After a year, legislation on overseas NGOs has once again aroused great interest. The last time was in April last year, when the law on overseas NGOs was published to solicit comments from society, causing a heated debate. Members of the public from all sectors of society used a variety of channels and means to submit numerous suggestions to the legislature. After a period of concerted revision by the legislature, the law was finally passed at the 20th meeting of the 12th National People’s Congress and will go into effect on New Year’s Day 2017. The proclamation of the law once again drew the concerned attention of many people and raised a number of doubts. In light of this, it seems necessary to clarify these questions in the hope of contributing to the correct interpretation and implementation of the law.
Background and Goals of the Legislation
Overseas NGOs gradually entered China in the course of Reform and Opening Up, and have conducted activities in a broad range of areas. For a long time, China had no legislation that specifically regulated and guided overseas NGOs. Of the three sets of regulations relevant to social organizations (the “Regulations on the Management of Foundations,” the “Regulations on the Registration and Management of Social Associations” and the “Temporary Regulations on the Registration and Management of Private Non-Enterprise Units”), only the “Regulations on the Management of Foundations” contains provisions on overseas foundations establishing representative offices in China. This deficiency in the legal system has led to a number of problems. First of all, overseas NGOs have faced the question of their “legality.” The lack of a legal basis or a Professional Supervisory Unit hangs like a “Damocles’ sword” over the activities of many overseas NGOs who have not registered or filed documentation, encouraging the short-term nature of these activities and harming efforts to establish long-term cooperative relationships with partner organizations, as well as the healthy development of overseas NGOs. Secondly, the rights and interests of overseas NGOs are not guaranteed. Because the legal status of overseas NGOs is unclear, they are unable to make use of laws relevant to their financial assets, contractual agreements with partner organizations or labor relations between members of their staff, making it difficult to clarify the rights, obligations and responsibilities of the parties involved. Three, the conduct of overseas NGOs is insufficiently standardized. Next to the overseas NGOs acting responsibly, there are occasionally bad actors. The media has previously exposed NGOs engaging in price manipulation and fraudulent activities, and fears that these organizations might harm national security and society’s public interest are not completely unfounded.
Therefore, drafting legislation was necessary to clarify norms and define limits. It goes without saying that the goal of the “Law on the Management of the Activities of Overseas NGOs within Mainland China” is to regulate and guide overseas NGOs in carrying out activities in Mainland China, to guarantee their legal rights and to promote exchange and cooperation.
Defining Overseas NGOs
Overseas NGOs as mentioned in the law refers to foundations, social groups, think tanks and other non-profit, non-governmental social organizations legally established outside of Mainland China. Compared to the second draft of the law, the scope of the final legislation has been significantly reduced. Remember, for instance, that the second draft defined overseas NGOs as “non-profit, non-governmental social organizations established outside of Mainland China.” The final law not only adds supplemental provisions to exclude overseas schools, hospitals, science and engineering technology research institutions or academic organizations, but also makes it clear that the legislation is mainly aimed at regulating overseas NGOs comparable to China’s social organizations. These social organizations mainly take the form of foundations, social groups and private non-enterprise units (soon to be renamed “social service organizations” in accordance with the new charity law).
Since the beginning of the Reform and Opening Period, nearly 10,000 overseas NGOs have carried out activities in Mainland China in areas ranging from traditional charitable activities, like alleviating poverty, helping the needy, supporting the elderly, providing aid for the ill and relief for disaster victims, to modern public welfare endeavors in education, fair trade, village administration, social enterprise and other areas. The new legislation is an affirmation of these activities, clearly defining the operational scope of overseas NGOs as including the areas of economics, education, science and technology, culture, public health, physical education and environmental protection, as well as helping the needy, providing disaster relief and activities in other areas beneficial to developing the public welfare sector.
What should be clear is that the concept of overseas NGOs extends beyond that of charitable organizations and includes not only organizations engaging in poverty alleviation, disaster relief and other charitable causes, but also mutual-benefit organizations.
Basic Principles of Overseas NGOs Conducting Activities in Mainland China
First principle: the principle of legal guarantee. Overseas NGOs carrying out activities according to the law will receive legal protection.
Second principle: the principle of abiding by the law and respecting public order. Overseas NGOs must respect the law and must not harm national or ethnic unity, China’s national interest, societal public interests or the lawful rights and interests of other entities.
Third principle: the principle of maintaining the distinctive characteristics of NGOs. NGOs have three distinctive features: they are non-profit, non-political and non-religious. Therefore, the law dictates that overseas NGOs must not engage in or fund for-profit or political activities, nor illegally engage in or fund religious activities.
The Management System for Overseas NGOs
The legislation clearly makes overseas NGOs subject to the “dual management system”.
Overseas NGOs carrying out activities in Mainland China will be subject to the supervision and oversight of both the registration and management authorities, as well as the professional supervisory departments. The law clearly stipulates that the public security departments of the State Council and the public security authorities of the provincial level governments are the registration and management authorities of overseas NGOs carrying out activities in China. They are responsible for registering and carrying out annual inspections of the representative offices of overseas NGOs, filing the temporary activities of overseas NGOs, and investigating and punishing illegal activities of overseas NGOs and their representative offices; the relevant departments and units of the State Council and the relevant departments and units of the provincial level governments are the Professional Supervisory Units (业务主管单位) of overseas NGOs carrying out activities in mainland China and will give advice to overseas NGOs on establishing representative offices, changing registration and on the annual work report. They will also guide and supervise overseas NGOs and their representative offices in conducting activities in accordance with the law and assist public security authorities and other departments in investigating and punishing the illegal conduct of overseas NGOs and their representative offices.
In order to prevent “registration difficulties” caused by the difficulty of identifying Professional Supervisory Units, this law clearly dictates that the public security departments of the State Council and the public security authorities of the provincial level governments will publish a list of Professional Supervisory Units together with other relevant departments. This provision draws on lessons learned from the “Regulations on the Management of Foundations”, in the hope that publishing a list of Professional Supervisory Units will alleviate problems with the dual management system that had made it difficult for overseas foundations to identify Professional Supervisory Units and establish representative offices. Obviously, further clarifying that it is the responsibility of the government departments and relevant units mentioned in the list to act as Professional Supervisory Units for overseas NGOs would do even more to solve the problem of “registration difficulties.”
The System of Registration and Filing
[The legislation] clarifies that there are two legal channels available for overseas NGOs carrying out activities in China: to register and establish a representative office in accordance with the law or to file for temporary activities. After successfully registering according to the law, those establishing a representative office will use their registration certificate to register for taxes, obtain an official seal and establish a bank account in Mainland China. Overseas NGOs that have not established a representative office may need to carry out temporary activities in Mainland China together with their Chinese partner organization. If they want to carry out temporary activities, the Chinese partner organization must carry out approval procedures according to national regulations and file documents with the registration and management authorities.
Compared to the second draft, there is no longer a separate chapter regulating the filing system for temporary activities and the relevant procedures have been simplified.
The final legislation also deletes a chapter in the second draft dealing specifically with overseas NGOs that establish foundations and private non-enterprise units (likely to be renamed “social service organizations” in the future) in Mainland China. The legal principle behind it is this: if a Chinese legal person is established according to Chinese law, then the relevant laws and legislation regulating Chinese legal persons would apply in place of this law. Foreign chambers of commerce are one typical example.
Regulation of Activities
The third chapter of the law stipulates the main rules for activities carried out by overseas NGOs in Mainland China. It includes:
(1) Actual activities should match registered contents. This requires that the representative office of an overseas NGO shall carry out activities using their registered name, and within the operational boundaries and areas of activities that have been registered.
(2) Overseas NGOs may establish representative offices, but they must not establish any branch office in China, unless otherwise regulated for by the State Council. The difference between representative offices and branch offices is: the activities carried out by representative offices are considered activities carried out by the overseas NGOs themselves, while the relationship between branch offices and overseas NGOs is the same as the “relationship between headquarters and divisions”.
(3) Submitting and filing annual activity plans. The representative office of an overseas NGO shall submit an activity plan that details the projects that they intend to run and how they intend to use their funding in the coming year. This plan should be submitted to the Professional Supervisory Unit before December 31th every year. After it has been approved, the representative office shall submit it to the registration management authorities for filing within 10 days. Where there is a need to adjust the activity plans due to special circumstances, a filing should be made timely with the registration management authorities.
(4) Specification of the sources of funding. According to the law, funding for activities run by overseas NGOs in China includes:money that has been legally raised abroad; interests gained from deposits made in Chinese banks;other money that has been lawfully acquired within China.But the law also explicitly stipulates that overseas NGOs and their representative offices in China shall not conduct fundraising activities within China, and they shall not use funds that come from sources other than those described above for their activities in China.
(5) Management of bank accounts. The representative offices of overseas NGOs shall use the bank account that was filed with the registration management authorities to handle money within China, and those that carry out temporary activities in China shall use their Chinese partner organization’s bank account to handle funds in China. An independent account record should be kept, and the money used as agreed upon.
(6) Accounting and auditing shall be managed by accounting firms and accountants within Mainland China in accordance with the Chinese accounting system.
(7) Bank transfers shall be made in accordance with China’s existing regulations that deal with foreign exchange.
(8) Make tax registration and tax declarations, and pay taxes according to the law.
(9) Lawfully employ staff and file information about the staff.
(10) Unless otherwise specified, openly recruiting members is forbidden.
(11) Conditions that disqualify a person to serve as director of a representative office.
(12) Carry out temporary activities according to the contents that were filed, and report activities after completion.
(13) Conduct annual inspections. Other than the rules that are specified in this law, overseas NGOs shall adhere to other Chinese laws and regulations when carrying out activities within Mainland China.
Relevant departments at all levels of government shall provide necessary favorable policies and services to enable overseas NGOs to carry out lawful activities within Mainland China. These policies and services include: (1) Stipulate areas of work and projects that overseas NGOs can work in, and publish a list of Professional Supervisory Units in order to guide the activities of the Overseas NGOs; (2) Provide policy advice and activities guidance to overseas NGOs in accordance with the law; (3) Overseas NGO representative offices shall enjoy tax benefits in accordance with the law; (4) Individuals from outside Mainland China who serve as representatives of overseas NGOs’ representative offices may apply for work permits in accordance with the law.
Supervision and Management
The law authorizes registration and management departments to carry out administrative compulsory measures under lawful circumstances. These measures include: arrange meetings with chief representatives and other responsible persons from overseas NGOs’ representative offices;carry out on-site inspections;question parties involved; access, copy or even seal relevant materials; close down or seize venues, equipment or property；freeze bank accounts.
Other relevant departments, such as departments of national security, diplomatic and overseas affairs, fiscal and financial supervision and management, the customs, tax authorities, departments in charge of overseas experts and anti-money laundering are responsible for supervising and managing overseas NGOs and their representative offices according to the law and their respective responsibilities and areas of work.
See the chart below for details of the legal responsibilities stipulated in this law:
The law will come into force on January 1, 2017. There is an eight-month window between the release and enforcement dates. This gives the overseas NGOs subject to the law enough time to familiarize themselves with the contents of the law and carry out preparations accordingly. At the same time, it gives the government departments responsible for the enforcement of the law enough time to make detailed rules for the implementation and related policies, as well as to train relevant personnel, in order to achieve the goals of the law.
Conclusion: The enforcement of the Law on the Management of the Activities of Overseas NGOs with Mainland China will most certainly affect the overseas NGOs that are already working or preparing to enter Mainland China. The absence of relevant laws and regulations in the past caused difficulties for the development of many overseas NGOs. The release of this law, albeit far from perfect in terms of regulating functions, changes the situation from a state of “lawlessness” to one where “at least there are laws to abide by”, and therefore can alleviate the legality predicament of the past.
Undoubtedly, the public security authorities, serving as registration and management departments, will face challenges. First of all, the worry and suspicion towards public security authorities serving as registration departments will continue in the future, becoming a serious problem that the public security authorities have to face during their daily supervision and service work, in order to dismiss people’s suspicions and realize the multiple goals this law was designed to achieve. Secondly, we currently can’t predict whether there will be a sudden “blowout” of overseas NGOs seeking registration, but for those that have carried out non-profit activities (including philanthropy and charitable work), seeking registration will definitely be their first choice. Therefore, the public security authorities should lawfully carry out their duties during the registration process. Thirdly, related favorable policies and services should also be made as soon as possible, since it is much more efficient to encourage registration than punish those unregistered. Finally, although there is only a small number of people that would carry out illegal activities in the name of overseas NGOs, such activities will not be eradicated. It will also be a test of the public security authorities’ ability to carry out their administrative duties, in order to make use of lawful methods within the scope of power afforded by the law.
China will become more closely linked to the rest of the world during the process of globalization. Chinese social organizations have already started the process of going out, and they will face the restraint of local laws in the countries where they are operating. How to facilitate and provide better services to those organizations is a new topic worthy of in-depth research.
I’ll finish with the same thing I’ve always said: I believe in and look forward to seeing overseas NGOs move forward alongside an opening China.