China Steps Up Oversight on Charitable Trusts

As charitable trusts in China continue to grow in size and popularity, the government vowed to step up oversight of the fledging sector.

The China Banking Regulatory Commission and Ministry of Civil Affairs jointly issued a statement that outlined measures on regulating the sector — the same day that the country saw its largest-ever charitable trust established.

He Xiangjian, founder of electrical-appliance-maker Midea Group, donated 100 million shares of his company to set up a charitable trust worth an estimated 4 billion yuan ($592 million) on Wednesday. Citic Trust will manage an additional 500 million yuan in cash donations from He. The funds will support philanthropy in Guangdong province and nationwide related to poverty relief, education, health care, elder care, entrepreneurship and promotion of cultural heritage.

The Wednesday government statement said the banking regulator and the ministry will coordinate and supervise the trusts more closely during and after they are established.

The statement also said assets and earnings generated from all charitable trusts must be used on philanthropic projects. Firms must not use charitable trusts to illegally raise funds or engage in money laundering, it added.

The Wednesday rules also clarified separation of supervisory responsibilities. It said the banking regulator will oversee charitable trusts that are managed by trusts firms and money deposited by charitable trusts at commercial banks. The civil affairs department is responsible for their registration.

In spite of tighter rules, China remains supportive of charities as nonstate actors to help meet social needs such as poverty alleviation. Trustors, trustee, and benefactors will continue to enjoy tax breaks, for instance.

According to China’s Charity Law, passed in September, a trustee must be a charitable organization or a trust firm. After the law came into effect, many charitable trusts were established.

By the end 2016, 18 trust firms and charitable organizations had set up 22 individual charity trust products, while contract size surpassed 3 billion yuan, according to data from the government-backed nonprofit China Charity Alliance.

Contact reporter Liu Xiao (liuxiao@caixin.com)