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R 170458Z MAY 06
FM AMCONSUL GUANGZHOU
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UNCLAS SECTION 01 OF 04 GUANGZHOU 014712 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB, DRL, R, E, EAP/CM, EAP/PD, ECA 
STATE PASS USTR FOR STRATFORD, CELICO 
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: PHUM ECON SOCI KPAO PINR CH
SUBJECT:  Heart of Gold: A Solid "Foundation" for NGO Work? 
 
REF: A) 03 Beijing 1599 (notal) B) Guangzhou 7743 (notal) C) 
Guangzhou 11657 (notal) 
 
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  PLEASE 
PROTECT ACCORDINGLY.  NOT FOR RELEASE OUTSIDE U.S.GOVERNMENT 
CHANNELS.  NOT FOR INTERNET PUBLICATION 
 
¶1. (SBU) Summary: If the Foundation Law serves as an 
example, non-governmental organization (NGO) legislation is 
in for a slow, twisting, uneven ride.  One and a half years 
after new regulations were issued by the Ministry of Civil 
Affairs (MCA), foundations in South China still are trying 
to realize the gains promised in the new law.  Despite 
promises of great leaps forward by national leaders in 2001 
the new NGO foundation legislation has proven to be 
incremental, complicated and difficult to implement. End 
Summary. 
 
What is a Foundation? 
---------------------- 
 
¶2. (SBU) Foundations in this context are legally registered 
organizations that are established to disburse funds from 
overseas or individuals to carry out public benefit 
activities.  They are one of three types of NGO that are 
allowed to register legally in China; one of those types is 
foundations.  With the foundation regulations there are 
three types of foundations: non-public foundations that 
operate from an endowment, public foundations that are 
allowed to raise money through fundraising, and 
representative offices of foreign foundations that are 
allowed to register but are not allowed to do domestic 
fundraising. 
 
What Types of NGOs Are Legal in China? 
-------------------------------------- 
 
¶3. (SBU) While the number of NGOs in China are reported to 
be in the millions only a small fraction of them are fully 
registered with the MCA due to strict registration laws (ref 
A).  While many NGOs, foreign and domestic, operate in this 
legal gray area, there are technically only three major 
avenues for legal registration: registering as a foundation, 
a social organization, or a non-profit professional unit 
(ref A). All three ways require a NGO to find a government 
department to serve as a sponsor and to register with the 
MCA.  Social organizations are membership groups that are 
set up (foreigners/foreign NGOs are not allowed to register 
as social organizations) for a defined set of activities. 
They are required to have office space, a defined charter of 
activities, defined membership and have to follow certain 
financial guidelines.   Social organizations not only 
include traditional service and advocacy NGOs but also 
professional, commercial and academic associations (i.e. 
elevator technology association, mathematics association 
etc.).  Non-profit professional units generally encompass 
private schools, private social service research institutes 
and private hospitals (again, foreigners/foreign NGOs need 
not apply).  They have requirements that are similar to the 
social organization but do not have the ability to expand 
their membership the way a social organization can. 
Foundations have much higher registration capital and 
stricter financial regulations than the other two but they 
are the only category where foreign NGOs are allowed to 
legally register. 
 
A Long Wait for Legal Revision 
------------------------------ 
 
¶4. (SBU) While a wave of liberal NGO registration laws was 
widely hinted at in 2001 they never materialized in the 
aftermath of a Falun Gong crackdown and the "color 
revolutions" in Europe.  The foundations sector is the only 
area where there has been liberalization as the Chinese 
government is eager to cash in on donations from foreign 
NGOs, overseas Chinese and private businessmen (ref B). 
Foundations are numerically the smallest NGO sector (about 
.06% of total registrations in Guangdong Province) and one 
of the most noncontroversial as they mainly focus on funds 
disbursement.  In 2004, the "Regulations on the Management 
 
GUANGZHOU 00014712  002 OF 004 
 
 
of Foundations" law was promulgated to give a new legal 
framework to foundations (the law for social organizations 
and non-profit professional units remains unchanged).  The 
law changed the requirements for which authority a 
foundation could register with, how much money was needed to 
register and more clearly defined the role of foreign and 
private NGOs.  Most importantly, all foundations were 
required to re-register by December 2004, a date which was 
later extended to September 2005. 
 
The MCA Centralizes Administration - and Control 
--------------------------------------------- --- 
 
¶5. (SBU) According to the new law, it was no longer possible 
to register on the municipal level - all registrations had 
to be moved to the provincial or national level of 
authority.  Where a foundation registers defines its area of 
activity.  If a foundation wants to operate nationally, (or 
use China in its name, such as China's Disabled Orphans 
Foundation) it needs to register on the national-level and 
have someone from the national office of the China Disabled 
Person's Federation agree to serve as its sponsor. 
Foundations wishing to operate in either a specific 
municipality or province now both register at the provincial 
level (such as Guangzhou City's or Guangdong Province's 
Disabled Orphans Foundation), and need to find an 
appropriate government sponsor (Guangzhou city or Guangdong 
province Disabled Person's Foundation).  This means that 
even if a foundation wants to operate in only one city it 
must have provincial level approval (before they only needed 
municipal level).  A researcher at a local NGO center 
(recently renamed the "Institute for Civil Society") stated 
that this renewed emphasis on location-appropriate 
registration presented problems as many foundations had 
grown and were operating programs outside of their 
`registration area.'  The central government's efforts to 
assert control over foundations adds another of bureaucracy 
to an already complicated process. 
 
Did Everyone Listen? 
-------------------- 
 
¶6. (SBU) Implementation of the new registration regulations 
varied in Guangzhou and Shenzhen, two of the largest cities 
in our consular district.  Guangzhou's MCA required all 
foundations to change their registration to the provincial 
level but stated it had absolutely no involvement with the 
transfer or subsequent re-registration.  In Shenzhen 
however, anyone that was registered before 2002 was allowed 
to keep their current registration at the municipal level 
(which technically violates the new rules).  According to 
researchers, on the national scale there was even more 
variation in implementation with certain requirements 
(particularly financial) being ignored for favored 
foundations. 
 
It Costs a Pretty Penny to Help the Poor 
---------------------------------------- 
 
¶7. (SBU) While the new foundation regulation gave a more 
detailed description of the role of foreign NGOs, (foreign 
NGOs were allowed to register before 2004 as well, but had 
exhaustive background checks into the source of their funds) 
it also laid out a strict series of financial guidelines for 
domestic and foreign foundations; in total 37 new sections 
were added to the regulations.  Foreign foundations were 
unequivocally barred from fundraising on the mainland though 
domestic `public-fundraising foundations' were not.  A 
national-level foundation (foreign or domestic) requires RMB 
eight million (USD one million) and a provincial-level 
foundation requires RMB four million (USD $500,000) in 
registration capital.  Private Chinese citizens can for the 
first time set up a private foundation in their name with 
RMB two million (USD $250,000) of registration capital but 
that level must be consistently maintained in their account 
(an endowment) and they are not allowed to do public 
fundraising.  The 1998 rules had the highest needed level of 
capital registration at RMB 100,000 (USD $12,500).  The huge 
spike ensured that smaller foreign NGOs (Note: foreign NGOs 
can not register at all as social organizations or non- 
 
GUANGZHOU 00014712  003 OF 004 
 
 
profit professional units) could not try to use the new 
foundation law as any easy way to get official registration 
status. 
 
More Important Than Money 
------------------------- 
 
¶8. (SBU) Most importantly, the 2004 Foundation Law did not 
eliminate the notorious requirement for every foundation to 
have a government department or Communist Party-affiliated 
mass organization to serve as a professional leading 
organization (government sponsor)(ref C). While the only 
legal requirement is that the sponsor reviews the 
foundation's annual report, in reality the sponsor becomes 
responsible if the foundation does something controversial. 
In 30 interviews with government officials, NGO officials, 
and researchers, this requirement was listed as the biggest 
impediment to more NGOs being able to register. 
 
Operating in South China but Still Waiting in Beijing 
--------------------------------------------- ------- 
 
¶9. (SBU) Even some of those that could meet the new rules 
have not been able to fully re-register.  The country 
director of one foreign orphan care foundation that operates 
locally, is registered nationally, and enjoys an unusually 
close relationship with the Chinese Center for Adoption 
Affairs (CCAA), said the foundation was required to 
completely re-register after the 2004 law, but has not yet 
received final approval.  Its Chinese sponsor (CCAA) has 
advised her to be patient and not to call attention to the 
lengthy time period.  While the foundation had originally 
planned to continue expanding, with an urban and rural 
project in every province and a new Henan HIV orphan 
project, it has put the plans on hold indefinitely. 
 
¶10. (SBU) World Vision is one of the largest foundations 
that operates in South China, and according to its Hong Kong- 
based director, it is Hong Kong's largest fundraising 
foundation, raising HKD 500 million (USD $68.3million) 
between 1998-2003.  It is a Christian organization that does 
everything from relief operations (it has a nine-person 
emergency deployment team), to HIV/AIDS education, to 
`values' training for workers.  While World Vision was given 
a "Charity China Award" in the first MCA and China Charity 
Foundation awards ceremony, the MCA still has not been able 
to finish its application for foundation registration.  The 
director stated that after he submitted the original 
documents he had to submit some additional financial 
information but it has been many months and he has had no 
word about the expected completion date. 
 
Smooth sailing in Guangdong? 
---------------------------- 
 
¶11. (SBU) On the provincial level, the Guangdong Department 
of Civil Affairs (DCA) stated that in order to come into 
compliance with the new act, a foundation only had to show a 
financial statement showing the new registration capital 
requirements have been met.  A Guangdong DCA official stated 
that there are no foundations that have had to discontinue 
their operations, transfers are all complete, and that the 
numbers of foundations have increased 50% after the new 
regulations were implemented, now at 132 registered 
foundations province-wide.  (Note: this includes foundations 
that have had to transfer their registration from the 
municipal level to the provincial level.  The Guangzhou 
Municipal Bureau of Civil Affairs (BCA) alone had to 
transfer 20 cases to the province level, which accounts for 
one-third of the `growth').  It is surprising that the 
province could be done on time when the well-respected China 
Development Brief reported that as of May 2005 only 84 out 
of 1,000 national-level foundations had been re-registered. 
 
Comment: Raising the Bar 
------------------------ 
 
¶12. (SBU) While the Chinese government is eager to reach out 
for foreign and domestic funding for social programs it 
seems unwilling to relinquish any control of the sector, and 
 
GUANGZHOU 00014712  004 OF 004 
 
 
is tightening its control instead.  Furthermore, the new 
registration capital requirements shows the emphasis on 
`quality' (read: deep pockets) NGOs, a point that has been 
popular in the press.  While government leaders used to hint 
that the requirement for a government sponsor and the 
prohibition on foreign NGOs registering as social 
organizations and non-profit professional units might become 
a thing of the past, five years later none of this has 
occurred.  The 2004 foundation legislation provided limited 
change, and functioned more to raise economic barriers to 
registering as a foundation, thus ensuring that only the 
wealthiest foundations could apply.  In addition, the fact 
that foreign foundations cannot publicly fundraise prevents 
them not only from raising funds but from taking advantage 
of an opportunity to promote and engage the general populace 
in a discussion about what is going on in their own country. 
Despite the claims of growth from the Guangdong BCA, it 
seems that the new foundation law has not spawned a huge 
growth in the number of foundations applying for 
registration, at least at the provincial level. 
Implementation shows that there are always rules that can be 
bent for a favored foundation, but that the process of 
meeting the requirements of the rules outlined in the 
additional 37 sections of the law can be grueling.  Nor is 
the MCA in a rush to approve the 1,000 reported national- 
level foundation cases that have been waiting since 2004. 
Its approach to reform in this area has been slow and 
cumbersome, and the biggest impediment to registration - the 
professional leading organization requirement - appears to 
be here to stay.  While this kind of complicated process 
might be feasible for the 132 foundations registered in 
Guangdong Province it would mean chaos to try a similar 
style of `reform' for the 17,000 social organizations and 
non-profit professional units that are already registered in 
Guangdong Province alone. 
 
ROCK