China strengthens controls over foreign NGOs' activities in China

On 28 April 2016 the Standing Committee of the National People’s Congress of China (the Standing Committee) promulgated the Law on Administering Onshore Activities of Foreign Non-government Organizations (the Foreign NGO Law), which will become effective on 01 January 2017.

The Foreign NGO Law makes significant changes to the current legal regime in relation to foreign NGOs’ activities and their representative offices in China. One of the biggest changes is that the public security bureau (PSB) will replace the authority for civil affairs (ACA) and the administration for industry and commence (AIC) to become the key regulator.

In addition, the Foreign NGO Law sets out a number of restrictions on foreign NGOs’ activities in China. For example, foreign NGOs will be prohibited from recruiting members from China and from conducting fundraising activities in China.

A brief review of legislative history

For a long time China has only issued sporadic rules regulating limited aspects of NGOs. As far as foreign NGOs are concerned, there is only one regulation on the operations of foreign charity funds in China. Even within the government system, controversy existed as to which governmental body should be primarily responsible for administering NGOs. As a result, tens of thousands of foreign NGOs operate in China but only about a hundred of them are either registered with the authority of civil affairs or the administrations for industry and commerce.

The government commenced the legislative process in relation to the Foreign NGO Law in response to a number of Foreign NGOs being found conducting illegal activities in China. The government issued a first draft of the Foreign NGO Law in April 2015. That draft triggered some concerns that the Chinese government was going to restrict Foreign NGOs’ operations in China and numerous comments were submitted to the Standing Committee.

The final version of the Foreign NGO Law reflects some concerns and comments about the reach of this law. However, as illustrated below, this law still imposes significant restrictions on foreign NGOs’ operation in China.

Highlights of foreign NGO law

The Foreign NGO Law significantly changes the legal regime for administering foreign NGOs’ activities in China. The following changes are most evident:

1. Administrative Regime

Under the Foreign NGO Law, foreign NGOs’ representative offices and operational activities in China are subject to administration by both the PSB (ie, the police) and an operation-related government sponsor (the Government Sponsor). In other words, if a foreign NGO wishes to conduct activities in China or to establish a representative office in China, it must seek approvals from the relevant Government Sponsor and, subsequently, from the PSB. The Foreign NGO Law does not define “Government Sponsor” and leaves the Ministry of Public Security to issue a catalogue on “operation-related government sponsors” and the corresponding scope of authorities they have in relation to foreign NGOs’ operations.

The two-step approval process under the Foreign NGO Law appears to be complicated and lengthy and will likely discourage foreign NGOs to set up offices or to conduct activities in China. However, it is worth mentioning that before the Foreign NGO Law, there was no official process for the establishment of representative offices by foreign NGOs in general. As a result, many foreign NGOs chose to operate their representative offices in a grey area, eg, to set up and operate consulting companies; and some are unable to set up offices in China at all. Fairly speaking, the Foreign NGO Law at least provide foreign NGOs with an official channel, however difficult, to establish their offices or conduct activities in China.

For those existing foreign NGO offices which are duly registered with AICs as representative offices of foreign non-for-profit companies and those duly approved by ACAs as representative offices of foreign charities, most likely, PSBs will replace AICs and ACAs as the new regulators and, these offices, will likely be required to report to PSB when the Foreign NGO Law becomes effective.

For those offices which operate in the name of consulting companies, the government may closely look into the nature of these companies after the effectiveness of the Foreign NGO Law and require those in a non-for-profit nature to undergo the approval process under the Foreign NGO Law during a grace period.

2. Recruitment of members

Under Article 28 of the Foreign NGO Law, unless otherwise approved by the State Council, foreign NGOs’ representative offices in China or those which conduct “interim activities” in China must not recruit members in China. The State Council has not published any rules on how and under what circumstances it will grant approvals for recruitment of members in China.

It is not clear whether a foreign NGO (not the representative office in China) is allowed to recruit members from China; nor is it clear whether a foreign NGO is allowed to sponsor or to establish a “domestic NGO” (being a legally independent NGO registered in China) to recruit members in China.

For foreign NGOs which already have members in China, the issues remains whether they are allowed to maintain these members and to what extent member activities will be restricted.

3. Funds of foreign NGOs

Under the Foreign NGO Law, foreign NGOs and their representative offices in China must not conduct fundraising activities. The sources of funds they can use for activities in China include:

1. legitimate source of funds from outside of China
2. bank interest generated in China, and
3. other funds received legitimately in China.

The Foreign NGO Law removed from its previous draft a prohibition on foreign NGOs receiving donations in China. The removal may suggest that, although neither foreign NGOs nor its representative offices are allowed to conduct fundraising activities in China, they may be allowed to receive donations on a passive basis.

4. Restrictions on foreign NGOs’ Activities

Under the Foreign NGO Law, a foreign NGO’s representative offices in China may only conduct activities within the registered scope and registered geographic area and must report their activities to both the Governmental Sponsors and the PSBs.

Different from the existing offices of foreign NGOs, the operation permissions for foreign NGOs’ representative offices to be issued under the Foreign NGO Law will carry, among other information, the geographic areas where the offices are to operate. These offices are required to operate within these areas. Question remains unclear whether and how foreign NGOs’ representative offices are permitted to conduct temporary activities in cities outside where they are registered.

Looking forward

Foreign NGO Law has only recently been published and not yet come into effect. Some arrangements under the Foreign NGO Law need to be further clarified. For instance, in particular, how the administrative power should be shifted from AICs and ACAs to PSBs and how foreign NGOs’ existing offices should be re-registered in according with the requirements under the Foreign NGO Law. We expect the detailed implementation rules to clarify many of these issues.

Moreover, the Foreign NGO Law authorises the State Council (i) to provide guidance on Government Sponsors; (ii) to provide for exceptional rules under which foreign NGOs and their representative offices are allowed to recruit members in China; and (iii) to establish the rules for approving the establishment of operational branches of foreign NGOs. The guidance, which is not yet available, would need to be developed.

Consequently, It appears to be too early to speculate about the total or depth of the impact that the Foreign NGO Law will have on foreign NGOs’ operations in China. There is no doubt, however, that the government is trying to strengthen the control over foreign NGOs’ activities in China, especially those politically sensitive activities.