China's New Law Governing Foreign NGOs -- An Overview and Quick Compliance Guide
By: Steven Basart, Director China, Kellen & Dorothy Deng, Esq., Partner at Whiteford, Taylor & Preston, LLP
On April 28th, 2016, the Standing Committee of the National People's Congress (NPC) of the People's Republic of China (PRC) approved the PRC Law on the Management of the Activities of Overseas NGOs within Mainland China. The NPC's approval followed a third round of review and revision by the NPC Law Committee, which included substantial changes and clarifications compared to the second draft that was released in May 2015.
The purpose of this article is to provide an overview of the new law governing foreign NGOs operating in China, and introduce the key requirements for associations that may be subject to the new law.
Who is covered under the law?
The law defines “foreign nongovernmental organizations” as any nonprofit, nongovernmental organizations legally formed outside of China, including foundations, social groups, think tanks, etc. (see Article 2). Under the broad definition of “NGOs”, trade and professional associations incorporated in the United States and any non-Chinese territory will likely fall under the “social groups” (????) category and be subject to the new law. However, the new law does not apply to any academic exchanges and collaboration between foreign and Chinese schools, hospitals, and research or academic institutions involving in natural science and engineering technology, and such activities should be conducted pursuant to the current relevant regulations. (see Article 53).
What about WFOEs?
Many associations have established for-profit entities, such as a Wholly Foreign Owned Enterprise (WFOE), in China. At this time, it is unclear as to whether WFOEs (or other for-profit entities set up in China) controlled by a foreign “parent” are subject to the new law. While these for-profit entities are formed within China and should be deemed domestic enterprises (instead of foreign NGOs), sharing a global brand with a parent foreign entity which has sensitive mission purposes could still be problematic for the Chinese government.
More detailed implementation rules are expected to be released and provide further clarification regarding implementation of the new law. Until then, associations who have set up WFOEs or other for-profit entities in China should not rule out the possibility of being subject to the new law.
The new law requires all foreign NGOs conducting activities within China to register with the Ministry of Public Security, which is China's central law enforcement agency. There are two registration options (see Article 9). First, a foreign NGO may register to establish a representative office (????) in China. The representative office is required to submit its annual activity proposal and budget to its professional supervisory unit by December 31 each year (See Article 19). Second, a foreign NGO may file a report (through its designated Chinese partner) with the law enforcement agency in order to conduct temporary activities (????) in China.
At this time, it is unclear as to what criteria will determine activities are considered “temporary,” and what scope of activities would trigger the requirement to establish a more permanent representative office. As mentioned above, the anticipated implementation rules would likely provide further guidance regarding the registration threshold. In addition, according to the new law, a central website should be established to assist foreign NGOs with the registration process (see Article 35).
Mandatory Chinese Partner Requirement
In addition to the registration requirements, foreign NGOs conducting activities in China must do so with a local Chinese partner (??????)(see Article 16). For NGOs conducting “temporary activities,” their registration report should be submitted by their designated Chinese partner, which is defined as either a (i) State Organ (????), (ii) Civil Organizations (????), (iii) Public Institution (????), or (iv) Social Organization (????).
On that note, in order to fulfill the temporary activity report filing requirements, the foreign NGO must submit a copy of its written agreement with the Chinese partner (such as a Memorandum of Understanding or partnership/collaboration agreement).
Under the new law, foreign NGOs are prohibited from engaging in any activities that could endanger China's unification and national security, which is very broad and not defined. The new law further prohibits foreign NGOs from conducting or supporting for-profit activities, political activities, or illegal religious activities (see Article 5). Moreover, the new law prohibits foreign NGOs from conducting any fundraising activities in China (see Article 21). For foreign NGOs conducting “temporary activities” in China, all funds are required to be accessed from the local Chinese partner's bank account (see Article 22).
Notwithstanding the prohibited activities, the new law expressly states that foreign NGOs may engage in activities that are beneficial to the development of economics, education, science and technology, culture, health, sports, environmental protection, charity, and disaster relief (see Article 3).
The new law is set to take effect as of January 1st, 2017, providing an 8 month transition period. At the NPC's press conference following the approval of the law, officials explained that this period has been allowed to provide time for foreign NGOs to understand the law and assess its implications, while also providing the Ministry of Public Security with a timeframe to release additional detailed implementation rules. The officials also noted that government officials will undergo training to provide better services to foreign NGOs.
As additional implementation rules, processes and procedures are expected to be released in the period ahead, more details to prepare for further compliance will become available.
Link to the unofficial English translation of the new law here.
Link to the full text of the new law in Chinese here.