Alert
Alert
06.18.15
Nonprofit and nongovernmental organizations in the PRC (NGOs), both domestic and foreign, have played important roles in China’s economic and social development over the years. While the number of foreign NGOs conducting activities in China has increased significantly in recent years, their operations (including but not limited to registration, funding, scope of activities, etc.) are subject to various vague but strict restrictions imposed by the authorities.
The Administrative Regulations on Foundations issued by the State Council (Foundation Regulations), which took effect June 1, 2004, have been the primary legislation governing the establishment and operation of foundations in China. The Foundation Regulations allow only a Chinese domestic entity or a Chinese national to establish a foundation in China, and requires a foreign entity to use its subsidiary in China as the donor to establish a foundation in China. A foreign foundation is also required to meet a number of requirements for the establishment, including obtaining approval from a Professional Supervisory Unit (业务主管单位 in Chinese) and the Ministry of Civil Affairs (MCA), which has proved to be very difficult in practice. Rather than establishing a foundation in China, some foreign foundations have chosen to establish a representative office (Rep Office) to facilitate their efforts in China (which also requires the sponsoring by a Professional Supervisory Unit). However, the scope of business of a Rep Office is limited. For example, a Rep Office is not permitted to raise funds or accept donations in China.
There is no overarching regulation governing the presence and operation by foreign NGOs other than foundations. Over the past years, various NGO’s have adopted different approaches to operate in China: some chose to register as for-profit enterprises; some chose to operate in a grey area under the patronage of local officials; some chose to operate without a license. Lack of clarity in law has brought uncertainty and legal risks with respect to the operation of foreign NGOs in China.
To address these issues, the National People’s Congress released the second draft of The Foreign NGO Management Law (Draft NGO Law) on May 5, 2015 for public comment. While the Draft NGO Law aims to provide more clear regulatory requirements and guidance for foreign NGOs to operate in China, many provisions contained therein have been interpreted by foreign NGOs and commentators to place overly broad (and costly) restrictions on foreign NGOs.
Scope of Application
A foreign NGO is broadly defined as “a nonprofit and non-government social organization established outside of China,” and the Draft NGO Law applies to any activities conducted by such foreign NGO within China (Art. 2). Technically, this could include a nonprofit university alumni organization organizing tours for its alumni in China, a nonprofit construction group providing training sessions for certain engineers in China, and a charity organization aiming to provide disaster response activities.
As required by the Draft NGO Law (Art. 6), any foreign NGO operating in China must either register as a legally registered representative office or obtain a temporary activity permit prior to conducting any activities in China. Due to the broadly defined scope of application of the Draft NGO Law, foreign organizations deemed to be NGOs under the Draft NGO Law may be required to obtain prior approval from the authorities for any activities. (The statute provides no clear definition of “activities.”) Failure to do so may result in confiscation of illegal property and income with respect to the activity and administrative liabilities for the responsible person, such as an up-to-ten-day detention and a fine up to RMB50,000 (Art. 57). If a foreign NGO determines that it is too much trouble to apply for a representative office or a temporary permit and that it will incur too much risk by not applying for such approval, it may simply leave China.
The Draft NGO Law also provides a list of sectors in which foreign NGOs are welcome to engage, which are economics, education, science and technology, health, culture, sports, environmental protection and charity (Art. 3). Foreign NGOs engaging in one of these sectors may find it easier to apply than those engaging in sectors that are deemed to be sensitive by the Chinese authorities, such as human rights, civil liberties, etc.
Download: China Issues Draft Legislation to Strengthen Regulation over Foreign NGOs