The nonprofit sector in China, despite its young age, has made tremendous strides in addressing social issues such as pollution, education and poverty. Many nonprofit industrial associations have also cropped up to help manage the business sector more efficiently.

“Nonprofits have done a lot for the society in terms of overcoming social problems,” said Dr. Jun Xu, visiting scholar at the Duke Center for International Development (DCID). “The government is slowly beginning to see their value.”

However, the Chinese government still has “mixed emotions” about this unfamiliar new sector, she said, making it reluctant to put measures in place to help it thrive.

Challenges for grassroots organizations

Xu, who has been at Duke since the beginning of the spring 2014 semester, recently completed her research on how the emerging nonprofit sector in China can continue to develop and reach its full potential. Now a professor at the Capital University of Economics and Business in the School of Urban Economics and Public Affairs in Beijing, Xu has been conducting research on China’s nonprofit sector for more than 10 years. 

“I want to know how nonprofits work from the bottom up – how grassroots nonprofits can survive and develop and become stronger in our society,” she said.

Compared with America’s, the Chinese nonprofit sector is still in its infancy. More than 500,000 registered nonprofits have cropped up in China since 1978, when the country instituted market reforms and paved the way for the formation of a nonprofit sector. By contrast, approximately 1.5 million tax-exempt organizations are operating in the United States today. This does not include the millions of organizations that are not required to register since their annual budgets are less than $5,000.

Xu, who earned her Ph.D. from the School of Public Affairs at Renmin University in Beijing, interviewed more than 100 nonprofit leaders in both the U.S. and China to determine their impact on society and the challenges they face.

For nonprofits in China, especially small grassroots organizations, one of the biggest challenges is the red tape necessary to register.

“They have to be recognized by the government so they can raise funds from the public and so people who donate to them can get tax reductions,” Xu said. “But there are many barriers.”

For example, if an organization wants to register as a nonprofit in China, it must ask a government agency to be its professional sponsor and supervisor. After this step, the organization has to go to another government agency, the Ministry of Public Affairs, to verify its documents.

If an organization is unable to register, its ability to fundraise and recruit qualified candidates is hindered. In addition, it is unable to seek legal protection if its rights are violated.

Xu gave an example of one nonprofit that provided funding for an operation to treat a young girl’s brain cancer. When the girl’s disease turned out to be much more easily treatable than expected, her family refused to return the surplus funds provided by the organization. Unable to turn to the government for help, the small organization lost a significant portion of its assets.

Removing barriers to nonprofit success

Last year, the Central Committee of the Communist Party of China decided to give priority to the development of industry associations, chambers of commerce, and technology, public welfare and charitable community service organizations. As a result, these types of nonprofits now can apply at the Ministry of Public Affairs without first seeking a government sponsor, eliminating a step in the registration process.

But more needs to be done, both by the government and by the nonprofits themselves, Xu said.

The government must not only reduce the steps needed for registration, but should also enter into more contracts with nonprofits, Xu said. U.S. government agencies entered into approximately 350,000 contracts and paid $137 billion to nonprofit organizations in 2012. The Chinese central government entered into only 470 contracts in 2013. Together with local governments, it paid a total of $2.4 billion to nonprofits that year.

“The number of contracts is increasing every year, but it needs to happen at a faster rate,” Xu said.

The government should also simplify the process of applying for tax deduction to encourage more people to donate, she said.

“Applying for tax deduction is a very long process, something like 10 steps,” Xu said. “As a result, very few people apply.”

Higher education institutions and research centers can also play a critical role by providing training in human resource management, marketing, impact evaluation and good governance for nonprofit leaders.

Nonprofits already face an uphill battle, Xu said, since the government is suspicious of their potential to fuel opposition. This, coupled with scandals and ineffective management, puts nonprofits at risk of losing the credibility they have already gained from the government and the public.

“They have to able to demonstrate their value in order to get more leverage for development,” she said.

Creating new generation of social entrepreneurs

Xu chose to study at Duke University because of its strong reputation for research on civil society and volunteerism.

“It’s been a wonderful experience,” she said. “I have had so much support from the staff and faculty at DCID and the Sanford School of Public Policy. I’ve audited five courses here and had the opportunity to interview a number of scholars and nonprofit leaders.”

She also chose Duke to be closer to her daughter, Susie, who is an exchange student at the University of North Carolina at Chapel Hill. During the past semester, Xu encouraged her daughter to participate in a social entrepreneurship competition in Hong Kong organized by the Yale-China Association, the Chinese University of Hong Kong and Goldman Sachs. Susie won the competition for her proposal to use social media to facilitate cross-cultural communication between mainland and local students at Hong Kong universities.

“I was able to serve as a mentor for her during the competition,” Xu said. “It really proved how much I was able to learn here.”

When Xu returns to China, she plans to set up a new course and student competition in social entrepreneurship at the School of Urban Economics and Public Affairs in Beijing.

“Our society currently is in the transformation period and urgently needs social entrepreneurs – our new heroes – to pay attention to social problems and create new ways to resolve them,” Xu said.

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