare. As donating is relatively new, there is more concentration of funds around these areas.

It is a privilege to serve as social impact consultants providing services to nonprofits, foundation, and companies in China. We have created a “Top Trends” list based on our knowledge and the experiences of our clients.

1. Increasing need for nonprofit accountability and transparency

The Red Cross, a trusted world brand, was the largest player in disaster relief funds in China, but it could not escape being caught up in a scandal of misuse of funds. A lack of trust in such an international NGO led to widespread doubt on how NGOs were using their funds in China. Why? Unlike in the US where nonprofit organizations are required to report in detail on their income and expenditure, this is not the law nor the practice in China. The good news is that donors have the power to influence this, and due to the skepticism, many donors now prioritize accountability and transparency on the use of funds. This has led to some nonprofits in China producing detailed reports and audited financial statements. This is still very much a learning process but the trend is moving in the right direction.

2. The development of training programs to enhance NGO leadership

The nonprofit industry is growing rapidly, but a lack of qualified management-level leaders has been an obstacle. It is exciting to see the progress in this area and that new innovative programs aimed to enhance the leadership talent. In 2012 the Philanthropy Research Institute released the first Executive Management Program for CSR and nonprofit leaders in China in cooperation with the University of Indiana. China Renmin University also worked with China Social Entrepreneur Foundation and China Foundation Center to release Project 100 in 2012, with the aim of training 100 young NGO leaders over the next 5 years. The famous China philanthropist Niu Gen Sheng and his Lao Niu Foundation also established a training program called Project 1000; this program is targeted to train 1000 NGO employees by providing 6 months part time training.  Without doubt we are seeing the progress and development of the talent within the NGO sector – but we can’t stop here. More capacity building, more knowledge sharing, and more nonprofit experience are still needed to create an even stronger more effective nonprofit sector.

3. The realization of the need for a functioning governing Board

Although some NGOs have had a Board of Directors since their inception in China, the Board role has not always been clear – on occasion nonprofit Boards could be described as simply “decoration.” NGOs are now investing in the recruitment and development of a governing Board and a reliable management structure as they see how fundamental it is for the healthy development their organizations.  Take a GONGO for example – they may have had a board with 100 board members making it impossible to have a real discussion – meetings would consist of merely reading a report to the 100 members.  Now, GONGOs are downsizing the number of board members to ~15 members.  Furthermore, they are consciously considering the skills and backgrounds of these members to bolster the governing of the NGO through the formation of Board Committees. The role of the nonprofit board in China is changing not only to ensure financial stability, but also to set a strategy in place that will both reflect the organization’s mission and ensure legal and regulatory compliance.

4. Marketing and branding are no longer negatively perceived for NGOs in China, but are necessary for success

For a long time, marketing and branding were considered “bad words” for NGOs in China. Two major reasons changed this thinking: firstly, the requirement to attract corporate donors who want visibility, especially Chinese companies; secondly, some well-marketed grassroots NGOs have used the power of marketing and social media to attract a great number of resources and attention. The power of building a new marketing and branding strategy focused on the achievement of an NGO’s mission is emerging.  This new development is propelled by expert resources, such as organizations like Lotus Consulting, Inspiring NPO, or the Narada Foundation who are encouraging this shift.

5. Increasing interest in becoming individual donors, both large and small

Individual philanthropy is on the rise in China, with the top 100 donors giving over $2B USD in 2012 and more private family foundations are being established every year [3]. With the introduction of funding in China from Bill Gates, Warren Buffet, Tony Blair and others as a way to help cultivate the philanthropic spirit, the trend seems to be catching on regardless of the giving motivation.   However, it is not just among the super wealthy that this is happening. The Generation Y community seems to have an innate desire to ‘give back’ and see changes to China’s social and environmental challenges; they are contributing their time, skills, and money where possible.

In our consulting work it is clear that the giving potential is much greater than is being realized.  There is a great desire to donate, but many new donors do not have the experience or skills to know how to make these decisions, how to structure their philanthropic strategy, what decision criteria to use for selecting nonprofits, and how to assess the impact of their donations. Some do not even come close to giving away their annual philanthropic budgets. Others want to do more than just give money; they want to use their connections, businesses, and other assets to help solve the social issues at hand. Our prediction is that as the nonprofit sector continues to mature in China, individual and family foundation donations will surge in the coming years, and their contributions will be far greater than just dollars.

These are exciting times in China’s nonprofit industry development.  In particular, it provides hope for those who are actively working for an NGO, for companies partnering with NGOs, and for local and international donors who want to see the sector continue to strengthen and develop. China’s economic growth caught everyone’s attention, and now the foundation has been laid to propel the growth and advancement in China’s social sector.

[1] Conference Board – China Philanthropy 2012
[2] Chinese Charitable Donation Report 2012
[3] The 2012 Top 100 Philanthropy List published by China Philanthropy Research Institute

 


Elizabeth and Diana are currently working in collaboration with CAF America on advisory initiatives in the Asia-Pacific region.

Elizabeth Walker Sobhani, partner and Managing Director of Lotus Consulting, brings 15+ years in management consulting in Australia, North America and China. She worked for the top tier strategy consulting firm, Bain & Co, and was also the VP of Strategy for ACE, a global insurance company. Elizabeth has worked extensively with nonprofits and companies to help them through various strategy and change management projects and realizing results.

Diana Dai has 15 years work experience in Marketing, Advertising and Non-Profit Marketing. Before establishing InspiringNPO, she worked for Ogilvy (icon mobile), Universal music group, ADK group as business director, marketing director. She also worked as senior consultant at Non-Profit organizations ChildServ and DigitalNPO. She graduated from University of Illinois as an MBA, and Communication University of China.

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