In June 2011, Guo Meimei, a young woman claiming to be affiliated with the Chinese Red Cross Society, brought the credibility of the whole Chinese nonprofit sector into question when she posted online photos of her lavish lifestyle, including expensive handbags and luxury cars. Although Guo didn’t actually represent the Red Cross, her actions spurred countless news articles and more than 600,000 posts on the Chinese micro-blog Sina Weibo calling on the Red Cross to explain how it was spending the public’s donations.

Many used this incident to draw attention to a lack of transparency among China’s nonprofits, particularly large foundations and government-organized NGOs (GONGOs) like the Red Cross, which, unlike smaller nonprofits, have the authority to publicly fundraise. These demands are coming at a time when requests for information transparency are growing across all sectors in China. Within the nonprofit sector, transparency is viewed as a way to re-establish public trust and rebuild the reputations of GONGOs. As outlined in our January feature article, increased transparency in the corporate sector is visible in the dramatic rise of CSR reports published in China.

Transparency is entering the Chinese NGO arena in two ways: NGOs are using publicly available information about companies’ social and environmental infractions to push for change, and they are gradually increasing their own levels of disclosure in order to build the trust of the public and the companies that might invest in or partner with them. While the first development means business may face more pressure from NGOs, the second presents an opportunity: A more open flow of information about nonprofits’ activities and impacts can help companies identify the best partners for addressing social and environmental issues.

China’s NGOs: A Nascent Sector

To appreciate the recent trend toward transparency in China’s nonprofit sector, it’s useful to understand the history of NGOs here. Unlike countries such as the United States that have a strong culture and history of philanthropy, nonprofits in modern China are just developing. Since the early 1980s, a range of different nonprofit organizations have emerged, with categories distinct to China. For example, there are two types of foundations, differentiated based on how they raise public funds.

Over the past 30 years, nonprofits have grown rapidly, amid little regulation (voluntary or mandatory). While it’s hard to pinpoint any one “trigger” for Chinese NGOs’ movement toward transparency, three major policy developments have encouraged the trend. The first is China’s Five-Year Plan for the China Philanthropy Sector, which was issued last September: The plan acknowledges the gap between China’s current philanthropic regulation in meeting the information disclosure demands of donors (including the private sector) and the general public.

Following this was the December 2011 release of the “Donation Disclosure Guide for Charitable Organizations,” which was aimed at increasing nonprofit reporting on the source and use of donations. Finally, in January of this year, China’s National Audit Office began requiring foundations (many of which are GONGOs) to submit audit reports for their major charitable projects and periodically publish them publicly. The Chinese government will provide financial assistance to those that do not have the funds to support this.

Transparent NGOs—and What This Means for Business

Nonprofits that are aware of the importance of transparency and have the resources to respond are increasing their disclosures and communicating about their activities to the public via blogs, websites (if they have them), and Chinese Twitter. On a larger scale, the China Foundation Center and other information platforms such as NGO2.0 are creating interactive websites the public can use to obtain data on nonprofits’ program areas and project news, as well as information on companies’ corporate responsibility programs. The China Foundation Center’s database of more than 2,500 foundations captures information on every legally registered foundation in China.

Despite this, there is much room for progress. In 2010, the Beijing-based China Charity Donation and Information Centre (CCDIC) reported that less than 30 percent of nonprofits have a website and only 35 percent disclosed their financial information to the public. (BSR’s CiYuan initiative has been working with the CCDIC over the past 18 months to develop a “Disclosure Index for Charitable Organizations,” which uses a point system to encourage nonprofits to disclose their information and assess their transparency.)

As China’s transparency landscape for nonprofits matures, we predict this will present opportunities for both local and international businesses operating here:

  • Greater transparency about nonprofits’ funding sources can help business managers understand how nonprofits might be influenced through the donations they receive. It can also help companies predict the external pressures they may face from nonprofits to address issues such as environmental pollution, discrimination, and fair-work practices.
  • Increased disclosures about nonprofit operations can help foster greater communication between companies and NGOs and break down barriers caused by potential mistrust and misunderstandings.
  • More information will help companies identify better nonprofit partners. NGOs are emerging as strategic partners for business in implementing corporate responsibility initiatives that help engage employees, build relationships with stakeholders such as government, and create positive impacts on local communities in which the company operates.

Over the next 12 months, BSR’s CiYuan team will be promoting transparency among Chinese nonprofits through the disclosure index described earlier, through transparency training for grassroots NGOs, and through a program that encourages nonprofit transparency through the CCDIC’s information transparency platform and online giving website.

For more information about how BSR’s CiYuan program is helping Chinese nonprofits increase their awareness of transparency, contact Brooke Avory.