This post originally appeared on Forbes. It is re-posted here as part of CEP’s blog series on international perspectives on philanthropy.
Mainland China has the world’s second largest population of billionaires, with 335 calling it home according to the 2015 Forbes China Rich List, putting it just behind the US. Yet China ranks 144th out of 145 countries on the 2015 CAF World Giving Index, which measures the percentage of a population that engages in charitable giving and volunteer work, as well as how willing people are to help strangers. Philanthropy contributed only 0.17 percent to China’s GDP in 2014, while in the US it accounted for 12 percent of that country’s GDP, according to a recent report from the United Nations Development Programme titled “Unleashing the Potential of Philanthropy in China, 2015” that was prepared with research from the Chinese charity platform 51Give.
There are several reasons for this philanthropy gap in China. Most of the wealth in China is “new money” — there are not yet Chinese equivalents of the Rockefellers or the Cadburys with family foundations that have been in place for generations. The majority of wealthy entrepreneurs in China are still young compared to their western counterparts; most are in their forties and fifties and have not yet begun to think about philanthropic activities.
China has also lacked a regulatory infrastructure to support private philanthropy; most charity organizations are initiated by government or semi-government organizations. Private companies and individuals who want to set up a charitable foundation have faced a daunting amount of red tape and compliance requirements that can be impractical if not impossible to meet. A lack of transparency and other good governance standards common to charity organizations in developed countries has led to several high profile scandals that have made the public feel Chinese charities are not so trustworthy. Hoping to relieve some of these bottlenecks to giving, the government issued new regulations earlier this year, but it’s still too early to know how effective they will be.
However China’s relatively low level of philanthropy can’t simply be attributed to its developing economy status. Myanmar ranks number one on the 2015 CAF World Giving Index, and other developing economies, such as Sri Lanka and Kenya, are among the top 20 countries on the index.
Based on my experiences, I think another reason for China’s philanthropy gap is that there is a big difference between western and Chinese entrepreneurs is their attitude towards wealth. Most entrepreneurs in western countries see themselves as the stewards of wealth, while those in China see themselves as the masters or owners of wealth. Most Chinese entrepreneurs regard a charity in the same way they would a for-profit enterprise — if they make a donation they want to get a return on their investment, and see a tangible benefit for their business. Many in second- and third-tier cities consider a monetary donation as a tool for establishing political connections that should lead to some kind of deal like a tax subsidy or other preferential treatment in the future.
The South China Morning Post recently compared the top 10 philanthropists in China and the US. They found that most of the Chinese had made their fortunes in the real estate sector, and their donations were made through their companies rather than made by the entrepreneur as an individual. The story also noted that the Chinese gave out relatively little public information about their donations compared to the Americans.
A 2015 study by the Ash Center for Democratic Governance and Innovation at Harvard Kennedy School of China’s top 100 philanthropists titled “China Philanthropy Project” shows that China’s elite prefer to give to charities in their home provinces, and that they gave most often to educational causes.
We are beginning to see a change in attitudes towards philanthropy among Chinese entrepreneurs. According to the UNDP report there was a 66% increase in the total amount of charitable donations between 2009 and 2014. Just before the 2014 IPO of Chinese e-commerce giant Alibaba, its billionaire co-founder Jack Ma announced the establishment of two charitable trusts that are being funded by share options in the US-listed company.
Though there is tremendous potential, philanthropy is still at a very early stage in China. Chinese entrepreneurs need to rethink their ideas about wealth, and how to treat it. They need to decide whether it is simply a tool that can be leveraged for further gains or the final objective of their efforts. They also need to develop a family culture of philanthropy. Only then will they be able to develop both businesses and charities that are built to last over several generations.
This post is part of an occasional series on the CEP Blog providing international perspectives on philanthropy and foundation effectiveness. Other posts in the series can be found here.
Oliver Rui is professor of Finance and Accounting at CEIBS (China Europe International Business School) in Shanghai, where he is also co-director of CEIBS Kaifeng Centre for Family Heritage.