How the PRC Law on Overseas NGOs will impact foreign NGOs operating in China

China’s regulation of foreign non-governmental organisations (NGOs) has been the subject of much recent debate in the lead up to 1^st January, 2017, when the new Law on Overseas NGOs (NGO Law) will come into effect. Ludmila Hyklova, Legal Advisor at the EU SME Centre, highlights key provisions included in the new law that will affect the establishment and operations of foreign NGOs in China.

The NGO Law focuses on foreign/overseas NGOs, which it defines as “non-profit making and non-government social organisations such as foundations, social organisations and think-tanks incorporated overseas”.  Some of the institutions mentioned in the definition, such as foreign foundations, have so far been grouped with domestic foundations only on a level of regulation, which carries lower legal force than actual law.

Foreign NGOs can carry out activities that are conducive to the development of public interest in areas such as the economy, education, science and technology, culture, health, sports and environmental protection, as well as providing financial assistance during disasters; however, engaging in or funding profit making activities or political activities, or engaging in or funding religious activities illegally is prohibited. This sets out clearly the areas in which foreign NGOs are or are not permitted to operate. They can be present in China in the form of a representative office or, in case of temporary activities, they can cooperate with a Chinese partner as long as the project is filed.

If a foreign NGO wishes to set up representative offices in China the law stipulates several requirements, which include, among others:

• the NGO must have been in existence for more than two years;
• it must possess the ability to bear civil liability independently; and
• its purpose and scope of business must be deemed conducive to the development of public interests.

The process of establishing a representative office includes two steps—approval and registration—which is similar to the current foreign investment system. The registration authority is China’s Public Security Bureau (PSB), which, when reviewing applications, can employ experts to carry out assessments of the application as needed.

After successful registration, the representative office of the NGO will obtain a registration certificate that will contain, among others, the scope of business and areas of activities. The representative office must then apply for tax registration, a seal or chop and open a bank account within Chinese territory.

The law pays quite a lot of attention to the funding and financial aspects of running an NGO representative office as a main means of control. Activities in China can only be funded by:

• a lawful overseas source;
• interest on bank deposits in China; and
• other funds obtained by legal means within China.

Soliciting donations within China is forbidden and all funds must be managed through the bank account filed by the representative office.

For temporary activities, the funds must be managed through a bank account of the Chinese co-operator. So far, it is not very clear who can act as the Chinese co-operator, the NGO Law only mentions that it can be a Chinese state body organ, organisations of citizens recognised by government, public institution or social organisation.

The law stresses that neither a foreign NGO or its Chinese co-operator, nor an individual may receive funds or make payments for project activities in whatever form through any channel other than the registered bank account, and that financial statements have to be audited by a certified accounting firm.

In terms of HR, all employees working for the representative office must be filed with the competent administrative department and the registration authorities for their records. Developing membership of foreign NGOs within China is prohibited.

Representative offices are required to submit a plan of activities for the following year, including the NGO’s project implementation strategies and its proposed use of funds. At the end of the year they have to produce a report on its previous year’s work and submit it to the relevant administrative department. Such reports will then be affixed with the opinions issued by the competent administrative department before being submitted to the PSB for annual inspection. The report also has to include audited financial/accounting statement and any changes to the NGO’s personnel or organisational structure before being made publically available on the PSB’s website.

It is clearly stipulated in the law that no entity or individual may act as an agent for an overseas NGO without having either registered a representative office or filed notice of temporary activities; nor can an entity or individual act as the agent in a disguised form by accepting the entrustment and funding by such overseas NGOs.

A section of the law that deals with “convenient” measures says that the state will protect and support overseas NGOs, and relevant departments at all levels are obliged to provide NGOs that conduct activities in accordance with the law with a convenient level of service.

Respective authorities have the task of developing a catalogue that will list the fields and projects that overseas NGOs can be involved in, along with the directory of the competent administrative departments who will be responsible for providing overseas NGOs with the guidelines for carrying out such activities. Authorities will also provide overseas NGOs with policy consulting and activity guidance services. Foreign NGOs are entitled to tax incentives by law.

In the event of a public security organ, in its role as a supervisory and administrative authority for a foreign NGO, identifying any act it suspects of violating any provisions of the NGO Law, it may:

• hold talks with the NGO’s chief representative and/or other persons in charge of the representative office;
• conduct onsite inspections;
• conduct an inquiry into the entities and individuals relating to the incident under investigation;
• consult or copy documents and other materials;
• seize any documents that it deems are likely to be transferred, destroyed, concealed or altered; and
• seal up premises, facilities or property.

Public security organs may also query the bank accounts of overseas NGOs. The law contains provision related to legal liability and measures which the competent authority can adopt in case of illegal activities, such as confiscating illegal earnings and issuing warnings. In serious cases, authorities may take more extreme measures, such as filing criminal liability, revoking the NGO’s registration certificate, banning the NGO’s activities, detaining for 10 or 15 days (depending on the case) the person(s) that are directly liable or even deporting them. Sanctions may also be imposed on supervising authorities for neglecting their duties or engaging in malpractice for private gains.

Overall, the NGO Law is a complex piece of legislation, governing the establishment, operations, funding, legal liability and supervision  of overseas NGOs, and provides authorities with great power to bring sanctions against NGOs whose activities are deemed to be in breach of the law.

If you have any further questions, please contact the EU SME Centre’s legal team at www.eusmecentre.org.cn/expert.

The EU SME Centre in Beijing provides a comprehensive range of hands-on support services to European small and medium-sized enterprises (SMEs), getting them ready to do business in China. We provide support in four areas – business development, law, standards and conformity and human resources. Collaborating with external experts worldwide, the Centre converts valuable knowledge and experience into practical business tools and services easily accessible online. From first-line advice to in-depth technical solutions, we offer services through Knowledge Centre, Advice Centre, Training Centre, SME Advocacy Platform and Hot-Desks.

The Centre is funded by the European Union and implemented by a consortium of six partners – the China-Britain Business Council, the Benelux Chamber of Commerce, the China-Italy Chamber of Commerce, the French Chamber of Commerce in China, the EUROCHAMBRES, and the European Union Chamber of Commerce in China.

To learn more about the Centre, visit website www.eusmecentre.org.cn