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White Paper: China’s Foreign NGO Activities Management Law Authored By Lester Ross, Partner, WilmerHale and

White Paper: China’s Foreign NGO Activities Management Law

Authored By

Lester Ross, Partner, WilmerHale and US-China Strong Foundation Senior Advisor Liu Ting Ting, Associate, WilmerHall

June 14, 2016

Following the April 28, 2016 passage of China’s new Foreign NGO Activities Management Law, the US-China Strong Foundation is pleased to publish a White Paper. The intent of this document is to provide more information about the provisions of the new law and implications for foreign NGOs, specifically academic institutions, operating in China. The US-China Strong Foundation is grateful for the strategic guidance received from members of its Academic Advisory Council and Senior Advisors, especially Mr. Lester Ross, one of the authors of this White Paper. By enhancing understanding of this new law, it is our hope that academic exchange and other forms of people-to-people interactions will increase and result in a more robust and constructive future US-China relationship.

Introduction

The Foreign Non-Governmental Organizations Activities Management Law (the Law) was adopted at the 20 th meeting of the Standing Committee of the 12 th National People’s Congress on April 28, 2016. 1 The Law will take effect on January 1, 2017. It is somewhat narrower in scope than last year’s draft and addresses some earlier criticism. The Law exempts professional exchanges and cooperation involving foreign schools, hospitals and natural science and engineering research institutions, but not with respect to other activities by such entities in China. The Law requires foreign NGOs engaging in activities in China to do so either through (i) registered representative offices operating under the supervision of approved professional (business) supervisory units (业务主管单位) (PSUs) or (ii) registration of activities of a temporary nature with Chinese cooperation units (CCUs) that agree to serve as sponsors. The Ministry of Public Security or local public security department is the registrar in both cases. The Law also prohibits membership recruitment and fund raising by foreign NGOs in China.

The key provisions of the Law and their implications for foreign NGOs and their activities in China are addressed below.

1. Scope of foreign NGOs

1 See National People’s Congress of the People’s Republic of China, “The State has published Foreign NGO Law,” (April 28, 2016), available at http://www.npc.gov.cn/npc/xinwen/2016-04/29/content_1988782.htm. The full text of the Law is available at http://finance.ifeng.com/a/20160429/14354046_0.shtml. A Wolters Kluwer translation is attached.

Article 2 defines foreign NGOs as “not-for-profit, non-governmental social organizations lawfully established outside mainland China, such as foundations, social groups, think tank institutions, etc.” This includes educational institutions, trade associations and other NGOs operating in the educational as well as other sectors. As such, the Law includes private schools and universities other than for-profit institutions but, if the Law is construed literally, would exclude public educational institutions as defined in the United States. The distinction between private and public educational institutions does not take account of the substantial similarities of their missions, activities and values. Associations of educational institutions or non-educational NGOs focusing on the educational sector would be subject to the Law.

Article 53 provides, however:

“Where foreign schools, hospitals, natural science and engineering technology research institutions, or academic organizations carry out exchanges or cooperation with Chinese schools, hospitals, natural science and engineering technology research institutions, or academic organizations, it shall be handled according to the relevant national provisions.”

“Where

activities

carried

out

within

China

by

foreign

schools,

hospitals,

institutions and organizations specified in the preceding paragraph violate Article 5 of this Law, legal responsibility shall be pursued in accordance with law.”

Thus foreign schools, hospitals and national science and engineering research institutions are exempt from the Law but only with respect to exchanges and cooperation with their Chinese counterparts. An example of such exchange and cooperation would be cooperative schools and programs like study abroad programs hosted by a university in China, which will continue to be subject to the Regulations on Chinese Foreign Cooperation in Operating Schools and their implementing measures rather than the Law. 2

The extent to which foreign colleges and universities engaging in activities other than the above- mentioned exchanges and cooperation with Chinese schools, such as alumni gatherings, student recruiting and short-term summer programs that are not organized in affiliation with Chinese schools, are subject to the Law is unclear. Moreover, as discussed in Section 2, the Law prohibits certain content-based activity even with respect to exempted exchanges and cooperation.

2. Scope of activities

Foreign NGOs are prohibited from soliciting donations or developing membership in China under Articles 21 and 28, respectively. Article 5 para. 2 provides that foreign NGOs

may not endanger China’s national unity, security or ethnic unity; and may not harm China’s national interests, societal public interest and the lawful rights and interests of citizens, legal persons and other organizations. Foreign NGOs may not engage in or fund

2 See State Council, Regulations on Chinese Foreign Cooperation in Operating Schools (March 1, 2003), available at http://www.moe.edu.cn/publicfiles/business/htmlfiles/moe/moe_861/200506/8644.html; Ministry of Education, Implementation Measures of Regulations on Chinese Foreign Cooperation in Operating Schools (June 2, 2004), available at http://www.jincao.com/fa/04/law04.61.htm.

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profit-making activities or political activities, or engage in or fund religious activities illegally.”

Article 18 expressly prohibits foreign NGOs from establishing branches, but as stated above cooperation programs with Chinese educational institutions are not subject to the Law. However, stand-alone university centers, typically established as wholly-owned nominally for-profit enterprises, would be subject to the Law.

The Law expressly allows foreign NGOs to undertake activities in accordance with Article 3 that are “beneficial to the development of public welfare in the fields such as economics, education, science and technology, culture, health, sports, environmental protection, and poverty and disaster relief.” It is unclear how broadly these activities will be defined.

3. Registration and filing

Before conducting activities in China, a foreign NGO falling outside an exemption is required to either (i) register a representative office with the public security department; or (ii) conduct temporary activities under a bei’an for the record registration with the public security department.

a. Representative office

In accordance with the Law, the public security departments are required to publish a catalogue of the fields and projects open to foreign NGOs and publish the directory of PSUs (the qualifications for which are unclear) to provide foreign NGOs with guidance

as to what activities will be permitted and what entities will be eligible to serve as PSUs. We understand that such catalogue and directory may not be released until autumn. Educational activities generally should be permissible.

The application for registration of a representative office requires approval by a PSU, which the NGO will submit as part of its application to the public security department.

A foreign NGO is required by Article 10 to satisfy the following requirements in order to

register a representative office: (i) duly incorporated overseas; (ii) capacity to bear civil liability independently; (iii) conducive to the development of public interest undertakings; (iv) in existence for more than two years during which substantive activities have been conducted; and (v) such other conditions as may be required by law. 3

The foreign NGO, within 30 days after approval by the PSU, applies to the public security department for registration of its representative office. Documents to be submitted for the application include the following:

1)

Written application;

2)

Credentials and materials that meet the requirements specified in Article 10 (likely the certificate of incorporation or equivalent and possibly the by-laws);

3 Note, however, that the restriction to one office and cap on the number of foreign employees have been deleted from the last year’s published draft.

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3) ID certificate, résumé, and proof or statement of non-criminal record of the candidate chief representative of the representative office;

4) Proof of domicile of the representative office (typically the lessor’s real estate ownership certificate and the lease contract);

5)

Proof of source of funding for the representative office;

6)

Approval document from the PSU; and

7) Other documents and materials as may be specified in laws and administrative regulations.

b. Temporary activity registration

As an alternative to a representative office, a foreign NGO that wishes to conduct activities in China is required to obtain a temporary activity registration in cooperation with a CCU (Chinese State organs, mass organizations, public institutions or social organizations). 4 The scope of eligibility for CCUs is broader than that for PSUs. CCUs also do not bear supervisory responsibilities over the foreign NGOs. The CCU is required to complete the relevant approval formalities and make a filing with the local public security department at least 15 days prior to the commencement of the temporary activity, although the 15-day filing period may be relaxed in the event of emergencies such as disaster relief. The term of a temporary activity registration may not exceed one year, but may be renewed.

The following documents are required to be submitted in the filing:

4.

1) Credentials and materials on the incorporation of the foreign NGO (likely the certificate of incorporation or equivalent and possibly the by-laws);

2)

3) Relevant information such as name, purpose, location and duration of the temporary activities; 4) Proof of source of project expenses and funds as well as the bank account to be used by the CCU for the foreign NGO’s activities;

5)

6) Other documents and materials specified in the laws and administrative

Written agreement between the foreign NGO and the CCU;

Approval document obtained by the CCU; and

regulations.

Funding

Article 21 provides that the funding for foreign NGO activities in China may consist of (i) funds from lawful overseas sources; (ii) interest on bank deposits within China; and (iii) other funds obtained by legal means within China. Foreign NGOs and their representative offices are prohibited from soliciting donations within China. It is unclear whether charging tuition and other fees to Chinese students studying abroad, admission to events held in China, or alumni dues have been taken into account.

4 The registration for the record procedure is simpler and less prone to discretion than the permit procedure specified in last year’s published draft.

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Article 22 also requires that foreign NGOs with representative offices manage the funds which they use in China through the representative offices’ bank accounts. It is unclear if funds not directed to representative office operations, e.g., research grants and stipends, must be funded through such offices which are unlikely to have robust financial staffs.

Foreign NGOs that carry out temporary activities are required to deposit the funds for their use in China through separate bank accounts of their CCUs. This may present major legal as well as practical concerns, such as how to control funding and ensure compliance with the U.S. Foreign Corrupt Practices Act, and how to plan at least 15 days in advance which in practice will take longer when application preparation time is taken into account. It is moreover unclear whether each discrete activity, including for example attendance by faculty at academic conferences or the conduct of research projects, will require a separate temporary activity registration.

Conclusion and Recommendation

Foreign NGOs engaging in activities in China will need to prepare in advance of the January 1 effective date of the Law. The pros and cons of operating with representative offices vs. filing for temporary activities are relatively straightforward. A representative office will not be subject to the 15-day filing requirement for its activities, the procedure for which can be time-consuming and burdensome, especially if separate registrations are required for each discrete activity. However, registering a representative office also means obtaining approval from the PSU, and subjecting the NGO to the supervision of the PSU as well as the public security department. NGOs should begin to discuss the willingness of prospective entities to assume the obligation of PSUs in advance to build trust and understanding. The qualification to serve as a PSU are as yet unclear. The scope may be limited to ministry-level government departments as under the current Regulations on the Administration of Foundations 5 which would be very restrictive, but may be wider. Moreover, some prospective PSUs and CCUs may be reluctant to participate in order to avoid any adverse impacts arising from the activities of a supervised or sponsored foreign NGO, e.g., hosting a speaker on the home campus who is considered to be subversive in China. It is important for NGOs to ensure that different players have a concrete interest in their continued presence and their activities in China.

If choosing not to register a representative office, the NGO will still need one or more temporary activities registrations. However, the NGO will need to be sponsored by a CCU and register the activities at least 15 days in advance and will be encumbered by fund management constraints in particular.

5 See State Council, Regulations on the Administration of Foundations (March 8, 2004), available at http://www.cecc.gov/resources/legal-provisions/regulations-on-the-management-of-foundations-chinese-text.

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