Any gathering featuring two of the world's wealthiest tycoons is bound to generate a frenzy of media coverage. But the dinner in late September hosted by Microsoft founder Bill Gates and Berkshire Hathaway's Warren Buffett in Beijing was also unexpectedly controversial — inspiring some, while irking others as they chatted about philanthropy with some of the country's wealthiest businesspeople at a replica 17th French chateau on the outskirts of Beijing.

Media speculation across the country in the days before the event ran wild. Will Gates and Buffett try to ensnare China's nouveau riche into signing up for something along the lines of their new initiative in the U.S. urging billionaires there to agree to give away at least half of their wealth to good causes? Gates and Buffett hailed the dinner a success at a press conference the following day, though many of China's wealthy elite had conspicuously avoided the gathering. It's an episode that speaks volumes about the tensions surrounding charitable giving and social welfare in China.

Charities in China, nonetheless, are changing. Part of the reason is that charities are being forced to learn how to cope with record levels of funding coming their way. According to the China Charity and Donation Information Center, nearly US$5 billion was donated last year — while marking a decrease of 68% from 2008, when there was an enormous spike in giving following the earthquake in Sichuan province, it was an 8.2% rise from 2007. Of the US$1.32 billion of 2009's donations the center monitored, education received the largest portion at 41.1%, followed by disaster relief (25.5%), poverty (12.1%), health care (9.2%), environment (2.3%), and science and arts (1.5%). 

But while the charities are changing, so too are the people donating to them, says Beijing-based Hurun Research Institute. One of its reports titled, "China’s 50 Most Generous," found that the donors in its ranking last year gave a total of US$1.2 billion, or an average of US$25 million each, eight times more than the average when its first philanthropy list was compiled in 2004. Hurun also notes that there are now 875,000 individuals in China with personal wealth of more than RMB 10 million (US$1.5 million), and 55,000 individuals with RMB 100 million.But the country has some catching up to do with other parts of the world. China Daily newspaper reports that private donations in China as a percentage of GDP in 2009 was 0.1%, lower than Brazil (0.3%), India (0.6%), the U.K. (1.3%) and the U.S. (2.2%).

One way to close that gap, experts say, is to overhaul China’s cumbersome legal and regulatory infrastructure. Another way is for the country's growing legion of charities, public and private foundations, and thousands of other nongovernment and government-organized organizations to raise the bar in terms of transparency and management. As it stands now, there's a deep mistrust among many current and potential donors about whether their donations are truly going to the good causes they should be and not being pocketed by dishonest individuals or spent on an organization's overhead. Amid all this, a third way to boost spending is to nudge the Chinese to take a broad view of charitable giving, which traditionally has been confined to family and friends.

'Their Inner Circle'

At the heart of many discussions about charitable giving in China today is the rising individual wealth generated from a booming national economy. Wang Shi, head of China Vanke, the largest residential property company in the country, says one of the topics discussed at the dinner with Gates and Buffett, which he attended, was the relationship between philanthropy and family. "It has been 30 years since China's reform and opening up, and this first generation of entrepreneurs is facing the problem of how to pass on their businesses to the second generation or figuring out how to transfer their wealth to society," he says. "Many people believe we should give money back to society rather than to our children — that it might not be good for the next generation to be given too much."

Hurun says that among the country's high net-worth individuals, only 1% has inherited their wealth. Collective Responsibility, a Shanghai-based consulting and research firm specializing in social welfare development, noted in a recent blog, "This group is still focused on wealth creation, and self preservation. They are the baby boomers of China, who vividly remember hardships [economic and otherwise], and they are going to look to first secure the future needs of their inner circle."

There are variations of that theme. In an interview with U.S. talk show host Charlie Rose earlier this year, Jack Ma, co-founder of the highly successful web sites Taobao and Alibaba, asserted, “What China needs is 200 million jobs…. China philanthropy and charity I understand, but people like us should use resources better…. I will regret when I am 80 years old giving the money away. I should spend the money now to create jobs.”

That another Gates or Buffett might be in this elite group's midst shouldn't be ruled out, however. Hoping to nurture some is Wang Zhenyao, head of the new Beijing Normal University One Foundation Philanthropy Research Institute, who is calling on all Chinese billionaires to donate RMB 1 million a year to charity. A former Ministry of Civil Affairsofficial, Wang shot to fame in the country for his efforts to help victims following 2008's Sichuan earthquake. While Wang has said there should be more than government support for China’s poor and elderly, he also wants to find ways to develop more professional private philanthropy in the country.

Helping Wang's efforts is a small band of high-profile — some say self-serving — local philanthropists. That includes Chen Guangbiao, a tycoon philanthropist from Jiangsu province, who made his fortune by starting a demolition company and recently became China's first billionaire to agree to donate all his wealth to charity after he dies, rather than leaving it to family."If you have a cup of water, you can drink it. If you have a bucket, you can keep it, but when you have a river, you have to learn to share it," the 42-year-old told a reporter from the U.K.'s Sunday Telegraph newspaper in October.

The drumbeat to increase charitable giving in China hasn't been confined to the country's super-rich. During the Buffett and Gates visit, a web site designer by the name of Lao Wu reportedly drove a van around the capitol with a banner saying, "Common people's philanthropy challenges Gates, Buffett banquet," and was quoted in a local newspaper saying that he was holding his own banquet to raise interest in philanthropy throughout the country, where the average annual salary is less than US$4,000.

Uphill Struggles

China's charities have their work cut out nonetheless. Tough new regulations and long-delayed laws are making it increasingly difficult to run charities in the country. Social Venture Group (SVG), a Shanghai-based philanthropic advisory firm, reported in a blog on its web site that the government's new rules governing how non-governmental organizations (NGOs) are allowed to receive foreign donations are an onerous burden. Among other things, NGOs now have to present a long list of documents to their local banks in order to retrieve foreign funds. According to the blog, "The regulations seek to track the sources of all foreign donations entering China, undoubtedly with an eye to catching politically sensitive groups seeking to gain influence within its borders. Unfortunately, these laws also make life very difficult for thousands of smaller grassroots groups."

Then in early November, China's state-run media reported that the draft of its latest charity law is, once again, delayed so that "further deliberation" can take place. It is not known when the law, which has been under revision since 2007, will wind its way through the government's approval process. But the hope among charities is that if passed, it will give them more favorable taxation policies, clarify the role of the government and make it easier to register as a charity.

The latter is important — frustrated by the red tape of registration, many organizations are run as businesses instead, making their oversight difficult. "I understand the need to develop regulations that will make NGOs more professional," says Shawn Shieh, a visiting professor at Beijing Foreign Studies University and an expert in China's grassroots NGOs. "But the way to do this is to first make NGO registration easier. In the present situation, many NGOs register as businesses because it is so hard to register as a nonprofit. As a result, these business NGOs are largely unregulated and unsupervised. That is not a way to make NGOs more professional."

As for the delayed charity law itself, "I see the mantra that NGOs lack professionalism as more of an excuse to slow legislation than a reason to make that legislation better," says Shieh. "We've been told for something like five or six years that revised regulations for NGOs will be coming out that should make it easier, but so far nothing…. The assumption I jump to is that this delay is for political reasons, and not because they want to make the legislation better. I hope I'm wrong."

While national policy makers deliberate, some local governments in cities and provinces are taking matters in their own hands to improve how charities are run.In Jiangsu province, for example, a new regulation requires foundations to spend at least 70% of what they received the previous year.Another aim among local governments is to introduce a more formal self-regulating system of codes.

Along those lines, the Capital Philanthropy Federation (CPF) in Beijing is planning to publish guidelines for its 43 member organizations next year. Nationally, the China Foundation Center (CFC) is also expected to publish guidelines and is pushing for charities to disclose financial information on its web site. These are relatively small, albeit powerful, steps, according to Karla Simon, a law professor and an expert on China's NGOs at Catholic University of America in Washington, D.C. "Self-regulation is always critical for any nonprofit organization sector," she says. "It can be hoped that the regulators will look on all of this favorably and work with the self-regulating organizations."

But it's the Wild West nature of many charities in China that has generated high levels of distrust among would-be donors. According to SVG, in 2006, the year it was founded, studies showed that nonprofits had one of the lowest category ratings for public trust in China.

That's one of the reasons China's tycoons say they have been compelled to set up their own foundations, which have become the fastest-growing segment of the nonprofit sector. According to the new China Philanthropy Blue Book published by the Chinese Academy of Social Sciences, there were 997 public foundations in China and 846 non-public or private foundations at the end of 2009. By the end of this year, according to the book's forecasts, the number of private foundations will exceed public ones. 

"I'm quite optimistic about the relationship between the rich and [the growth of] foundations," says Liu Zhouhong, secretary general of the Narada Foundation. As one of a growing number of examples of large businesses setting up foundations to manage their charitable activities, Narada is a grant-making organization supporting grassroots NGOs. It was launched in 2007 by Xu Yongguang, a former official turned social entrepreneur with ties to conglomerate Narada Group, who had a previous track record of building schools in rural and poor areas of China.

"It is understandable that China's wealthy are worried about how their donations are utilized. Foundations don't do enough to disclose their information yet about how they use the donations, about how they collect money and where this goes in regards to specific programs," he says. "Some of the reports [produced by foundations and other charitable organizations] are hard to understand, even for professionals, and few citizens or media people can use that information. Chinese foundations should make a conscious effort to enhance the transparency of their organizations."

These private foundations also face a number of obstacles, not least because they are not allowed to solicit donations publicly. "Policies are becoming looser," says Liu. "But the government still won't allow people to create public foundations [which could seek donations], and that won't change in the short term." The biggest problem for Narada is related to taxation. Under current regulations, 25% of the donations it receives each year goes to taxes. "Since we have to pay such a high tax, we can't pay staff as good of a salary as we'd like and attract professional talent," Liu says.

The Tipping Point

For China's foundations and other charities, the Sichuan earthquake in 2008 marked a new era for their public profiles. Of the RMB 100 billion given to charity in China in that year, around RMB 76 billion went to the earthquake relief, albeit mainly to charities operated by the government, such as the China Red Cross.

Vanke's Wang, whose company donated RMB 10 million to the relief efforts, says the earthquake was "a turning point for Chinese philanthropy" and raised awareness about giving in the country. "People became more enthusiastic about donating money, which shows people are becoming richer and are willing to show more public kindness in the face of such a disaster," he says. But there are still concerns about how efficiently the donations were used and the lack of transparency about where money went has led to public enthusiasm for giving to "reduce gradually," concedes Wang.

"Trust is certainly a factor," says Simon. That could help very well-known NGOs — largely those that the government has a hand in running — but leaves hundreds, if not thousands, of other charities out in the cold. As she notes, there is as yet no rating bodies as there are in other countries that would give charities "that seal of approval."

Wang says much of the philanthropy philosophy referred to by Buffett and Gates during their visit had to do with using funding more wisely. "Donating money is one thing, and how to make sure the donation can reach the expected goal or effect is another," Wang says. He acknowledges that the government has made some strides in recent years, but more can be done. "The government should trust NGOs more, and see that they are a positive force for stability and development of China," says Wang. "NGOs and the government need a more independent relationship … but also a constructive and cooperative relationship."

Liu says it was difficult to gauge the impact of the visit by Gates and Buffett on the public at large, but thought it was helpful to at least "change the view of China's rich toward wealth and open their eyes to a new field: Philanthropy."