The newly enacted Law of the People’s Republic of China on the Administration of Domestic Activities of Overseas Non-governmental Organizations (“Foreign NGO Law”) has come into effect since January 1
st
of 2017. After more than a year of soliciting views from the public and revisions, this Law has attracted widespread attention from domestic and international non-governmental organizations (hereinafter “NGOs”), and forms another landmark piece of legislation governing NGO activities in China. Today I would like to talk about the key points of this Law.
This Law consists of 54 articles of provisions, covering from the registration and record-filing, activities standards, facilitation measures, supervision and administration to legal liability. I will try to outlines the main points which are noteworthy for your reference.
Definition and Scope of Activities
Foreign NGOs under this law, is stipulated as the foundations, social organizations, think tanks, and other non-profit-making and non-governmental social organizations legally established overseas.
While the official Chinese term for NGOs is “popular organization”. This comprises three subcategories, “social organization”, “private non-enterprise unit” (PNEU) and “Foundation”. They are non-profit-making, but social organizations and foundations are membership based whereas PENUs are not.
This Law specifies that Foreign NGOs are allowed to conduct activities beneficial to the development of social welfare in fields such as economics, education, science culture, health, sports, environmental protection and for areas such as poverty relief and disaster relief, while exchanges and collaborations between foreign schools, hospitals, natural science and engineering science research establishments or academic organizations and the domestic organizations within these same categories, is to be handled according to the relevant provisions of national law.
Moreover, this Law prohibits foreign NGOs from “engaging in or funding for-profit activities or political activities,” and “illegally engaging in or funding religious activities” within the territory of China. In order to provide guidance to overseas NGOs carrying out activities, the Foreign NGO Law requires public security authorities, together with the relevant departments, to draft catalogs of foreign NGOs’ areas of activity and projects, and to publish a list of competent administrative authorities.
Approval Authorities
According to the Foreign NGO Law, the approval authorities include registration management organs and competent administrative authorities.
- Registration management organs. Compared with the domestic NGOs, the registration management organs for Foreign NGOs is public security department of the State Council and public security department of provincial level, instead of Civil Affairs Ministry and civil affairs department of different levels.
- Competent administrative authorities. The relevant departments and units under the State Council and the relevant departments and units of the provincial level are the competent administrative authorities for Foreign NGOs conducting activities within mainland China. Foreign NGOs’ establishment of rep offices, modification of registration, and annual work reports for the last and the following year shall be submitted to registration management organs for filing or to obtain comments. The Public Security Department under the State Council and the public security department of the provincial level, together with the relevant departments shall publish a directory of competent administrative authorities.
Registration and Record-filing
The applications for establishment of rep offices of foreign NGOs in China shall meet specific requirements, and one noteworthy requirement is “existed for more than two years overseas and substantively conduct activities”. Currently, the factors to decide whether a foreign NGO has existed for more than two years, and what consists of the substantive activities are not clearly.
Forms of Operating
It requires the foreign NGOs to set up rep offices in China in order to legally conduct activities in China. What is noteworthy here is that no other form of legal entity is described in the law. Therefore, using WFOEs as entities for Foreign NGOs in China seems no longer viable, as a specific type of entity is prescribed. Additionally, as WFOEs are commercial entities, using one for a Foreign NGOs seems at odds with the prohibition against profit-making.
For the foreign NGOs who have no rep offices in China, they are only allowed to conduct temporary activities after record-filing in competent authorities, and the period for temporary activities shall not exceed 1 year.
Rules for Operation
- Prohibition of establishment of branches. The foreign NGOs are prohibited from setting up branches within the territory of China, unless otherwise stipulated by the State Council.
- Annual Plan and Reporting. Activity plan for the next year and work report for the previous year shall be drafted with specific contents such as project implementation, use of funds, and submitted to the competent authorities within the stated deadline.
- Resource of activity funds. The funds for foreign NGOs activities in China shall include the funds legally obtained overseas; interest on bank deposits within the territory of China; and other funds legally obtained within the territory of China. Foreign NGOs and their rep offices are explicitly banned from seeking contributions within China. This could be a major blow for those that are presently funded from within China.
- Account management. Foreign NGOs that have established rep offices shall use funds from bank accounts within mainland China that are recorded with the registration management organs. Foreign NGOs carrying out temporary activities shall use their Chinese Partner Unit’s bank account to manage and use funds in mainland China, perform independent bookkeeping, and use funds only as they are allocated. Foreign NGOs, Chinese Partner Units, and individuals must not use any other arrangement to receive and spend funds for project activities inside mainland China.
- Personnel recruitment. Foreign NGO representative offices hiring employees in mainland China shall report information on employed personnel to the competent administrative authorities and registration management organs.
- Prohibition on membership recruitment. Foreign NGO rep offices and foreign NGOs carrying out temporary activities are prohibited from developing, or covertly developing, membership within mainland China, except as provided for by the State Council.
For any foreign NGO which intends to develop in China, you’re welcome to contact Lehman, Lee & Xu, and we are glad to provide professional legal services in this area to make sure you will operate legally in China.