Philanthropy | David Hayward Evans

In 2011, public confidence in philanthropy was undermined by a series of scandals. Today, while major charities in China have upped their game and enhanced standards, transparency and accountability, the wholesale reform of charities many anticipated has not taken place. Instead, many in China are now looking past traditional charities to new models such as direct "micro-giving" through the Internet, and, on a larger scale "impact investing" approaches that combine measurable social effects with financial sustainability. It may be that China can make a "generational leap" to advanced models of social enterprise and social investment.

To explore this hypothesis further, a major study was undertaken by the Social Enterprise Research Center at Shanghai University of Finance, the Center For Civil Society Studies at Peking University, 21st Century Business Herald and the University of Pennsylvania and sponsored by UBS AG.

The study is the first comprehensive survey of the field undertaken by academics attached to leading Chinese universities. The report outlines the progress made to date in China, analyzes key legal, institutional and financial issues in further development and offers key steps to accelerate these sectors for the benefit of China's 1.3 billion population. The report also features an international panel of experts in these fields convened by UBS to offer their insights on strategies China can adopt for promoting private sector solutions to social problems.

To date, no broadly accepted definition of, or administrative arrangements for social enterprise, exist in China. However, there is an existing model, the welfare enterprise, which dates back decades. Welfare enterprises typically provide employment opportunities to disadvantaged groups, notably the physically handicapped. In the mid-90s with government incentives and support, the number of welfare enterprises exceeded 60,000 in China, employing more than 900,000 people. Since then, with greater market liberalization, the number has halved. Nevertheless, welfare enterprises provide an authentic tradition in China on which social enterprise may build.

The first and most successful social enterprises have grown out of the welfare enterprise tradition. Of these, perhaps the best known is Canyou, headquartered in the fast-growing city of Shenzhen, an IT services company of which more than 95 percent of employees are disabled. The company started in 1999 with five disabled employees and one computer. It now has 32 subsidiaries in 11 provinces, employing more than 3,700 people.

The outpouring of public support after the 2008 Wenchuan earthquake has also provided a spur to establish sustainable enterprises to bring long-term support to affected areas. One such venture is the Aba Qiang Embroidery Support Program, which provides employment opportunities to craftswomen in a minority ethnic group facing extreme poverty. The first store for the venture opened in the southwestern city of Chengdu in 2010. A total of 14 are planned by the end of 2013.

The biggest single spur to the development of new social enterprises comes through China's enthusiastic adoption of the Internet, with more than 600 million users. One early example is Free Lunch, providing meals to poor rural children. Within a month of being set up, Free Lunch had received more than 1 million yuan ($159,000) in donations from 100,000 online users. Pure online donation models have quickly evolved into social enterprise models. Buy42.com, based in Shanghai, is an example, based on benefiting two - buyers and sellers. Inspired by charity shops in the United Kingdom and some of China's vast online marketplaces, they allow people to donate and purchase unwanted goods via the Internet. Facilitation of the e-commerce model is undertaken by disabled people, with net proceeds going to recognized charities and training and work placement opportunities for the disabled.

In 2012, its second year of operations, Buy42 generated more than 600,000 yuan in contributions. It is launching a mobile app in 2013. China's online social enterprises are quickly growing in complexity and ambition. An example would be the Zhihui Eldercare Cloud Service Platform, which currently includes 1.4 million users. The virtual eldercare platform provides telemedicine monitoring for indicators for diabetes and cardiovascular disease via wireless-enabled sensors provided to users. Additional services include information about over-the-counter drugs, psychological support and a "timebank" allowing seniors to offer services to each other on a mutual aid basis.

Given that the first wave of viable social enterprises are emerging in China, the key question is where such start-up ventures can find capital. The report highlights the emerging universe of current and potential "impact investors" in China looking to have a social effect with their investments. These include domestic private foundations, which have grown to more than 1,500, after their establishment was liberalized in China in 2004. Government bodies, particularly at municipal level, also actively provide capital for social enterprise investments, realizing the potential for these new models to supplement social welfare provision. In 2012, for example, the Shanghai Bureau of Civil Affairs and a related government foundation provided 5 million yuan in support to establish the Shanghai Community Venture Philanthropy Fund. Major corporations similarly are looking at new models alongside traditional philanthropy in their community social responsibility. There has been the emergence of domestic dedicated private equity funds and venture capital firms seeking social as well as financial returns.

There has also been a proliferation in both the hardware and software of an effective enabling environment for social enterprises. In a number of go-ahead locations, social enterprise industrial parks have been established with local government support, responding to the national call for increased social innovation. Examples include Zhongshan and Shunde in Guangdong, Suzhou and Shanghai. The social innovation center in Shunde, for example, was developed using a government investment of 30 million yuan. Similarly, advisory firms with expertise in social enterprise and investment have emerged. These firms include market intelligence and due diligence providers such as Shanghai's Venture, as well as incubators such as Transist, Innovate99 and Youchange. A number of domestic and international organizations provide capacity building services in their own space, including the British Council, through its Skills for Social Entrepreneurs program.

Yet a number of key challenges remain before any kind of effective marketplace for social investments in China can operate. UBS constituted an international panel of active impact investors to offer their insights and advice on how China can accelerate its progress in this area. The panel identified key tools and policy levers that have been deployed in other markets globally. These included the establishment of incentive mechanisms to drive social innovation, such as "social impact bonds", preferential feed-in tariffs for green energy and layering of risk between public and private actors in investment arrangements. The panel also cited the creation of new legal frameworks for corporate forms for social enterprises, funding for government-sponsored pools of seed capital such as the Social Innovation Fund launched in the US in 2009. Also important were support for related academic research and knowledge-sharing platforms, as well deploying the convening power of government to bring different actors together to catalyze new partnerships and solutions.

Overall, most panelists felt that China is at a relatively early stage of development for social enterprise and social investment, but that China also has the demonstrated capacity to catch up quickly and indeed become a global leader in these areas. The key requirement is to promote broad acceptance of social enterprise and social investment models in addressing China's increasing social deficits. As Steven Ying, an impact investor active in China, argues: "For social entrepreneurs, they believe then they see. For most people, they have to see to believe. To strengthen the development of social enterprise in China, we have to bet on select social entrepreneurs and profile their successes. Their success stories would help people to see then believe."

The author is head of philanthropy and values-based investing, APAC for UBS.

(China Daily 10/08/2013 page17)