June 25, 2019

June 25, 2019

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June 24, 2019

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China Implements New Charity Law

In May, we wrote about China’s new Charity Law (official Chinese version available here; unofficial English translation available here) and its establishment of a comprehensive framework for revamping the government’s management of the social sector. For decades, charities, social organizations, and civil society groups have operated in a quasi-legal environment where enforcement has been unpredictable and inconsistent. For some organizations, legal uncertainty has been a source of operational freedom, while for others, it has been perceived as a hammer waiting to drop. Social organizations working on noncontroversial or government-endorsed issues, such as poverty alleviation or healthcare, have enjoyed a wider berth than those involved with minority rights, religion, or other controversial issues. Observers of the new Charity Law are hopeful that it will facilitate an expansion of the social sector, but are aware that much depends on the details of implementation. (Note that the Charity Law’s provisions affect not only domestic and foreign non-profits, but also a wide range of companies and corporate social responsibility initiatives and should be distinguished from the Foreign NGO Law, which applies only to foreign NGOs).

Effective as of September 1, the Charity Law includes an expanded definition of “charitable activities,” tax incentives for qualifying organizations, new registration procedures, and rules for donation and volunteer management. As is common in Chinese lawmaking, the Charity Law only provides a high-level blueprint for intended reforms, with greater detail to be provided later through measures designed to clarify the specifics of implementation and enforcement. As of late October, the Charity Law has been followed by seven accompanying regulations that clarify new rules regarding registration, public fundraising, establishing trusts, and more.

A few key highlights:

  • Registering as a Charitable Organization. The Ministry of Civil Affairs (“MCA”) has released the Notice on Relevant Issues Concerning the Registration of Charitable Organizations, which allows for entities to register directly as charitable organizations, with specific application requirements for each type of entity (e.g., foundation, social group, or social service provider). The Ministry has also released the Measures for the Recognition of Charitable Organizations, which specify the conditions an organization must satisfy in order to be officially recognized as a charitable entity (e.g., not seeking to profit from its activities). Organizations that have been subject to an administrative punishment within the last two years are disqualified.

  • Rules for Fundraising Platforms. MCA and a number of other ministries jointly released the Administrative Measures for Public Fundraising Platforms, which require operators of public fundraising platforms to verify the charitable status of organizations using their platform and report illicit behavior in a timely manner. On August 31, MCA released the first batch of approved internet fundraising platforms, including those of Tencent, Taobao, Xinhua, and Baidu.

  • Rules for Fundraising Organizations. MCA issued the Administrative Measures for Public Fundraising Conducted by Charitable Organizations, which specify conditions to be met in order to obtain public fundraising qualifications. For instance, organizations that are qualified to fundraise publicly must file a fundraising plan with their local MCA department 10 days prior to the start of the campaign.

  • Establishing Charitable Trusts. MCA jointly released with the China Banking Regulatory Commission (“CBRC”) the Notice for Effective Implementation of Rules Related to the Filing of Charitable Trusts, which provides instructions on record filing procedures for charitable trusts and clarifies how regulatory agencies such as MCA and CBRC will regulate them.

  • Law Enforcement. MCA released Rules for Regulators on Legal Enforcement by Means of Meeting with Social Organizations (Trial), which instruct regulating agencies on law enforcement procedures. Upon noticing illegal behavior, regulators may arrange for a meeting with the organization’s representative and suggest ways of correcting this behavior in a timely manner. Furthermore, MCA’s Measures for Handling Complaints and Reports on Social Organizations (Trial) assign responsibility to certain agencies and offers a set of guidelines for handling complaints on social organizations.

All seven accompanying regulations are now in effect. New measures may be released in the future.  As a result, all interested or affected parties should follow this issue closely.

Zhijing Yu of Covington & Burling LLP assisted with the research and preparation of this article.

© 2019 Covington & Burling LLP

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About this Author

Ashwin Kaja, Covington Burling, International trade lawyer
Associate

Ashwin Kaja is an associate in the firm’s Beijing office and is a member of the firm’s International Trade, Public Policy, Data Privacy & Cybersecurity, and Anti-Corruption practice groups. He has advised multinational companies, governments, and other clients on a range of matters related to international trade, public policy and government affairs, data privacy, foreign investment, anti-corruption compliance and investigations, corporate law, real estate, and the globalization of higher education. He also serves as the China and India editor for Covington’s ...

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Timothy Stratford, International trade lawyer, Covington
Partner

Tim Stratford is managing partner in Covington & Burling LLP’s Beijing office and a member of the International Trade, Corporate and Public Policy Practice Groups.  Mr. Stratford’s practice is focused on advising international clients doing business in China and assisting Chinese companies seeking to expand their businesses globally.  As a former Assistant U.S. Trade Representative, Mr. Stratford is the most senior former U.S. trade official working as a member of the U.S. business community in China.  Except for the five years he spent in Washington, D.C. in government service (2005-2010), Mr. Stratford has lived and worked continuously in the greater China region since 1982.​​

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