Director of Chinese NGO Highlights Difficulties Faced by Chinese Civil Society Organizations

February 10, 2005

A 21st Century Business Herald article highlights the regulatory, financial, and personnel factors hindering the development of Chinese non-governmental organizations (NGOs). The authors recount interviews with Liao Xiaoyi, director of the prominent Chinese NGO Global Village Beijing, and academic experts.

The Chinese government subjects NGOs to a burdensome registration and regulatory system. (For a more detailed discussion, see the Commission’s Annual Report for 2004, especially the Civil Society section.) As the Business Herald article also notes, with respect to China’s labor and social security laws, the legal status of even properly registered Chinese NGOs and their employees is unclear. So is their tax status, since NGOs often register as for-profit business enterprises to avoid onerous NGO registration requirements. Local tax bureaus often collect business income taxes and fees from these organizations as if they were profit-making entities rather than non-profit NGOs.

Chinese tax laws grant NGOs broad tax-exempt status and permit individual third parties to make tax-deductible contributions, but the Business Herald article points out that significant practical difficulties arise when NGOs try to use these laws. First, no regulations specify which types of organizations may obtain tax-exempt status, and individual tax bureaus often determine such status on a case-by-case basis. Second, the tax laws only permit deductions for contributions to a handful of approved NGOs.

According to Professor Liao, financial and personnel obstacles also pose serious problems for Chinese NGOs. About 90 percent of Global Village Beijing's budget comes from foreign funds, creating a significant overdependence on non-domestic sources. Chinese NGOs also have trouble recruiting and retaining staff, because they cannot compete with private companies and foreign NGOs on salary levels. Finally, the institutional development of Chinese NGOs is also hampered by a tendency of some NGO heads to operate their organizations as personal fiefdoms.