The Impact of Private Foundations on Domestic NGOs

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This article is part of our special issue on New Trends in Philanthropy and Civil Society in China (Summer, 2011). It examines how the rapid rise of private foundations in China has changed the environment for domestic grassroots NGOs, which traditionally relied heavily on international funding. Chinese foundations, and GONGOs like the Chinese Red Cross, are now beginning to support NGOs, especially in the aftermath of the 2008 Sichuan earthquake, and could serve as an important alternative source of funding.

Indeed, their support could be critical to the growth of China’s nascent civil society for two reasons. One is that international funding to China is on the decline. Another is that international funding to Chinese NGOs tends to be viewed by the Chinese government as an effort by foreign governments and organizations to infiltrate Chinese civil society. Funding from Chinese foundations lacks this stigma, and could in theory make NGOs more acceptable to the government.

Of the two kinds of Chinese foundations, particular attention is being paid to private (literally “nonpublic fundraising”) foundations, instead of their public (literally “public fundraising”) counterparts. The distinction between these two kinds of foundations was created by the 2004 Regulations on Foundation Management. By this time, public foundations had been around for a while. Many were founded in the 1980s and 1990s with government backing and are therefore referred to as GONGOs. In contrast, private foundations were made possible by the 2004 Regulations, and they grew quickly in the following years.   The main distinction between the two is that public foundations are allowed to raise funds publicly, while private foundations are not. Many public foundations have some form of government backing, and generally get their funds from a variety of sources. By contrast, private foundations tend to be more independent of the government and their funds generally come from a wealthy donor or corporation. Because of their relative independence, they are viewed as having more potential to make a contribution to China’s civil society by supporting grassroots NGOs.

This article though is agnostic about the potential marriage of private foundations and NGOs. It suggests we cannot assume private foundations will be natural allies of NGOs for several reasons. One is that private foundations are relatively new and are not always clear about their mission or goals. Some private foundations are more interested in carrying out their own projects than funding NGOs. Private foundations are also new to grant-making and not always professional in dealing with NGOs. With the exception of a very few foundations like Narada, most private foundations also lack confidence in grassroots NGOs to carry out projects. Finally, private foundations are driven by corporate interests, and tend to fund organizations and projects that are not politically sensitive. 

I. Cooperation

“In 2008, the Narada Foundation (南都公益基金会) spent 1 million yuan on disaster relief. They stipulated that each project should not exceed 50,000 yuan, enabling many NGOs to get involved in the emergency relief efforts. In the past, the budgets of our major projects have all been in the millions, so to organizations like our own, 50,000 yuan is very little. But I still feel really great, because this is the first time we have been funded by Chinese foundations.” Gao Xiaoxian, leader of Shaanxi Women’s Theoretical Marriage and Family Research Group (陕西妇女理论婚姻家庭研究会) (hereafter Shaanxi Women’s Group for short), showed excitement when speaking about the role of private foundations during the earthquake.

After the 2008 earthquake in Sichuan, Gao Xiaoxian immediately contacted Xu Yongguang, Secretary General of the Narada Foundation (Narada for short), about funding for emergency relief. Xu Yongguang over the phone told her “first just take action”. So a group of ten Shaanxi relief teams set out before the funds had even arrived.

On June 19, 2008, upon arriving at Sichuan’s Zundao township in Mianzhu county, Gao Xiaoxian, Xu Yongguang and other colleagues, realized that the 50,000 yuan was not going to be enough to provide the villagers’ temporary housing. Gao could not imagine that Xu Yongguang would declare: “we can do this”. In no time, the Women’s Research Group had completed a project application to provide 50 temporary houses for the villagers. Gao Xiaoxian recalled: “I submitted the project proposal on June 22nd, and. the next day, it was accepted.”

Moved by the fast response, Gao Xiaoxian, sent a text message to Xu Yongguang: ‘In the ten years I’ve been doing projects, the speed with which Narada has responded to the problem is a first.’ Xu Yongguang responded to the text, ‘it’s all about trust.’ Gao Xiaoxian believes the quick response is based on shared cultural background. It also meant one less application to an international organization in an emergency situation.

Similarly, YouChange Social Entrepreneur Foundation (友成企业家扶贫基金会) (hereafter YouChange) gave over 40,000 yuan in funding to the Zundao Volunteers’ Office (给予遵道志愿者办公室), cutting out the formal application process for projects. The applicant was the NGO, Guizhou Highlands Development Research Center (贵州高地发展研究所). The Center’s Luo Shihong said YouChange’s quick response was also based on trust that was the result of a previous working relationship. During the snowstorm disaster of 2008 in the south of China, YouChange had given emergency funds to ten NGOs to undertake their ‘united against the blizzard’ project. The Center had been one of those NGOs.

Gao Xiaoxian believes the emergence of private foundations gives domestic NGOs another very important funding source. Her Shaanxi Women’s Group was established in 1986, and is a well-known NGO within China. Like the majority of organizations established in the 1980s and 1990s, Gao’s NGO was made possible with international funding. Supported by an international funding network, it no longer has to worry about surviving. However, as China develops rapidly, international organizations have cut their funding for many sectors in China. As a result, Chinese NGOs that once relied on international funding are beginning to look more to domestic funding, particularly from the new established private foundations.

Gao believes the NGO sector in China can be divided into three worlds. The first world are government-organized NGOs (GONGOs), most of which are authorized to engage in public donations. The second world refers to NGOs like her Shaanxi Women’s Group that were established with international funding1.

The third world refers to active grassroots NGOs that emerged after 2004-2005 in response to social problems, providing community services, often in innovative ways. These organizations tend to rely on diverse sources of funding. Some have developed in the direction of social enterprises, or developed using local resources, yet they all have trouble with funding.

The emergence of private foundations, in this regard, offers another lifeline for NGOs. In recent years, NGOs have begun to turn to private foundations for funding, and some are opening offices in Beijing where many private foundations are based.

The first foundations to appear in China emerged in the 1980s. These were public foundations established with government support, often with the motive of raising money to reduce the government’s financial burden. This was quite different from overseas private foundations whose purpose is to disburse funds. Private (literally nonpublic fundraising) foundations in China only came about after 2004 when the State Council issued ‘Regulations on Foundation Management’ 《基金会管理条例. These regulations for the first time drew a distinction between public and private foundations. The emergence of private foundations provided domestic NGOs with a genuine source of funding2.

In accordance with the “Regulations on Foundation Management”, each year a private foundation must use 8 percent of its capital on public welfare work. Narada, Vantone Foundation (万通公益基金) and HaiCang Charitable Foundation (海仓慈善基金会) are all grant-making foundations, which means that each year the majority of the foundation’s grants will go to NGO partners. By the end of 2008, there was a total of 1,531 foundations nationwide [up from 1,340 in 2007] with private foundations accounting for most of this increase. Among the new foundations were two national-level foundations and over 40 local foundations in Beijing, Shanghai and Guangdong alone.

At present there is no way of knowing just how many private foundations can be described as grant-making foundationor how many have already begun operating. Duan Defeng, Secretary-General of the Haicang Charitable Foundation, says: “This is because many foundations are in a state of dormancy3.”

Duan Defeng worked for many years at Oxfam Hong Kong (香港乐施会). Coming from an international foundation to take on a post at a newly-established private foundation, he believes that “NGOs cannot rely solely on international foundations. In the future, international foundations will move on to other countries. Even now you see international foundations will not use the majority of their funding on a country like China that is developing so fast.” He also believes private foundation funding of NGOs will lower the political sensitivity for NGOs; in terms of culture and language, private foundations can also communicate [with NGOs] more easily. Given that international foundations are based overseas, their management does not really understand China, or they believe that they do understand when they actually do not. He forecasts that in the future more domestic foundations will emerge that will focus on local communities and be more in touch with their needs, as was shown in their response to the 2008 Sichuan earthquake.

II. Getting Acquainted

Many NGOs began to interact closely with private foundations during the 2008 earthquake relief work. However, domestic NGOs do not go to great pains to define what a private foundation is; instead they tend to distinguish between domestic and international foundations. For many years domestic NGOs depended upon the support of international foundations, however, during the emergency response to the earthquake, private foundations like Narada and YouChange, and the One Foundation (壹基金会) became an important source of funding for domestic NGOs. This was also the first time the Chinese Red Cross disbursed money to NGO projects through a bidding system4.

In their interactions with domestic foundations, some NGOs like Gao Xiaoxian’s are touched, but others voice complaints. As private foundations emerged, they came in contact with NGOs that already had worked with international foundations for almost twenty years. As a result, Chinese NGOs have been deeply influenced by international foundations both in terms of values and methods of project management. When discussing private foundations, [NGOS] thus use international foundations as a natural frame of reference.

1. Initial problems: low on professionalism and high on arbitrariness

Speaking of the differences between international and domestic foundations, the first response of one active figure in this area was: ‘the differences are huge.’ She then requested that she remain anonymous, so she could she be frank. “The process of appraising documents, the communication between project managers and partners, the use of funds, following up on projects. [International and Chinese private foundations] differ greatly in all these areas.” First, she noted, the project implementation process is very different. International foundations will put up the money for a project, and during the project implementation stage, will ask about both progress made, and problems encountered. However, domestic foundations are absent at this stage. Secondly, the application process is also different. She gave an example, saying that once, when discussing a project application with a leader at Oxfam, although this leader was not necessarily going to accept it, he still went to the relevant team in charge to discuss the application with her for 20 minutes. She says now looking back, although the application in the end was unsuccessful, the impression it left on her was very deep.

Conversely, when she began dealing with a private foundation to make a project application, the person in charge said to her ‘fine, just get on with it first, we can go through the necessary procedures later.’ This made her feel that the nature of the application process was far too informal.

Other interviewees shared this same feeling. In 2008 before the Sichuan earthquake, an environmental organization approached a certain foundation to apply for a ‘new agricultural construction’ (新农村建设)project in an ethnic minority area. After the earthquake [in May], this foundation’s attention turned to the disaster area. By July or August of 2008, this foundation told the organization to apply. After the application was received, the foundation responded saying they could fund the project, but the necessary information from the foundation never arrived. Three or four months passed and the foundation said the application materials needed to be revised. The organization made alterations then resubmitted the application, but again never received the relevant documents. The person who worked on the application said a year had passed since their initial discussion [with the foundation],and he still had no idea about the status of the funding.

An NGO in the northwest [of China] also came across this problem. The person in charge at this organization said that they had been doing projects for almost ten years, but had not yet received any domestic funding. Recently they communicated with a domestic foundation and submitted an application. After having decided upon the direction of the project, the NGO designated a member of staff who spent ten days writing and submitting the project application, but the foundation responded that the project did not fall within the scope of their funding.

A grassroots organization in Beijing went through a similar experience after the earthquake, when contacting the Red Cross, Narada and YouChange. At first the foundations would look at the project design and say it was good, but in the end they found more and more problems. Sometimes, they went through several discussions, and when it seemed the project was just about to be confirmed, the foundation would suddenly give a reason why the project could not be approved. The Beijing NGO came away from this experience feeling that domestic foundations acted arbitrarily.

The same NGO had previously cooperated several times with an overseas foundation. The project leader said that at the outset of each project application, the foundation would clearly tell the other party whether there were any problems with the project design, and how it should be revised. Even though the project documentation still had to be repeatedly revised, the NGO’s leader knew they were heading in the right direction.

The issue of receipts is another problem that all organizations doing projects in the countryside come across. It is difficult to get proper receipts for expenses incurred in rural China. In light of this reality, international foundations will be quite flexible. However, the system for financial accounting used by domestic foundations makes it very difficult for organizations doing rural community work. A new NGO working in the northwest [of China] said “we put 60 percent of our energies into the project and 40 percent trying to get receipts.”

Another issue raised by interviewees is that budding private foundations inevitably lack experience. Some private foundations are clear about their objectives, and have some understanding of established NGOs and work well with them. Other foundations however, have changing priorities. Although some of their staff have experience working in international foundations, turnover is common; some employees fail to understand the regulations, cannot distinguish lines of authority, and thereby leave the NGO partner in a difficult position.

Disagreements are unavoidable as the two sides learn to work together. Some NGO partners even go over the heads of foundation staff to the leadership itself to discuss matters.  However, more than one person interviewed said that though some foundations “do not understand the project, and talk as if they do not understand the sector”, their open attitude and willingness to learn is appreciated by their NGO partners.

2. The influence of corporate thinking in NGO cooperation

The problems mentioned above are understandable for any organization entering a new sector, and private foundations funded by corporations have shown that they have yet to develop a clear idea of their role.

Still, as one NGO leader pointed out, the corporate mentality of private foundations is beginning to penetrate the NGO world.

The leader gave an example of how, in 2008, the NGO applied to a private foundation for project funding. The foundation approved the funding that summer, but the money did not reach the NGO’s bank account until April 2009. During that time, the foundation told the NGO to “make an advance payment5.” The manager of the NGO said that foundations have brought concepts like “advance payment”, “risk control”, and “return on investment” into public welfare work. Li Jin, the secretary of Vantone, spoke at the Sohu Forum on the anniversary of the Wenchuan earthquake (“5?12”周年搜狐论坛) about entrepreneurs establishing foundations, and their relationship with NGOs.  One issue is whether foundations view NGOs as service providers, as suppliers, or as cooperative partners. From the perspective of the enterprise, the notion of doing things is that there is a profit based on a contractual relationship between party A and party B.

Not surprisingly, as the Secretary-General of the Vantone Foundation, Li Jin noted that Vantone nurtures grassroots organizations, treating them as cooperative partners in a process of mutual strengthening. Only with this kind of entrepreneurial public welfare work can more be achieved with greater stability6.

III. Selecting partners for cooperation

1. The healthy development of NGOs requires resources

In the last ten years, the international community has had a great impact on NGO funding and the growth of Chinese NGOs. In the coming years, domestic foundations will likely have an important impact upon the NGO sector.

International foundations brought in many projects, international development concepts and project management experience. They cultivated a number of organizations and talent, and promoted the standardization of Chinese social organizations. However, there seems to be a consensus within the industry that Chinese NGOs, while large in number, are mostly underdeveloped. In describing Chinese NGOs, Xu Yongguang [the Secretary General of Narada] uses the analogy of a person with a developed mind but weak limbs.

Li Jin, who was once responsible for the China branch of Plan International, and after that the UN Development Program’s civil society projects, has worked in this area for almost ten years. When speaking of NGOs’ current situation, a quiet Li Jin repeated twice ‘It’s a long story.’

In his eyes, grassroots organizations may be numerous but have not gone beyond the grassroots stage. Many organizations are highly dependent on their founder. Only a few organizations, notably Friends of Nature (自然之友), have been able to continue on after the founder leaves. One reason they do not develop more fully, Li Jin believes, is that they still lack sources of funding7.

Li Jin likens a NGO to a team of ants. All the worker ants must serve the queen ant because she is the only one with the ability to reproduce. All the resources are given to her. Likewise, civil society organizations’ resources are limited, and tend to be concentrated on the organization’s leaders, thereby making it difficult for the organization to develop in a sustainable manner.

Thus the public welfare sector’s healthy development requires large amounts of funding. The entrance of private foundations, particularly grant-making foundations, will increase the amount of funding available to NGOs.

2.   What kind of NGO work gets funding?

Which NGOs are able to get funding from private foundations? Some NGOs worry that domestic foundations require government support for their projects as a precondition for foundation funding. In this view, projects in the [more sensitive] fields of rights protection, religion and migrant labor cannot gain support. Two foundation directors, Li Jin and Duan Defeng, have looked at this question from different perspectives.

Li Jin, Secretary-General of the Vantone Foundation which was established in 2008, has only been in his position for a few months. He noted that, since he had not participated in the initial research and discussions, he was not the most appropriate person to ask about how Vantone had decided upon ecological community as their area for funding. I then asked him: “If we move away from Vantone as a specific case, generally speaking, what factors do private foundations consider when making funding decisions?” His response: “Risk is one factor. Companies, especially those on the stock market, do not want to be affected by the risk assumed by a foundation. They will choose safe sectors, for example education and environmental protection, but of course no sector is completely without risk.”

The second factor that Li Jin mentioned was that the funding tends to be connected in some way to the area of work carried out by the foundation’s corporate funder, “but recently I’ve noticed that this connection is not always present.”

Research on the link between the Chinese company’s product sector and the sectors it funds also found that the relationship between the two is not strong. From 2001 to 2003, a research group from the Sociology Department of the Chinese Academy of Social Sciences did a comparative study on charitable giving by Chinese and foreign enterprises. The results found differences in the approaches of Chinese and foreign invested enterprises to charitable giving. Foreign-invested enterprises donations were motivated by mutual interests: 88 percent of the value of their donations played a commercial role promoting public relations, customer relations or the opening of markets; Chinese enterprises donations were based more on an interest in helping others: 79 percent of the value of their donations were directed towards disaster and poverty relief, helping the development of border regions, sponsoring students and other traditional philanthropic sectors8.

There are various explanations as to why foreign and domestic invested enterprises donate to different sectors. What warrants our attention is that once a private foundation is established, no matter what sector an enterprise belongs to, disaster relief, poverty relief, education and so on, remain the choice of most corporate foundations.

Duan Defeng, Secretary-General of Haicang Charitable Foundation, places particular emphasis on providing financial support for the elderly in urban and rural areas, people with disabilities, and education. For him, deciding on which areas to fund is usually directly related to the interests of the donors themselves. On the concern that some sectors are seen as sensitive, he believes that this concern largely arises from the perception of some people in the NGO sector and is not grounded in reality. He emphasizes that NGOs should proactively communicate with government, just as sales representatives use their skills of persuasion to sell products. NGOs should be persistent even if their work is not embraced by the government and are repeatedly rejected.

Misgivings about the limited scope of private foundation also stems from the general view that international organizations are willing to fund a wider scope of activity. However, research by Professor Li Xiaoyun, the dean of the School of Humanities and Development at China’s Agricultural University, show that official international aid to China does not differ much from Chinese foundations, and may even be more cautious, in terms of funding NGOs. We do not have relevant research results on the distribution of funding to NGOs by international NGOs and foundations, but experience suggests the areas they support are somewhat broader9

In his research, Professor Li found that the Chinese organizations that received official international development aid belonged to one of three categories: GONGOs, and domestic NGOs that started out as GONGOs (7); international NGOs (INGOs) and domestic NGOs that evolved from INGOs (5); and domestic NGOs of a specialized technical nature. The above results suggest that official development aid agencies are still relatively cautious in funding Chinese organizations. Not all Chinese social organizations are able to receive the financial support of official development aid. In order to avoid political risk and maximize impact, official development aid agencies are more likely to fund social organizations that are already registered with the Ministry of Civil Affairs, and are well-established10.

3. Is a new monopoly emerging?

The leader of a grassroots organization concerned with rural education in the west of China expressed that they wanted to do something useful, but not get involved in politics, so they always maintained a cautious attitude towards international foundations. However, the leader noted that it was also not easy getting funding from Chinese foundations, commenting that some private foundations have ulterior motives and utilize government channels as a way to collect more funds. If these foundations are not open to grassroots organizations, then there is the danger that a new monopoly on funding will emerge11.

Currently, there are no clear signs indicating the emergence of a new monopoly, but there is a trend toward Chinese private foundations funding mostly ‘grass tip NGOs’, rather than grassroots NGOs. If we use the Wenchuan earthquake reconstruction effort as an example, as of July 18, 2008, half of the 37 projects receiving funding by the Chinese Red Cross and Narada were submitted by NGOs, with some of these organizations being funded twice. [On why more NGOs were not funded], the foundations explanation was, ‘there’s money, but a lack of good projects’12.

The value systems of international foundations emphasize the development of civil society. However, it is easy for Chinese private foundations to focus on the more mature and established organizations. Li Jin says this focus is inevitable during the initial stage of development for private foundations. The NGO partners of Vantone include established organizations such as Friends of Nature, Beijing Global Village (北京地球村), Huizeren (惠泽人), Aisi Innovative Community Participation & Action (爱思创新社区参与行动), etc. These are all NGOs with relatively long histories and experience in project implementation.

Conclusion

The future of private foundations is still unclear. They are still in their early stages, and have received both praise and criticism from NGOs. In three to five years, some private foundations may disappear, while others will survive. At that point, we can look back and ask why some foundations prevailed. Will it be those who paid attention to short-term results, those concerned with long-term strategies and values, or perhaps those that focused on capacity building? Moreover, the environment for NGOs will change as private foundations enter the playing field, with interesting implications for the development of civil society.


  1. Editor’s Note: Many grassroots NGOs that emerged in the late 1990s were made possible by international funding. 

  2. Editor’s Note: The implication here is that most public foundations and GONGOs were seen as a way to raise funds for the government, rather than as a funding channel for grassroots NGOs. As other articles in this special issue show, this situation is slowly changing and some public foundations and GONGOs are now beginning to support NGOs. 

  3. Editor’s Note: These paragraphs make a distinction between grant-making foundations and operating foundations. The latter use their funds to carry out their own projects. The former only disburse funds to other organizations such as nonprofits or NGOs that then carry out projects consistent with the foundation’s goals. The large majority of private foundations in the U.S. fall in the grant-making category. In China, many of the new private foundations are still in a state of flux, trying to figure out what kind of foundation they want to be. We also learn here that not all foundations in China are actually functioning. 

  4. Editor’s Note: The Sichuan earthquake was thus a watershed event in two ways. It got both private foundations, and GONGOs like the Chinese Red Cross, to recognize and support NGO projects. 

  5. Editor’s Note: Making an “advance payment” means the foundation is asking the NGO to use its own funds to cover the project’s expenses until the foundation’s funds arrive in the NGO’s account. 

  6. Editor’s Note: Li Jin here seems to be asking enterprises that establish private foundations not to view NGOs as mere service providers or suppliers, but as cooperative partners and to commit to investing resources to strengthen NGO capacity for the long run. 

  7. Editor’s Note: The well-known environment NGO, Friends of Nature, was able to make the transition to a new leadership when its founder, Liang Congjie, became ill during the 2000s and had to withdraw from his position as director of the organization. 

  8. Editor’s Note: the difference between “mutual interests” and “interest in helping others” is not clearly defined in this study. Of course, an “interest in helping others” may also overlap with more self-interested motives. 

  9. Editor’s Note: Official international aid refers to aid coming from foreign governments or intergovernmental bodies such as the UN, and does not include funding from international NGOs and foundations. Perhaps a better comparison of funding priorities would be between Chinese foundations and international NGOs and foundations. 

  10. Editor’s Note: The subtext here is that grassroots NGOs, particularly those that engage in sensitive areas such as advocacy or “rights-protection”, are unlikely to receive official international aid. 

  11. Editor’s Note: The old monopoly on funding is the government’s monopoly. The new monopoly would consist of an alliance of government and private foundations. Both monopolies would have the same effect of denying funds to grassroots NGOs. 

  12. Editor’s Note: “Grass tip” (caojian) NGOs are grassroots NGOs that are well-established and reputable. 

In Brief

This article is part of our special issue on New Trends in Philanthropy and Civil Society in China (Summer, 2011). It examines how the rapid rise of private foundations in China has changed the environment for domestic grassroots NGOs, which traditionally relied heavily on international funding.
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