Nick Young

January-February 2002 Issue:

Cover by Greg Berger Design, Inc

As reform in China deepens, independent organizations are springing up in the gaps left by a retreating government

The most persuasive case for autonomous civil society will be demonstrable success in creating new and effective forms of social provision--just as the most persuasive argument for the market economy turned out to be that it worked for the peasants who, back in the late 1970s, went ahead and de-collectivized without asking government permission.

The most visionary proponents of the concept of corporate social responsibility see it not as a mere charitable retrofit--somewhere between community relations and brand promotion--but as a redefinition of the role of the company in society.

The world, we are told, is divided into three spheres of action: government (also known as "the state"); business ("the market"), and some altogether vaguer amalgam of citizen action and participation known collectively as "civil society" or, less engagingly, the "third sector." This division overlooks the cross-cutting nature of important social institutions, such as the law, the media, and the family, which don't fit easily into one box or another.

The idea of civil society nonetheless has remarkably broad appeal. For some, it represents a renewal of participatory-democratic possibilities--and a means by which to keep capital in check. For others, it represents a further means to ensure the retreat and containment of the state. For those somewhere in the middle, civil society is a useful compromise: a way to balance market imperfections so that the environment and other good causes get a fair hearing. The three-sector framework also helps focus attention on the fact that all three sectors are changing in size, shape, and role at the same time, and perhaps nowhere so fast as in China.

The government retreats...

The Chinese government has been gradually downsizing and withdrawing from direct economic management. Though this process is by no means complete, it remains to be seen how much further, and how smoothly, it will go. The "socialist market" is still strongly interventionist. State-owned enterprises continue to dominate the poor, western provinces, despite government efforts to lure private investment there. The banking system remains politically directed, making it hard for private entrepreneurs to access credit, despite the uncontested dynamism of the private sector. Entrepreneurs are also constrained by the lack of an adequate legal framework and, even more, by the absence of an effective judiciary. And the Chinese Communist Party elite continues to enjoy broad, discretionary powers, inviting rampant corruption despite denunciations from the top leadership and the execution of high profile culprits.

The retreat of government is perhaps most pronounced in the provision of social services. One aspect of this is the de-linking of cradle-to-grave welfare provision from state work units. At the same time, health and education services have largely shifted to a "user pays" principle, resulting in a marked growth in inequality of access. Investment is heavily concentrated in urban areas, where populations can afford to purchase services, whereas heavily indebted local governments in rural areas often cannot even afford to pay their schoolteachers. In poor rural areas, people can seldom afford to use local health facilities that are caught in a vicious cycle of rising prices and falling quality. The government is attempting to address some of the most pressing problems through a range of social insurance schemes, but these are generally undercapitalized and have limited reach (see The CBR, May-June 2001, p.18). Funding troubles are only exacerbated by the fact that China's taxation system does not meet the requirements of its new economy: It takes in far less revenue than it should and has difficulty transferring funds to the areas that need them m ost.

Nonetheless, the government appears to be recasting itself as a facilitator, rather than as a direct provider, of social services. There are few signs that it intends to scale up provision to meet the massive demand for new kinds of services generated by demographic, economic, and social change. Rising aspirations will only increase demand for these services. A growing, more affluent, and more empowered managerial and professional class will seek quality education, care, counseling, and rehabilitation for disabled, chronically, or mentally ill relatives or those with drug or alcohol problems. They will also be more inclined to seek legal redress for infringements of their rights. Even if private and nonprofit service providers only cater initially to urban elites, their activities may nonetheless expand general social perceptions of the quality of life possible for people with special needs or problems.

At the same time, the relative freedom and mobility of the market also bring in their wake new sources of social stress and problems that are unlikely to be resolved by government fiat: prostitution; crime; drug use; trafficking in women and children; the structural problems of a large rural-urban migrant population without full urban residency rights or access to basic services; a growth in numbers of street children, vagrants, and beggars; an increase in single parent families; and, arguably, an increase in people suffering from depression or other kinds of mental illness as a result of societal stress--from lengthy commutes to increased competition in job markets. Finally, as Chinese cities become larger, more anonymous, and more dominated by concrete and cars, and as rural environments become more degraded, there is very likely to be a surge in demand for improved environmental amenities and quality of life.

In sum, the Party and government face a daunting combination of existing service gaps, expanding demand for services, and severe fiscal constraints, but show little appetite for the task.

...and social forces advance

Instead, the government is passing the baton to "social forces"--an unspecified blend of private and nonprofit service providers. Policy statements and even laws enacted by the National People's Congress are spattered with appeals to these social forces. A more or less clear green light has been given to private hospitals and schools, including universities. Major public universities, such as Beijing and Qinghua, have established private foundations to capture philanthropic funding (the Beijing University Foundation has a subsidiary registered in California), and major hospitals in eastern provinces are following suit. The 1999 Public Welfare Donation Law was clearly designed to facilitate the flow of private funds to such institutions, with a particular eye to wealthy, overseas Chinese donors such as Hong Kong billionaire Li Ka-Shing, who has endowed a university and hospital in his native Guangdong Province.

In several parts of the country, civil affairs bureaus have contracted out the management of orphanages to international charitable organizations. Education and health authorities in some areas are reportedly exploring similar arrangements with private service providers. In many cities, nonprofit and private service providers--though there is seldom a clear distinction between the two--have established retirement homes with varying degrees of local government investment and support.

China has yet to develop clear standards and an adequate inspection system for institutions and services of this kind. It is, however, evidently pursuing an American model of private and nonprofit provision, backed by private and public insurance schemes, rather than a European model of mainly state-delivered social services.

The rise of governmental nongovernmental organizations

On the nonprofit side, the government has, over the last 20 years, established a number of official charitable organizations, some of which have proved able to mobilize substantial private funding. Best known is the China Youth Development Foundation's flagship Project Hope, which since 1989 has raised more than $200 million to build rural schools and provide scholarships for students from poor areas. Much of the funding has come from corporations and overseas Chinese but, according to the foundation, fully 64 percent of ordinary urban Chinese citizens have also contributed. Other big-league players are the China Children and Teenagers' Fund, established in 1981 by the Women's Federation, and the Poverty Alleviation Foundation, established in 1989. A relative newcomer is the China Charity Federation, which since its founding in 1994 has developed a national network of local chapters mobilizing funds for disaster relief and a wide range of health, social-welfare, and poverty-reduction projects, from cancer research to micro-irrigation.

Skeptics have argued that these official nonprofit organizations are mere proxies and fundraising mechanisms for government. This is too dismissive. It is true that the official nonprofit groups articulate their roles in terms of supporting government and Party policy: indeed, anything else would be illegal, even unconstitutional, in communist China. And where, in a society so dominated by government, was the initial impetus for a nonprofit sector to come from, if not from government itself? Many of the official foundations have, over the years, developed a tangible ethos of being separate from, but acting in harmony with, government; and government itself is progressively withdrawing the financial support, usually in the form of salaries and office space, that was a hallmark of the early days.

Several of the official foundations have achieved standards of financial transparency and accountability that are quite novel in China. From its founding, the China Charity Federation has published accounts audited pro bono by KPMG China, and many of the other official charities have since followed suit. Transparency is essential to winning donor trust and has helped the China Charity Foundation attract substantial endowment funds from international corporations, including a HK$25 million ($3.2 million) donation from HSBC.

Such success fuels the argument for loosening the ties between these agencies and their government sponsors, and the agencies themselves appear keen to stand on their own feet. A landmark conference, hosted in Beijing in October 2001 by the Poverty Alleviation Foundation, drew together delegates from dozens of Chinese and international nonprofit agencies and called on the Chinese government to liberalize the legal framework and registration processes for nongovernmental organizations.

But while this top-down experiment in the creation of a nonprofit sector appears to be leading quite smoothly towards more mature and independent organizations, the government remains wary of grassroots community groups. Existing regulations firmly tie any citizen group to an official government or Party sponsor and limit diversity by insisting that only one group of any one kind can register at any administrative level. Rules also prevent organizations from conducting activities outside of their place of registration, constraining their natural growth. What's more, the continuing Falun Gong affair has illustrated the worst fears of Chinese conservatives, who appear to reason that the movement is the result of allowing ignorant people too much freedom. Given numerous recent episodes of rural unrest, and the disaffection of those who have lost out under reform, such as the laid-off workers who formed the rank and file of Falun Gong, the State Council will likely be in no hurry to extend freedoms for associations that might allow more space for dissidents (and "splittists") to organize.

Grassroots organizations sprout

Nevertheless, over the last few years a surprising number and variety of independent organizations have grown up between the cracks in the legislative pavement. These include well- (and legally) established, but authentically nongovernmental, groups such as the Amity Foundation, the Chinese Christian service organization, which now receives more than $5 million a year in funding from international church groups for social welfare and community development projects that it implements in every province in China. The Catholic Church has several smaller, but vibrant, counterparts, such as Beifang Jinde, which grew out of a Catholic newspaper in Hebei Province. In several cities the YMCA and YWCA have reemerged from their hibernation during the Mao years to run neighborhood development programs, offering recreational facilities for young people, organizing networks of volunteers to befriend older citizens, and running training programs for laid-off workers.

The academic community has also spawned many nongovernmental groups that have grown in the shelter of academic institutions. These engage, variously, in policy research and advocacy; networking around specific rights-based themes such as domestic violence and child abuse; legal advice services for disadvantaged constituencies; and rural development programs that pioneer bottom-up, participatory approaches.

Next comes a small but brave array of people who have espoused specific causes. In descending order of popularity, these causes are the natural environment, the rights of women, and the rights of migrant workers. These small groups of people have found different means of advocating and providing services, in a more or less legal way.

The greens are the most numerous and vocal issue group, receiving generous coverage from a carefully cultivated support base in the Chinese media. "Environmental awareness raising" of course falls comfortably within the policy parameters of the central government, which understands the need to push through some unpopular measures--realistic energy and water pricing in particular--and can use help in preparing the public ground. Green nongovernmental organizations also make more convincing propagandists than government slogan writers. But the green groups nonetheless occasionally come into sharp conflict with local governments that are prepared to sacrifice environmental quality for short-term gain. The greens thus play an important role in advancing the boundaries of advocacy in China.

Finally, there are those determined individuals who, in their private or professional lives, have come across problems that the state is doing nothing to address. Typical of this group are the many parents of disabled children who, after a long and fruitless search for cures or treatments, set up some facility of their own: an autistic school, a daycare center for children with cerebral palsy, or an educational toy exchange.

Official hostility on the wane

For individuals who are forming groups on their own initiative, the times may be changing. Several years ago, independent initiatives of this kind met with active hostility from the government departments responsible for these neglected constituencies. Civil affairs or Disabled Persons Federation officials simply could not accept that ordinary people were entitled or qualified to start inventing their own kind of community care and frequently intervened to close their efforts down. Schools founded to cater to the children of migrants, who are ineligible to enter urban state schools, have experienced similar harassment from education authorities, and in some areas the official Women's Federation has proved equally hostile to private citizens' initiatives to provide services to women.

Bureaucratic hostility now appears to have abated somewhat. Starting from the bottom, as a grassroots group, remains far from easy, but the early pioneers have staked out some of the most difficult terrain and, in the current atmosphere of cautious endorsement for nonprofit activity, outright suppression of private initiative appears more sporadic. However, for many groups, formal legal recognition remains extremely difficult, if not impossible. Government fears over Falun Gong have paralyzed registration procedures even for patently anodyne and explicitly charitable organizations. It seems the state prefers to tolerate unofficial initiatives that it can crack down upon if the political winds change, rather than allow them to exist formally in the first place.

This is an important time, therefore, for the small, independent organizations to prove their worth. To most Westerners, it is a matter of common sense that releasing the sheer creativity of ordinary people in the realm of community and social development will bring benefits comparable to those achieved by releasing private initiative in the economy. But this is not obvious to a Chinese Communist Party beset by problems on many fronts. Much less is it likely to be swayed by abstract arguments about the right to freedom of association. The most persuasive case for autonomous civil society will be demonstrable success in creating new and effective forms of social provision--just as the most persuasive argument for the market economy turned out to be that it worked for the peasants who, back in the late 1970s, went ahead and de-collectivized without asking government permission.

Domestic corporate responsibility

How are Chinese businesses faring in the new division of social responsibilities? Their role is certainly changing--but often in the opposite direction to that prescribed by advocates of increased corporate social responsibility. Chinese enterprises are increasingly liberated from welfare functions and allowed to get down to the simple business of showing a profit. Some of the most economically dynamic sectors of the economy, such as the nominally "collective" rural industries, have thrived in an almost completely unregulated environment. Environmental standards and a 1995 Labor Law exist on paper, but China has no remotely comprehensive or effective enforcement mechanisms. Many of these frontier industries have been highly polluting and have offered rock-bottom wages and minimal health and safety standards to non-unionized rural migrants, of whom there is nonetheless a steady supply. Such industries have been highly profitable.

The government's characteristically pragmatic approach seems to have been "let it happen, develop rules later." Nevertheless, the National People's Congress recently amended the Trade Union Law to grant unions more leverage in representing workers in disputes and new powers for legal recourse. Several media reports interpret the amended law as tacitly recognizing workers' right to strike. According to a 1998 All-China Federation of Trade Unions survey, only 4 percent of private sector companies have union branches; but under the new law, all enterprises with 25 or more "unionists" must set up a trade union committee.

The international corporate role

So where does all this leave international corporations with China operations? Life is uncomplicated for those who see corporate social responsibility in terms of philanthropic donations: China has a growing range of worthy, officially sanctioned, and reasonably transparent causes that will be delighted to receive a check. Project Hope alone has received millions of dollars from US corporations, including roughly $2 million apiece from Motorola Inc. and The Coca-Cola Co. Both companies continue to channel funds through the Youth Development Foundation, with Coca-Cola gradually switching the emphasis to university scholarship programs. Several other companies are doing likewise, as higher education becomes fee-based and harder for less privileged students to access. IBM Corp. has put tens of millions of dollars into IBM technology centers in Chinese universities, supplemented by teacher training and scholarship programs. Hewlett-Packard Co. has also supported the training of information technology teachers.

While education remains a favored cause, disaster relief also attracts large donations, and the China Charity Federation has received international corporate support for many of its social welfare projects.

Corporations wishing to assist some of the smaller, community organizations will find no shortage of suitable candidates, but should be aware that these are, as yet, small and fragile operations that could be diverted, corrupted, or simply suffocated by large injections of funds.

Some companies take a more hands-on approach to strengthening local charitable initiatives by allowing employees time off to undertake voluntary work in the community. HSBC, in collaboration with the China Charity Federation, does this in an imaginatively integrated program. Volunteers from the bank's branches help out in retirement homes that were established with the bank's support, and where the bank also funds professional training for full-time care staff.

But even this is to construe corporate social responsibility in a rather narrow sense. The most visionary proponents of the concept see it not as a mere charitable retrofit--somewhere between community relations and brand promotion--but as a redefinition of the role of the company in society. Responsible businesses, the argument goes, should be driven by a triple bottom line: not just profits for the shareholders, but also long-term environmental sustainability and demonstrable benefit to the wider community.

Some of the visionaries reside in corporations, such as BP and The Body Shop International Plc, that strive to present themselves as exemplars of this new business ethic (see p.36). But the vision is also driven by demand. Western consumers prefer to believe that they can have their cake and eat it without either destroying the environment or hurting other people. Religious organizations, labor unions, and some pension fund investors are becoming increasingly keen to find ethical investment portfolios that search for a morally palatable return on capital. These concerns are keenly spearheaded by an array of pressure groups--another face of civil society--gunning for big corporations that fail to demonstrate fair dealing throughout their supply chains. This may not amount to the global rejection of multinational corporations that Naomi Klein predicts in her best-selling book, No Logo, but it is a significant new consumer--and shareholder--pressure that may profoundly affect the way that private business is done.

International corporations invariably argue that their first contribution to corporate social responsibility is the introduction of Western business practices. But this is hard to argue for export-processing industries, since so much of the work is repeatedly subcontracted, making it hard for even determined companies to keep an eye over the whole supply chain. Indeed, it appears that, at least in one case, much manufacturing piecework was done by rural women in their homes.

Western civil-society organizations, from the free-Tibet campaigners who have realized that international capital is more responsive to Western public opinion than the Chinese government, to groups like Sweatshop Watch, determined to hit the pockets of offending toy and garment industries, are becoming increasingly sophisticated in their tactics. For example, many of these organizations have bought shares in target companies to force shareholder debates that draw wider, public attention. International development nongovernmental organizations are also starting to "advocate" to the corporate sector. They have spent decades criticizing governments and multilateral institutions such as the World Bank, but increasingly identify multinational corporations as the players that most count in shaping the lives of people in developing countries. A case in point is the recent campaign by Medecins Sans Frontieres and others to secure the release of patents on anti-AIDS drugs for third-world victims. Among these groups there will be no shortage of those who see efforts by international corporations to support community development or civil society in China as an evasion of their responsibilities for working conditions.

But for companies that take corporate social responsibility seriously, unprecedented opportunities abound. With its entry into the WTO, China probably stands closer to the international community of nations than at any point in its history. Western investors are likely to have a profound impact on evolving business models; and this may well involve new relationships between corporations and civil society on both sides of the Pacific.