VA
Insights

In 2018, there were 1.67 million high-net-worth individuals (HNWI) in China, and the per capita disposable income rank over 20 million RMB. Among them, there are many philanthropists who are concerned about nonprofit sector. We can see that there are huge opportunities for HNWI to engage social sector during this epidemic. 

For example, Fosun Group launched the global medical suppliers deployment plan on January 24. After that, the chairman Guo Guangchang called more enterprises on the collaborative donation in WeChat groups. He promptly received tremendous response from alumni, Tencent and CEIBS. After the epidemic outbroke worldwide, Jack Ma, and related Alibaba Foundation and Ma Yun Foundation had donated all kinds of medical suppliers to over 100 countries. Meanwhile, he proactively involved in experience sharing, sponsor drug and vaccine research and development and so on.

In these cases, HNWI have irreplaceable advantages in solving social problems: 

• The decision-making of using personal wealth is more flexible and freely. HNWI could bear higher level of risk for innovation and trail error when the wealth is invested in nonprofit sector.
• HNWI have stronger capability of social mobilization so that they can allocate resources quickly and meet the urgent need in an emergency.
• Their commercial abilities can be applied to the nonprofit sector. Therefore, they could promote sector’s marketization and professionalization .

How HNWI with strong social responsibility continually rely on their advantages and participate in the nonprofit sector regularly?

To answer the question above, we hereby introduce five approaches: special fund, individual / family charitable foundation, donor advised fund, charitable trust, and impact investment.

1.Setting up special fund.

HMWI can solve a social problem by donating to foundations. When the donation reaches a certain threshold, they can set up a “special fund”. Taking some celebrities as examples, according to the statistics of China Foundation Center, as of October 14, 2019, 19 special funds were set up individually or jointly, such as “Huang Xiaoming Tomorrow Fund” of China Social Assistance Foundation, and “Yiyang Qianxi Fund” of China Foundation For Poverty Alleviation, and ” Sun Nan · Reshaping the future” of China Foundation for Disabled Persons, etc.

Moreover, compared with the foundation, special fund is independent so that it needs to set up corresponding organization/team to manage and make decision. At the same time, it needs to pay management fee to the receiving foundation. It is worth noting that HNWI must select foundations cautiously before setting up a special fund. A good foundation can support the special fund operate effectively and help it grow up instead of imposing unnecessary restrictions.

2.Creating individual / family charitable foundations

When the special fund become full-fledged, it can grow up to be an independent foundation. In another scenario, if the donation is huge enough and equipped with a professional team, HNWI can register an individual/family charitable foundation directly. For example, in 2012, Han Hong set up “Han Hong Love Charity Foundation” that focus on health care of remote areas and emergency rescue in major natural disasters. During COVID-19, Han Hong Charity Foundation’s performance was eye-catching because it raised more than 100 million RMB in one week, and mobilized many artists and celebrities to participate. It received significant social recognition because of the timely and transparent response.

According to the Report of Chinese Family Charitable Foundation (2018), by the end of 2018, there were 268 family charitable foundations in China, and they accounted for 4% of Chinese foundations, such as Lao Niu Foundation established by Niu Gensheng and his family, and the Heren Philanthropic Foundation founded by Cao Dewang, etc. From 2005 to 2017, the donation from Chinese family foundations increased from 8.73 million to 3.7 billion RMB with a geometric progression.

3.Donor Advised Fund

Donor advised fund (DAF) are similar to special fund, both of which are subordinate funds that under a particular foundation. The main difference between DAF and special fund lies in that DAF is positioned as grant-making and donors have a higher degree of participation. On the other hand, special fund tends to be executive, and donors usually hand over to a dedicated managing team.

“Philanthropy advisor” is the core in DAF. Adhering to the spirit of serving donors, the advisor will provide investment suggestions on keeping charitable assets preserve and increase. They provide customized reports of donation impact regularly as well.

In addition, DAF is more matured in foreign capital market, and it can date back to the 1930s. According to statistics, in United States the GDP increased only by 2.6% in 2015, but the total donation of DAF reached 22.3 billion US dollars, increased by11% for the same period. However, DAF is still a novel product in China.

4.Establishing a charitable trust

Charitable trust is same as DAF by using “donation + investment” mode. In September 2016, The Charitable Law provided a clear definition and legal basis for charitable trust. Charitable Trust is a trust that it aims to realizing social development, and making the whole society or some groups to be beneficiaries. HNWI can entrust trust companies or charitable organizations to set up charitable trust.

According to the statistics of “Charity in China”, totally 274 charitable trusts were set up from September 2016 to December 2019, and the total assets value reached 2.8 billion RMB. Furthermore, the number of new charitable trusts increased every year. For example, in 2017, He xiangjian, the founder of Midea, and his family set up a permanent charitable trust. This charitable trust put its all donation and investment profits into poverty alleviation, elderly care, education, cultural construction and village welfare of Shunde District. It hopes to promote the development and improvement of social issue.

5.Impact Investment

HNWI can be influential investors to solve social problems by using market approach and obtain social and financial returns. In 2007, Rockefeller Foundation put forward the concept of “social impact investment”. Nowadays, there is still no unified definition for impact investment. However, it mainly refers to those investments which do not give up long-term financial return while producing positive social and environmental impact. Therefore it builds a bridge between the social value of nonprofit sector and the profit seeking within financial investment.

For example, the “Ding Xiang Yuan”, which had outstanding performance in fighting against the COVID-19, is one of the best example of social impact investment. As one of angel investors, Wang Jin have a clear vision of the long term potential as a financial investment and the influence on society from Ding Xiangyuan. Then, he engaged in the early startup stage and received 100 times return on this investment in the end.

Whichever approaches HNWI choose, we hope philanthropists can bring in a rational and professional perspective, and plan scientifically, practice in depth, and review the donation regularly: 1) combine their own interests, value concepts, comparative resources, available time, sector development status, etc., and devote more energy into the preliminary planning, overall arrangement and project design of the philanthropic mission. 2) put some energy into the process of donation or project implementation, so as to truly understand the ecology of nonprofit sector and its operation rules; 3) pay more attention to the impact of the project, conduct necessary monitor and evaluation, ensure all donation explore its value as much as possible. In this way, donation will be a huge contribution to improve nonprofit sector.