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China seems to have shelved its controversial draft law on foreign NGOs, at least for now. Rather than cracking down on Western civil society organisations in China, a new charity law increases the scope for domestic philanthropy. The strategy seems to align with the ‘Made in China 2025’ technology roadmap: the goal is to build up Chinese champions who can compete against Western organisations.

Western civil society organisations in China have expressed deep concern over the proposed Foreign NGO Management Law (境外非政府组织管理法), which would severely restrain their activities. The debate created the impression that the Chinese government is pursuing a blanket crackdown on non-governmental organisations. However, while the Foreign NGO Law has been repeatedly postponed, this week’s adoption by the National People’s Congress of a ground-breaking Charity law (慈善法) suggests a different reading.

The law is first and foremost an attempt to channel social organisations’ activities to where the party and government want them to make 'useful contributions to the public interest'. But the promotion of a home-grown charity sector also represents the soft power component of party and state leader Xi Jinping’s project of a 'great revival of the Chinese nation' (中华民族伟大复兴).

A sincere effort to promote domestic charity

The new law is a sincere – and overdue – effort to improve China’s underdeveloped philanthropy sector. China ranked a dismal 144 out of 145 in last year’s World Giving Index. Chinese citizens have been reluctant to donate after numerous misappropriation scandals involving government-run charities and online fundraising scams. At the same time, the Xi administration’s goal to eradicate absolute poverty by 2020 cannot be achieved by relying on state bureaucracy alone.

The Charity Law is meant to provide the regulatory environment needed to unleash private capital and channel it into 'activities of public interest' (公益活动) as defined by the Communist Party. The first draft was first proposed ten years ago, but the legislative process only gathered speed in recent months, highlighting the leadership’s perceived urgency to improve the delivery of social services in China.

The new bill sets up China’s first comprehensive legal framework for non-governmental charities. It introduces tax incentives for donors, it increases transparency requirements and it allows advertising and online fundraising. Most importantly, and in stark contrast to the proposed Foreign NGO law, it relaxes registration requirements, such as the obligation to have a government sponsor. And it even legalises charitable activities by unregistered organisations.

Foreign civil society actors are left in the dark

Given the Charity Law’s clear potential to do more good than harm to the sector, Chinese commentators have suggested to extend it to foreign NGOs instead of submitting the latter to a different control mechanism. But this approach does not seem to be in the party state’s interest.

Foreign-based organisations are neither explicitly included nor are they excluded from the charity law. At the same time, the draft law on foreign NGOs has neither been adopted nor retracted. This ambiguity suggests that foreign NGOs will continue to operate in a grey area.

As of today, Western donors already face increasing problems establishing and maintaining partnerships with non-governmental Chinese partner organisations, who fear being portrayed as Western-influenced. This means that the spirit of the Foreign NGO Law is already showing effect without formal adoption of the law. The Charity Law is now set to increase the number of Chinese donors to cash-strapped domestic NGOs – or at least to those that engage in charitable (that is, politically desirable) activities. In turn, the Charity Law’s most controversial Article 15, which states that charitable organisations 'must not accept contributions that have conditions attached which violate laws, regulations or social morals', could be used to exclude foreign donors.

Homegrown champions should go global

While many questions remain as to the implementation of the new law, comparing the developments in China’s non-profit sector to current adjustments in its manufacturing and technology sector yields important insights into the leadership's rationale.

Similar to the ten key manufacturing sectors identified by the Made in China 2025 strategy, China's charity sector is relatively under-developed. China is trying to catch up with international standards, and the American charity industry is viewed as a model to compete with. Private initiatives are most welcome in this development effort, as long as they 'set a good example' and align with the government's plans for poverty alleviation in the upcoming five-year cycle.

As with technological innovation, developing a modern and effective charity sector 'made in China' will rely on learning from others. Western civil society organisations have broad experience in dealing with issues from poverty alleviation to environmental protection and will therefore not be expelled from China in the short run. Even though there are no clearly defined targets for 'domestic market share' as in the manufacturing sector, there is a clear willingness to reduce the dependency on Western actors. For one, domestic civil society actors are easier to control. But the shift is also connected to national pride. In the long run, it would seem anathema for a 'great power' (强国) to rely on foreign magnanimity to support its own citizens in need.

Looking beyond China’s borders, there is another parallel with industry policies: The promotion of Chinese homegrown charities is also geared towards propping up China’s position as an international player. Xi Jinping has made it clear that in addition to a strong military and a vibrant economy, becoming a great power will also require China to increase its 'cultural soft power' (文化软实力). As of today, China’s state-centred foreign aid model can hardly compete with international humanitarian and development aid provided by Western private foundations. This explains why China’s social organisations (民间组织) – just like its private businesses - are now expected to 'go global'.

Can private charities threaten the Party?

However, while the CCP can whole-heartedly embrace the emergence of private multinational companies as global industry champions, stronger social organisations are a different case. Charitable organisations displaying undesired political ambitions could be outlawed on the grounds of 'endangering national security' under the Charity Law. But even apolitical philanthropic organisations with nationwide organisational capacity and public legitimacy may be perceived as potential threats to the party. The Party’s traditional wariness of other large-scale social actors may therefore stand in the way of China’s transformation into a major 'philanthropic power'.