1 June, 2016
Brief Comments on the Law of the People's Republic of China on the Management of Activities of Overseas Non-Governmental Organizations within the Territory of China.
For a long time, China has had no special legislation on regulating and guiding the activities of overseas non-governmental organizations ("Overseas NGOs") within the territory of China. This makes the legal status of Overseas NGOs unstable, affecting their normal cooperation and communication. One year after starting to solicit public comments in April 2015, the Law of the People's Republic of China on the Management of Activities of Overseas Non- Governmental Organizations within the Territory of China ("Management Law") was approved at the twentieth session of the Standing Committee of the twelfth National People's Congress on April 28, 2016 and will go into effect on January 1, 2017. The Management Law has seven chapters and 54 articles in total, which provides systematic rules for the management and the legal liabilities of Overseas NGOs operating in China. Below is a brief analysis of the Management Law and its impact on the development of Overseas NGOs in China.
I. Main Content of the Management Law
1. Definition and Scope of Activities
(1) Definition of Overseas NGOs
Under the Management Law, Overseas NGOs are non-profit, non-governmental social organizations legitimately established overseas such as foundations, social groups, think tanks and so forth. Such a definition excludes overseas schools, hospitals, natural science and engineering technology institutes and academic associations. The communications and cooperation carried out by such organizations with domestic schools, hospitals, natural science and engineering technology institutes or academic associations shall follow other Chinese related regulations.
(2) Scope of Activities
Activities carried out by Overseas NGOs in China shall be limited to the areas of public welfare, including fields such as economy, education, technology, culture, health, sports, environmental protection and areas such as poverty alleviation and disaster relief.
2. Registration and Filing
The Management Law provides two methods for the Overseas NGOs to operate in China: (1) establishing and registering representative institutions in China, or (2) conducting temporary activities after filing.
(1) Registration of Representative Institutions
Overseas NGOs seeking to establish representative institutions shall satisfy key requirements, including but not limited to: being lawfully established overseas, capable of assuming civil liabilities independently, having a mission and scope of activities set out in a charter which are beneficial to the development of the public welfare, having been in existence for at least two consecutive years, having substantive activities, etc.
Prior to its registration, the Overseas NGO shall first obtain the consent of a professional supervisory entity which shall be a related department and entity of the State Council or Provincial People's Government. The authority in charge of establishment registration is the applicable Public Security Authority.
(2) Filing of Temporary Activities
Overseas NGOs without representative institutions in China shall cooperate with Chinese partners (such as Chinese national authorities, civil associations, institutional organizations and public organizations) to jointly hold temporary activities in China.
The Chinese partner shall complete the filing formalities at local Public Security Authority fifteen days prior to the temporary activity (under emergency circumstances such as disaster relief, rescue and so forth, the time for filing may not be subject to the fifteen-day requirement). The term for temporary activities shall not exceed one year and the filing may be renewed if an extension is necessary.
3. Operating Rules for Activities of Overseas NGOs in China
The Management Law regulates the activities of Overseas NGOs in China mainly by the following methods:
(1) Filing of Annual Activity Plans and Annual Inspections
The Management Law requires that the representative institutions of the Overseas NGOs shall submit annual activity plans to be pre-approved by the professional supervisory entities and shall file the plan with the Public Security Authorities prior to December 31 of each year. They shall also submit an annual work report for the previous year to the professional supervisory entities prior to January 31 each year, and after it is accepted by the professional supervisory entities, they shall submit it to the Public Security Authorities prior to March 31 for annual inspection.
(2) Sources of Funding for Activities
Funding for activities carried out by Overseas NGOs in China is limited to funds that have been legally raised abroad, interests gained from savings deposited in banks within China and other funds that have been lawfully acquired within China. Overseas NGOs shall not raise funds within China.
(3) Accounts for Receiving and Paying Funds
An Overseas NGO that has established its representative institution shall use a bank account that is filed with the Public Security Authority to manage the funds used within China. An Overseas NGO that runs temporary activities in China shall manage the funds used within China through the bank accounts of its Chinese partners, and a special account shall be set up dedicated exclusively to funds for these temporary activities.
(4) Accounting, Audits, Taxation, Foreign Exchange and Personnel
The Management Law provides that the representative institution of an Overseas NGO shall implement the standard Chinese accounting system and engage Chinese certified accountants to handle its accounting. Its financial statements shall be audited by a Chinese domestic accounting firm. It shall also complete tax registration, declare taxes, pay taxes and so forth, as well as deal with foreign exchange receipts and payments pursuant to Chinese related foreign exchange regulations and file information on all personnel it employs to its professional supervisory entity and the Public Security Authority.
(5) No Recruitment of Members
In recent years, there have been some "offshore associations" and "pseudo-communities" accumulating wealth by means of membership recruitment and collection of membership fees in China, some of which carry out activities endangering national security and interests in the name of their associations.1 In the current version, the Management Law explicitly provides that representative institutions of Overseas NGOs and Overseas NGOs carrying out temporary activities shall not recruit members in
China.
However, given that some overseas natural science academic associations have previously recruited members in China and Chinese experts, scholars and scientists have previously joined such associations, the Management Law stipulates that Overseas NGOs shall not recruit members in China but the State Council may grant exceptions.2
(6) No Establishment of Branches
It is the opinion of the legislators that it is unnecessary for Overseas NGOs to establish branches within China because the Management Law allows Overseas NGOs to establish representative institutions. Given that there were some overseas natural science academic associations and entities with established branches in China, the Management Law provides exception in the case of branches set up in China in accordance with other regulations promulgated by PRC State Council.3
(7) Limitations on Activities
The Management Law provides that Overseas NGOs shall not engage in or sponsor any for- profit or political activities; illegally engage in or sponsor religious activities; endanger the national integrity, security and unity of China; or damage Chinese national interests, public interests of the society or legitimate rights and interests of citizens, legal persons and other organizations.
4. Supervision and Management
The Management Law imposes multiple levels of supervision and management on the activities of Overseas NGOs in China:
(1) The Ministry of Public Security and its local counterparts are the authorities responsible for registering institutions, conducting
annual inspections, filing records of temporary activities, and investigating and handling any illegal activities of Overseas NGOs.
(2)The Departments of State Security, Foreign Affairs, Finance, Financial Supervision and Management, Customs, Tax, Foreign Experts and other departments will supervise and manage the activities of Overseas NGOs according to their respective responsibilities.
(3) The professional supervisory entities shall be responsible for advising on the establishment of representative institutions by Overseas NGOs, changing registrations and annual work reports, and assisting the Public Security Authorities and other departments in investigating and handling any illegal activities of Overseas NGOs and their representative institutions.
(4) The Anti-money Laundering Departments under the State Council will supervise and manage the status of compliance with laws and regulations against money laundering and financing of terrorism by the representative institutions of Overseas NGOs, their Chinese partners, and the individuals and organizations within China receiving funding from Overseas NGOs.
5. Legal Responsibilities
Pursuant to the Management Law, punishments of illegal activities of Overseas NGOs include warnings, orders to stop activities within a given period, confiscation of illegal assets and unlawful gains, nullification of the registration certificates, elimination of temporary activities and so forth. Punishments of the individuals directly responsible include warnings, detention and so forth.
The Management Law also specifically provides that the Public Security Authorities may blacklist Overseas NGOs conducting activities endangering national security and interests in their databases and are authorized to prohibit such Overseas NGOs from setting up representative institutions again or conduct temporary activities in China. For foreigners violating the Management Law, related departments may order them to leave China within a given period of time, have them repatriated, or deported.
II. Impacts of the Management Law on the Development of Overseas NGOs in China
1. Registration of Representative Institutions
Before the Management Law, the national regulations specifically relating to registration of Overseas NGOs only included the Regulations on Administration of Foundations ("Regulations on Foundations") and the Interim Provisions for the Administration of Foreign Chambers of Commerce in China ("Provisions for Chambers of Commerce"). However, the Regulations on Foundations only applies to the establishment of representative institutions by foreign foundations, while the Provisions for Chambers of Commerce is limited to non-profit entities established by foreign organizations in China. There are no specific legal provisions for other types of Overseas NGOs.4
With unclear application requirements and the unpredictable attitudes of authorities, it is has been difficult for Overseas NGOs to register as private non-enterprise units or public organizations with the Civil Affairs Departments in the past. As a result, many Overseas NGOs who wish to operate in China 5 have had concerns about how to register themselves in China, and without registering, Overseas NGOs face various limitations with respect to personnel, taxation and independent activities.
According to the Management Law, Overseas NGOs are required to operate in China through either of the following two methods:
(1) establishing and registering representative institutions in China, or (2) conducting temporary activities.
With respect to establishing representative institutions, the Management Law clearly states that the Public Security Authorities shall be responsible for the registrations, while in the past, the Civil Affairs Department was the responsible authority for the registration of the representative offices of overseas foundations and foreign chambers for commerce.6 As a result, after the promulgation of the Management Law, Hao Yunhong, the director of the Management Office of Overseas NGOs of the Ministry of Public Security explained in his response to journalists that there will be a set of transitional approaches, assisting those
Overseas NGOs already registered with the Civil Affairs Departments or Industry and Commerce Departments to update their registration in accordance with the new Management Law. We expect that before the Management Law comes into effect (i.e. January 1, 2017) implementation rules will be introduced for these Overseas NGOs.
2. List of Professional Supervisory Units and Activity Fields
Before the Management Law, there were no provisions in China relating to professional supervisory units and the scope of activity for Oversea NGOs. Although the Regulations on Foundations stipulate that the establishment of representative institutions of foreign foundations shall obtain the consent of the professional supervisory units, which shall have certain managerial rights on the activities and finances of the representative institutions of foreign foundations, many representative institutions of foreign foundations have no idea which department should be their professional supervisory unit. In the same vein, the lack of specific provisions on the scope of activities makes the understanding of legitimate activities for Overseas NGOs vague and vulnerable.
According to the Management Law, the Ministry of Public Security will issue a list of acceptable activities and projects for Overseas NGOs, as well as a list of all qualified professional supervisory units. Therefore, the Management Law together with these lists will provide the basis for regulating the unclear status of Overseas NGOs in China, which will benefit and facilitate Overseas NGOs in conducting activities in China accordingly. On the other hand, since the relevant lists have not been issued, it is likely that the Public Security Authorities may retain or expand the prohibited areas in which Overseas NGOs are allowed to engage. Similarly, if professional supervisor units cannot introduce practical supervision rules for their respective areas, Overseas NGOs may not be able to comply with the Management Law quickly enough in order to conduct their lawful activities.
3. Restriction on Accepting Donations
Before the Management Law, soliciting and accepting donations by Overseas NGOs in China was subject to Article 25 of the Regulations on Foundations, under which the representative institutions of overseas foundations are not allowed to solicit or accept donations within the territory of China. The reasoning from the authorities’ point of view, is that the purpose of allowing foreign charities and foundations to establish representative offices in China is to utilize foreign funds to carry out charity activities within the territory of China. If a representative office raises donations in China, then that overseas charity or foundation will be regarded as lacking the economic capacity to carry out activities in China, and thus failing to meet a fundamental condition of operation under the Regulations on Foundations. Correspondingly, the Ministry of Civil Affairs may order such overseas charity or foundation to close its representative office.7
Notwithstanding, Overseas NGOs may take certain alternative measures in order to receive donations in China. For example, they may accept donations by initiating projects jointly with domestic foundations, or accept donations by entering into tri-party agreements with the headquarters of the Overseas NGO and the donor, or procure a donor to make its donation to a specific project directly and so on. 8 Although the risk of non-compliance is not full
eliminated, such alternative measures are not uncommon practice in China.
The Management Law reiterates that Overseas NGOs are not allowed to raise funds in China and the funding for its activities in China shall be limited to the funds that have been legally raised abroad (mainly contributed by its head office), interests incurred by bank deposit in China, and other funds that are lawfully acquired in China.
To supervise the uses of funds of Overseas NGOs, the Management Law imposes strict rules on the management of bank accounts. Specifically, Overseas NGOs that have established representative institutions shall file their bank accounts with the Public Security Authorities, while Overseas NGOs that run temporary activities in China shall use their Chinese partner’s bank accounts to deposit funds in China, and a special account shall be set up dedicated exclusively to funds for these temporary activities. Other than the above, Overseas NGOs, Chinese cooperators and individuals shall not give or receive funds for their activities within China in any other form. In addition, the Management Law provides that any and all units or individuals in China shall not accept a commission, accept financial support from, or represent, open and disguised, Overseas NGOs without the required registration in China.
From the above wording of the Management Law, the Chinese government has noted the existing disguised methods of raising funds in China and therefore promulgated specific rules to stop such non-compliance on raising funds in China by Overseas NGOs.
In addition, the Management Law strengthens the management and supervision of representative institutions of Overseas NGOs with respect to business activities, personnel, finance and other areas.
The Management Law, as the first law specifically regulating the activities of Overseas NGOs in China, fills the regulatory gaps in this area. However, the Management Law focuses on high level principles, and the details for implementation are still under discussion. But it is obvious that the Chinese government is drawing from years of experience supervising and serving the operations of Overseas NGOs in China, and the Management Law along with the upcoming implementation rules will have a profound impact on the activities of Overseas NGOs in China. We will wait and see.
1 According to the announcement on the China Social Organization Website, as of April 27, 2016, 5 batches, 427 "offshore associations" and "emulated associations" in total have been exposed.
2 See Social Law Branch of the Legal Service Commission of the Standing Committee of the National People's Congress, counselor Guo Linmao's answers to journalists' questions, http://npc.people.com.cn/n1/2016/0428/c14576-28312708.html.
3 See Social Law Branch of the Legal Service Commission of the Standing Committee of the National People's Congress, counsellor Guo Linmao's answers to journalists' questions, http://npc.people.com.cn/n1/2016/0428/c14576-28312708.html.
4 Certain provinces have introduced specific provincial provisions for Overseas NGOs, which however cannot have great and profound effect as a result of the regional limitation. For instance, Yunnan Province has adopted Interim Provisions for Regulations on Activities of Overseas NGOs of Yunnan Province in 2009. Another example is the Overall Plan for Comprehensive Pilot Project in Further Opening-up of Service Industry in Beijing Municipality of 2015, stating that registration shall be applied on pilot basis to the establishment of the Zhongguancun representative offices by overseas science and technology, education and economic organisations and other non-government organizations and establishment of the private non- enterprise science and technology or economic entities promoted by overseas organizations or individuals, form the sound environment of collaborative innovation and mutual improvement of foreign and domestic social organization and enhance the international influence and competitiveness of Zhongguancun.
5 In some cases, Overseas NGOs which fail to obtain registration certificates may have to register their representative offices in China in the name of overseas companies, due to the vagueness in current practice.
6 The State Council issued the Notice on Authorizing the Civil Affairs of the State Council to Take Charge of the Registration and Management of Activities of Overseas NGOs in China in 2014 (Guo Fa [2014] No. 36)authorizing the Civil Affairs Departments as the domestic registration and management departments of Overseas NGOs.
7 See JunHe Special Topic Research Report on January 11, 2016, the Feasibility Study regarding Accepting Donations in China by Domestic Representative Offices of Foreign Charity Foundations.
8 See JunHe Special Topic Research Report on January 11, 2016, the Feasibility Study regarding Accepting Donations in China by Domestic Representative Offices of Foreign Charity Foundations.
For further information, please contact:
Catherine Miao, Partner, Jun He
miaoqh@junhe.com
