Jun 29, 2018 04:33 PM

Opinion: Chinese Charities Seek Strategies to Succeed

“Why do I need so many jackets? I just need baby formula!” a young Chinese mother complained when she received a fourth jacket from a philanthropic organization. Her home had been hit by an earthquake and winter was just around the corner.

Although helping victims survive the winter was a good reason for nonprofit foundations to raise money and do their job, it’s doubtful whether these kind of donations meet people’s real needs or just satisfy donors.

Handling social issues efficiently by “marketizing” philanthropic groups, with these groups using demand as an indicator and commercializing their operations, is now becoming an essential value of the industry. Apart from the internal need to innovate, the Chinese philanthropy industry is also facing several challenges from outside.

The first challenge is from commercial enterprises, especially e-commerce companies, as the online business model intrinsically features sharing. For instance, a charity event held by social media giant Tencent Holdings Ltd. gave a boost to almost 10,000 charity projects, raising nearly 1 billion yuan ($151 million) in a single day. E-commerce giant Alibaba Group Holding Ltd. uses its online payment system to entice consumers and online stores to donate 250 million yuan a year for elected projects through more than 6 billion transactions. Another leading online retailer, Inc., collected more than 400,000 old toys from customers within 10 days and gave them to kids who cannot afford new toys. That’s why nowadays some people quip that enterprises involved in charity could drive nonprofit organizations out of business.

The second challenge is from social enterprises. Targeting disadvantaged groups, social enterprises around the world seek to help vulnerable people to become stronger and more independent. Here in China, there are many social problems including food safety, pollution, inadequate health care and public services, and unfair allocation of resources. Everyone needs social enterprises. The best solution for all these issues is to develop social enterprises that use commercial strategies to maximize their impact on their charitable causes.

Take the development of social security as an example. The government has transformed the state-owned retirement-home system into a new model in which the government builds care homes which are then run by private companies. These homes feature three characteristics, including public services, a company operation and charity.

Nonprofit foundations are like engines for social innovation. Some foundations are already on the cutting edge of innovation as they combine philanthropic investment and hybrid financing with impact investing to create platforms.

The first platform is the social entrepreneur training program organized by the British Council from 2009 to 2016. Cooperating with several renowned foundations and philanthropic groups, the program cultivated more than 3,200 social entrepreneurs and provided 37 million yuan for 117 enterprises.

The second platform is the China Social Enterprise and Investment Forum. Founded by 17 famous Chinese foundations, the forum has held four sessions, and Sequoia Capital will take over the rotating presidency at the fifth session in 2019. Neil Shen, a partner at Sequoia Capital, was named 2018’s best global investor by Forbes magazine, indicating that Chinese social enterprises and impact investors are in the mainstream.

The third platform is the Effective Philanthropy Multiplier, which is a philanthropic project-sharing platform, jointly founded by 16 influential Chinese foundations. The main goals are to promote charity projects at scale and to encourage projects to grow into social enterprises. Currently the platform has selected 48 projects and is ready to link these projects with more than 12,000 charities.

Chinese foundations aim to scale up charity projects and cultivate social enterprises, including sponsorships and program-related investments (such as interest-free loans).

Some foundations, like the Narada Foundation, are also exploring multiple investment strategies. Narada is one of Sequoia Capital’s partners in China. It also invested 50 million yuan as Mission Driven Investments, joining Ehong Capital to support social enterprises.

Social enterprises need donations and investments to find the best business model, and foundations should be not only brave enough to bear the high risk of investing in innovation but also be open-minded enough to look for the value beyond profit.

Facing external challenges as well as the industry’s own demand for a change, Chinese foundations are working toward a breakthrough.

Xu Yongguang is the founder of the China Youth Development Foundation and founder of the Project of Hope. He is currently the chairman of the board of the Narada Foundation.

Translated by Howard Liu

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