05 Sep. 2017 | Comments (0)
Business is the predominant funder of China’s non-profit sector, providing upwards of 70 percent of its total funding. Foreign companies operating in China, termed “foreign-invested enterprises” (FIEs), have been significant contributors in the past. But FIE donations peaked in 2013, declined slightly in 2014, and then dropped sharply by 57.8 percent in 2015. 2016 data should be available in November. Given their relatively small number and market share in China in general, foreign companies still arguably punch above their weight in charitable giving. But will the Chinese public see it this way?
Two factors may explain the fall off in FIE giving:
- Corporate charitable donations decline when profitability declines. The growth rates of both total profits and charitable donations for FIEs have coincidently slowed down since 2013, suggesting that declining profitability may be constraining charitable giving.
- The valuation of in-kind donations heavily influences the reported level of FIE donations. In-kind donations are donations in the form of goods or services instead of money. There is no standardized valuation practice in China to account for in-kind contributions, and many in-kind donations are valued at real market prices, thereby grossly overestimating the donation values. The 2013 spike in FIE donations can mostly be attributed to market-valued in-kind medical device and medicine donations by FIEs, rather than any increases in direct funding towards healthcare causes.
The amount of charitable donations is widely considered a proxy for measuring corporate philanthropy contribution in China by the Chinese public and business community, even though direct donating is only one of several philanthropic channels used. Indeed, volunteering and strategic partnership programs are favored philanthropic channels for FIEs, as they provide more control, more calculable impact, and more employee engagement benefits, etc. However, the Chinese public won’t necessarily be aware of contributions via these channels, as they are not counted publicly. It is thus incumbent on FIEs to clearly and continually communicate these contributions.
A hard lesson for FIEs to remember is that, after the catastrophic Wenchuan Earthquake in 2008, the Chinese public and the media displayed huge dissatisfaction about FIE donation levels, and labeled FIEs “iron roosters” (a metaphor for ‘miser’ in Chinese). Boycotts against foreign brands propagated through social media channels, culminating with the widely circulated list of topmost “International Iron Roosters”. This created a PR crisis for the named companies. The online and media backlash against FIEs spiraled out of control, and the FIE community ended up turning to the Ministry of Commerce for a joint press conference coupled with a huge wave of publicized corporate donations from FIEs for disaster relief.
MNCs would be well advised to continually quantify and communicate their philanthropic efforts and contributions to preempt potential “consumer nationalism” backlashes in China.