Sep 30, 2010 07:34 PM

For China's Wealthy, Charitable Giving Hurts

Investment magnate Warren Buffett and the world's richest man Bill Gates promised to donate most of their wealth to charitable causes. They also want the rest of the planet's gilded class to follow, including China's nouveau riche.

The two men pitched their case at invitation-only dinners across the United States over the past year, urging Americans with deep pockets to give away assets. Their so-called Giving Pledge so far has won dozens of American individuals and families.

The next stop for Buffet and Gates was China, and rightly so. China has the world's second-largest population of millionaires, after the United States, according to an annual Rich List compiled by the wealth analyst Hurun.

Hurun says at least 875,000 individuals and families in China are worth more than US$ 1 million, and 130 have accumulated more than US$ 100 million.

Most of this money was made during the past 30 years, after China started a reform and opening initiative. And the rich got richer as China evolved from a society based on shared wealth to one that lets money concentrate in the hands of few.

China's Gini coefficient, a measure of wealth dispersion, has been climbing as the gap between rich and poor widens. And as this widening has continues, resentment toward the wealthy has been rising in China.

So a Beijing visit by Buffet and Gates for a September 29 dinner with 50 of the China's wealthiest people offered a reason to assess attitudes toward wealth as well as charitable giving. And the assessments shed light on a conflicting combination of good intentions, critics of the rich, phony philanthropy and government barriers.

Indeed, China's charity network has proven to be no more than a poor cousin in a nation crowded with millionaires.

Embarrassed Wealthy

Most of those invited to the Buffett-Gates dinner declined to say in advance whether they would attend. Several explicitly turned down the invitation, including Wahaha Group Chairman Zong Qinghou – China's richest man – and Wanda Group head Wang Jianlin.

On the other hand, Cheng Guangbiao, chairman of the Jiangsu Huangpu Recycling Resources Co., publicly accepted the offer and announced that, after he dies, all his wealth would go to charity.

Cheng's pledge, however, points to a dilemma for China's wealthy. In the court of public opinion, anyone attending the Buffett-Gates dinner and promising a huge donation could be considered a show-off. And those who refuse to donate could be labeled heartless.

Charitable donations by China's wealthy are relatively low. In 2010, only five of the top 10 on Hunrun's list also appeared on a list of the nation's 50 largest donors.

A report early this year by the Chinese Academy of Social Sciences said Chinese consumers including the rich spent US$ 9.4 billion on luxury items in 2009, accounting for 27.5 percent of the global total. But the nation's charities received only US$ 6.8 billion.

The secretary of the non-profit Narada Foundation, Xu Yongguang, says society should temper expectations toward the wealthy with a dose of realism: China's rich are, first and foremost, entrepreneurs.

In Xu's view, the nation's newly rich are principally focused on "making quality products." After that, their priorities are all about treating employees well, managing investments, being good to the environment and paying taxes.

"If they achieve all of these, they are considered respectable entrepreneurs," Xu said, "even if they don't donate money to charity."

Scholars argue that charitable donations should be made on a completely voluntary basis. Deng Guosheng at Tsinghua University's School of Public Policy and Management opposes social pressure.

"Charity should be a personal act of the heart," Deng said. "All society should actively guide it, not repress it." But the stingy rich have been a magnet for criticism.

After a deadly earthquake in Sichuan Province in 2008, for example, the chairman of property developer Vanke took the brunt of criticism for saying a mere 2 million yuan donation was "feasible" for his huge company. Wang Shi then added that "donations should not become burdens."

Angry reactions sprang up on major Internet forums, and Wang was forced to apologize. He then offered an additional 100 million yuan to help rebuild the disaster area.

Fake Charity

The public image of millionaires in China has not been helped by celebrities and even big corporations willing to fake philanthropy in order to lift their reputations.

Two of Fujian Province's wealthiest citizens slipped off the radar screen after announcing in 2009 – with much fanfare – that they had established a charitable fund. Nothing about the fund has been heard since.

In another case, a charitable fund valued at more than 4 billion yuan tied to Cao Dewang, chairman of the Fuyao Glass Industry Group, has been problematic since its launch in February 2009. Cao promised his 70 percent stake in the company to the Heren Foundation for investing in education, healthcare and services for the poor.

But the fund's clout has fluctuated in step with the company's changing share value. And Cao has taken serious issue with a 2003 government rule that says 30 percent of the fund's donations should be paid as taxes.

Fujian's richest man, Chen Fashu, last year said he would contribute his securities portfolio worth 8.3 billion yuan to establish the New Huadu Foundation, a charity focusing on education and the disadvantaged. But due to the lack of relevant regulation, Chen can't register his fund.

The experiences of Cao, Chen and others reflect just a few of the challenges facing China's charity network.

Deng notes that charitable organization development in China lags far behind other countries due to the weight of systematic limitations.

Wang Weijia, founder of the Alxa Society of Entrepreneurs and Ecology Association and general manager of Mtone Wireless Corp., said he knows many Chinese entrepreneurs who want to donate money to worthy causes.

But private organizations with the ability to build solid, credible mechanisms for carrying out these good intentions are few and far between, mainly due to government rules.

"The government just needs to lose control" of these kinds of private philanthropic entities, Wang said. "This isn't directly related to money."

Moreover, China does not have a proper system of rules governing management, fund structures, contribution rules, tax credits and supervision. What's more, private charity development is hobbled by the current tax policy.

Inheritance taxes in other countries provide a powerful incentive for donations by the wealthy. But China has yet to formulate similar policy.

Who gets charitable donations in China? Individuals, grassroots NGOs and registered private organizations have the right to accept donations. But under the current legal framework, private donations either first go to the government before being distributed, or are funneled into a handful of government-backed charitable institutions.

This legal structure has contributed to the spread of power-for-money deals masked as philanthropy.

In one of many cases, the major property developer Country Garden managed to get land for free in Anhui Province after Chairman Yang Guoqiang donated 25 million yuan to the provincial government "to support education." Country Garden also received favorable loans and tax breaks.

The government is discussing a series of proposed laws and regulations aimed at smoothing the playing field for philanthropy. One proposal getting a lot of attention is a proposed Charity Law now being reviewed by the State Council's Legislative Affairs Office.

But in Deng's mind, China needs change that goes far beyond rule-making: The public has to adjust its view of philanthropy.

"Compared with the poorest people" on the planet "we are all rich" in China, said Deng. Still, few make donations, and even those who don't give are apt to criticize others who do.

Deng thinks everyone in China should get involved in charity work in some form or fashion, and thus make a contribution to society. More than 70 percent of donations in western countries come from small donors, he noted, but no more than 40 percent follow suit in China.

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