By Dezan Shira & Associates

Foreign NGOs have been instrumental in channeling capital, intelligence and expertise into the China’s development and expansion since the 1980s — which has alternately been welcomed and looked upon with skepticism by the state.

With the April 28 ratification of the the first comprehensive guiding law for foreign NGOs, China’s is set to take a new, more-restrictive stance with stringent constraints on the registration, operation and funding of foreign NGOs in the name of protecting national security.

It is estimated that about 7000 foreign groups and organizations with existing operations in China will be affected, and that the incorporation process for new NGOs will be significantly more difficult when the law takes effect January 1, 2017.

Supervision

Foreign NGOs in China will be supervised by the Ministry of Public Security, which indicates the state is increasingly considering NGOs as potential threats. Local police units have the right to issue warnings, seize illegal property, and detain individuals for 10 days if the NGO:

  • Conducts NGO activities without required registration or filing;
  • Conducts activities after the registration certificate has been cancelled, revoked or deregistered;
  • Holds activities after temporary activities are banned or the registration period expires; or
  • Entrusts or funds activities of an entity within China without registering the representative office or filing the temporary activities.
Registration, application, and requirements

The application and registration of NGOs in China will also be governed by the Ministry of Public Security. The application process is notably lengthy —  taking months from start to finish. A foreign NGO must initially register their representative office in order to host activities in China.

The law defines “overseas NGOs” as non-profit-making and non-government social organizations such as foundations, social organizations and think tanks that are incorporated overseas, and must have existed and operated for more than two years. They should be able to bear civil liability independently, with scope of business conducive to public interest. The following materials are required to file an application:

  • Completed application form;
  • Credentials and materials that meet the above given requirements;
  • ID certificate, resume, proof or statement of non-criminal record of the chief representative;
  • Proof of domicile of the representative office;
  • Proof of source of funds;
  • Approval document of the competent administrative department concerned; and
  • Other documents and materials specified in the laws and administrative regulations.

Authorities will rule within 60 days of receiving the application. If the registration application is accepted, a registration certificate will be issued and registration information (name, domicile, scope of business, scope of activities, chief representative and administrative department concerned) will be made public.

A foreign NGO is responsible for applying for tax registration, engraving an administrative seal and opening an account with a domestic Chinese bank using the certificate. A photocopy of the tax registration certificate, seal specimen and bank account should be submitted to the registration authority.

Allowed and prohibited industries

Foreign NGOs can conduct activities related to economy, education, science and technology, culture, health, sports and environmental protection, and may provide financial aid and disaster relief as long as it is in the public interest. They cannot, however, participate in activities that involve profit making, politics or religion.

The law specifically states that foreign NGOs cannot harm national or ethnic unity, security, national or public interest, the rights or interests of citizens, or other organizations; but a definition of “harm” is absent, creating ambiguity on its interpretation.

Restrictions and obligations

A foreign NGO is only allowed to carry out activities specified within its registered scope of business and in areas registered under the organization’s name, and may not establish a branch office or recruit members within China, unless otherwise stated by the State Council.

By law, a foreign NGO representative office is required to submit an activity schedule by December 31 each year with information about project implementation and fund distribution plans. A yearly work report must also be submitted before January 31 each year. A finished report, affixed with the opinions issued by the administrative department, must then be submitted to the registration authorities before March 31 for annual inspection.

Funding may only be derived from a legal overseas source, from interest on bank deposits within China, or from other funds obtained legally within China. Soliciting donations is forbidden.

In addition to paying taxes, foreign NGOs must comply with China’s unified accounting system and are required to hire accounting personnel who are qualified in China’s Accounting Standards. Statements produced in the accounting process are audited by a certified Chinese accounting firm.

Key takeaways

The NGO law is in keeping with President Xi Jinping’s campaign to restrict opposition to the Chinese Communist party, reflected elsewhere in the intensification of internet censorship and the greater controls placed on the media. NGOs in China were previously afforded relative independence — largely as a result of an incomprehensive policy framework — but the new law furnishes Chinese authorities with greater power over foreign NGOs, and shifts administration of them from the Ministry of Civil Affairs to the Ministry of Public Security.

The law may be instrumental in expelling foreign NGOs from China, or even discouraging them from entering in the first place. A consequence could be the damage inflicted to Chinese domestic NGOs, which commonly receive support and funding from their foreign counterparts.

Posted by Dezan Shira & Associates