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HRIC Briefing Note: Tighter Regulation of Foreign Funding Support of Chinese Civil Society Groups

June 14, 2010

May 27, 2010


On March 1, 2010, a new set of rules on foreign donations issued by the State Administration for Foreign Exchange (SAFE) went into effect. The rules were set out in the government notice Circular of the SAFE on Relevant Issues Concerning the Administration of Donations in Foreign Exchange by Domestic Institutions (关于境内机构捐赠外汇管理有关问题的通知).

The new rules on foreign donations were followed by the issuance of the Provisional Regulations on the Protection of Commercial Secrets of Central State-Owned Enterprises (中央企业商业秘密保护暂行规定, March 25) and the promulgation of the revised Law on Guarding State Secrets (保守国家秘密法, April 29). These legal developments reflect ongoing efforts to constrain independent civil society groups through tighter regulation over information and greater control over foreign funding support. Further, the provisional regulations on commercial secrets, issued the day following the Rio Tinto corruption trial, have implications for the international business community, including foreign companies engaged in business ventures with or negotiating with Chinese SOEs.

This HRIC briefing note outlines the key provisions in the Circular and highlights the human rights concerns. While it may be premature to predict the full impact of the new rules, it is clear that at the very least, they present risks and policy challenges that foreign governments, foundations and other funders, academic institutions, and other actors actively engaged with Chinese civil society need to address proactively. (HRIC has compiled the official and other relevant documents and prepared translations of select items that may be helpful resources. See the end of this document for a list of the items.)

Circular of the SAFE on Relevant Issues Concerning the Administration of Donations in Foreign Exchange by Domestic Institutions
(issued on December 30, 2009; effective March 1, 2010)

This Circular sets out a regulatory framework and specific procedures for donations from/to domestic institutions and overseas institutions (non-profit and for-profit) or individuals. These donations must be handled via separate foreign exchange accounts opened with designated foreign exchange banks.

The SAFE Circular sets out two key application procedures in Articles 5 and 8. The more onerous Article 5 procedure targets domestic enterprises, and suggests an effort to cut off foreign support for groups registered as enterprises such as the Yirenping Center, a public health education group, and Aizhixing Institute, the AIDS advocacy group, and many other Chinese organizations of a non-profit nature doing public interest work but wishing to maintain an independent civil society voice and operation.

The Article 5 procedure applies to the accepting/making of donations from/to overseas non-profit institutions by “domestic enterprises. ” In order to open a foreign exchange account, a “domestic enterprise” must present the following items, in addition to an application to the bank, that guarantees that the donations “shall not be in violation of any relevant prohibitions of the state” and a photocopy of the business license of the enterprise:

  • a notarized donation agreement specifying the purpose of the fund;
  • supporting documents proving the legal overseas registration and establishment of the overseas non-profit institutions (accompanied by Chinese translations);
  • other required materials when these materials fail to sufficiently prove the validity of the transaction.

Under Article 6, domestic Chinese government organs and some social organizations exempt from social organizations registration (e.g. the Communist Youth League of China, All-China Federation of Trade Unions) appear to only have to submit an application as set forth in Article 5 (1). Since the organizations listed in Annex 2 of the Circular are either mass organs of the Chinese Communist Party or organizations already closely supervised by the authorities, this would support the interpretation that they would not need to submit the other documentation.

Under Article 7, “domestic representative institutions of overseas NGOs” have to submit an application as set forth in Article 5(1) and the donation agreement between general headquarters of the overseas NGO and the domestic party receiving the donation. While there is no requirement of a notarized agreement, the requirement of the donation agreement with general headquarters may present some difficulties for large international overseas NGOs which may have a range of internal operational structures and decision-making processes. It is also not clear why the recipient here is characterized as the “domestic party receiving the donation,” an undefined term, rather than “domestic representative institutions.”  

Article 8 sets out procedural requirements for all other domestic institutions that include:  

  • an application;
  • a photocopy of the registration certificate;
  • donation agreement specifying the purpose of the fund;
  • supporting documents proving the legal overseas registration and establishment of the overseas non-profit institutions (accompanied by Chinese translations);
  • documents supporting the required approval by the State Administration for Religious Affairs for donations of 1,000,000 yuan or more tonational religious organizations; and documents supporting the required approval by the people’s government at the provincial level of the recipient’s location for donations of 1,000,000 yuan or more to religious sites or local religious organizations.

In the first two months following the issuance of the SAFE Circular, there have also been reports of confusion and uncertainty including lack of information on how to get a notarized donation agreement and of domestic groups not being able to access funds in their accounts due to these difficulties. In the context of the already restrictive registration process for civil society groups and the authorities’ use of tax and other regulatory measures to target and harass these groups, these new, intrusive requirements not only threaten to cut off foreign funding – the lifeblood – for many such groups, but also present challenges for foreign funders who want to promote, effectively and safely, an independent civil society space in China.

The recent departure of Wan Yanhai (万延海) – well-known HIV/AIDS activist and founder of Aizhixing, who helped expose the AIDS epidemic in China in the mid 1990s – from China and what has happened to Aizhixing illustrate these problems and the progressive official strangulation of a civil society organization.

Wan left China with his wife and daughter to come to the U.S. in early May 2010 (without closing down Aizhixing), stating that the new foreign exchange regulations and other government interference have made it impossible for him and his organization to do meaningful work in China. In a May 19 interview with Voice of America, Wan said that the official restriction on his organization and on him as an individual has become extreme, and staying in China is equivalent to “waiting for death.”

On May 19, the day of the VOA interview, two officers from the Beijing Municipal Tax Bureau went to Aizhixing’s office, demanding the organization provide, by May 21, documents including:

  • all contracts between Aizhixing and its funders (in original language and Chinese translation);
  • all accounts records, 2002-2007;
  • all financial reports or audit reports, 2002-2007;
  • all tax payments;
  • all bank statements, 2006-February 2010

The following day, Aizhixing posted a statement on the Internet notifying people and organizations which have worked with Aizhixing in the past that all previously confidential information concerning them kept at Aizhixing is now in the hands of the authorities.

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