New Foreign Exchange Rules May Pose Difficulties for Chinese NGOs

August 10, 2010

New rules issued last year by China's State Administration of Foreign Exchange took effect on March 1, tightening previously-issued rules concerning foreign donations to Chinese organizations. The new rules add procedures and increase the paperwork burden imposed upon Chinese organizations―including non-governmental organizations (NGOs)―wishing to receive financial contributions from overseas organizations. Five months after the rules took effect, some researchers and media reports are beginning to note, with specific examples, authorities' selective enforcement of the rules in a manner that may target groups working on issues the government deems to be "sensitive."

China's State Administration of Foreign Exchange (SAFE) issued the Notice of the State Administration of Foreign Exchange on Issues Concerning the Administration of Foreign Exchange Donated to or by Domestic Institutions on December 25, 2009, which took effect on March 1, 2010. Despite SAFE's assertion that the new rules are aimed at "facilitating the receipt and payment of donations in foreign exchange," some groups, including non-governmental organizations (NGOs), say that the new rules instead have made it nearly impossible to access their funds, placing some of them in difficult financial straits.

The SAFE circular requires all Chinese organizations seeking to receive foreign donations to present the following information: an application stating that the "donation is not against national prohibitive regulation"; a copy of the receiving organization's business license; a notarized donation agreement stating the purpose of the donation; and a certificate of registration of the overseas nonprofit organization (with Chinese translation attached).

In a June 14 Asia Catalyst posting, one expert writes that while the regulations are "not a sweeping shutdown of all NGOs," they have the effect of creating "a chill that shuts some NGOs down, allows others [sic] NGOs to survive but limits the overall growth of the sector." A May 27 Southern Weekend (Nanfang Zhoumo) article cites the head of a Beijing-based financial management company for NGOs, explaining that the financial problems experienced by some organizations were not primarily a matter of how they actually collect their funding, but rather the authorities' selective enforcement of the rules, depending on what individual groups do.

One particularly problematic element of the new SAFE rules is the requirement that the donation agreement be notarized. "Two months since the regulation came into effect, banks, notary service providers and non-profit outfits are in the dark about how to get a donation agreement 'notarized,'" a May 19 Global Times article reported. Moreover, a May 17 RFA article stated that some notaries reportedly will also require some donors to be present in China for the notarization. In the Asia Catalyst posting, one expert describes the confusion this way: "How many international donors have representatives in China, ready and able to show up at a notarization office at any time? Let alone staff poised to visit multiple notarization offices around the country, in every town where the donor funds local NGOs? Very few." An April 17 report in Deutsche Well (Chinese version) also detailed the difficulties that NGOs are facing as a result of the notarization requirement.

Recent Chinese and international media reports suggest that the Chinese government's selective enforcement of the new SAFE rules has impacted different civil society groups in different ways, and that authorities may be using the rules specifically to target groups handling work and projects that the government deems "sensitive."

  • In a May 17 interview with Radio Free Asia, the founder of the Beijing-based public health advocacy group Aizhixing said that his group is on the brink of closure because of the SAFE regulations. Aizhixing was forced to terminate its services in Kunming and to reduce financial support to other groups, but the most difficult challenge remains paying rent and salaries, he said. He also stated in the April 11 issue of Asia Week (Yazhou Zhoukan) that even if all goes smoothly, getting the grant agreement notarized alone can cost several thousand U.S. dollars, and take at least three months.
  • The Beijing Yirenping Center, a Beijing-based NGO dedicated to fighting discrimination against people infected with communicable diseases, has also been facing difficulties since the SAFE rules became effective. According to a May 27 Southern Weekend (Nanfang Zhoumo) article, the group relies on foreign donations for 80 percent of its funding. The center's managing partner said that his organization is on the verge of being "starved" of funds, and that this year it has had to cut back its three planned training sessions to one, and reduce its legal aid work to just providing legal consulting. On May 20, the Christian Science Monitor reported that the Center has been unable to get funding from the National Endowment for Democracy between November and May, and has been forced to stay open "by borrowing money from friends on a personal basis." The same article also mentioned that about a dozen NGOs also reported that they were unable to comply with the new requirements set forth in the SAFE rules. The Global Times quoted on May 19 the center's managing partner as saying that "more than 100,000 yuan is locked up in our foreign exchange account, and some cases have been postponed for lack of funds."

For more information on the development of civil society in China, please see Section II―Civil Society in the CECC 2009 Annual Report.