Chinese charitable foundations are increasingly exploring alternative investments, such as private equity and venture capital, to enhance their investment returns. This emerging trend suggests a potential alignment with global practices in how charitable funds and foundations manage their investment portfolios [3908a2dc].
In 2020, China received a total of 225.313 billion yuan in domestic and foreign charitable donations. In 2019, 62.5% of foundations engaged in investment activities, and in 2020, this proportion reached 68.9% [3908a2dc]. Although charity foundations are defined as non-profit institutions, they are allowed to preserve and increase the value of their assets through investment activities. However, foundations have limited investment portfolios and are restricted in their investment scope. As a result, they rely on indirect investments for alternative investments, such as purchasing asset management products from banks or participating in venture capital-managed funds [3908a2dc].
To align with their investment goals, many foundations are actively hiring qualified investment managers. This move allows them to make informed investment decisions and maximize their returns [3908a2dc]. Additionally, charitable foundations also support related industries through their investment mandates, further contributing to the growth of alternative investments in China [3908a2dc].
In a significant development for philanthropy in Asia, the Commission on Asian Philanthropy was launched at a forum in Hong Kong on September 18, 2024. This new regional commission includes the Hong Kong Jockey Club Charities Trust and nine other foundations from mainland China, Indonesia, Saudi Arabia, India, and Japan. The commission aims to develop effective solutions for socio-economic and environmental challenges in the region [e14b9727].
Hong Kong Chief Executive John Lee Ka-chiu expressed plans to enhance the city’s status as a global charity hub by promoting family office businesses for philanthropic investment. Financial Secretary Paul Chan Mo-po emphasized the importance of impact investing, noting that Hong Kong manages assets worth approximately US$4 trillion [e14b9727]. Founding commissioner Aditya Natraj highlighted the need for better documentation of successful philanthropic examples in Asia, which could help inspire more effective charitable initiatives [e14b9727].
China passed revisions to its 2016 Charity Law last month, but industry observers say the changes do not go far enough to incentivize donations. The revisions focus on the regulation of arising issues, including emergency relief and online appeals, and include a provision for tax cuts for all types of donors. However, anticipated incentives for individual contributions are absent. The revised law also emphasizes government supervision and regulation of personal appeals and online platforms. Observers believe that the lack of incentives and the trend of greater scrutiny over civil society and tighter control over the economy will hinder robust growth in the philanthropic sector. The philanthropic sector in China has grown slowly since the introduction of the charity law in 2016, and there is still a considerable gap between China and other parts of the world in terms of charitable giving [59a62c3a].
Philanthropic organizations have a financial capacity beyond that of governments. The annual financing gap for achieving the Sustainable Development Goals (SDGs) is around US$4-4.3 trillion. However, the total net private wealth worldwide is US$454.4 trillion, which is expected to rise to US$629 trillion by 2027. Therefore, mobilizing less than 1 percent of private wealth could bridge the annual SDG financing gap. Philanthropy can play a role in mobilizing private wealth to meet development finance goals. Philanthropic foundations can mobilize resources and operate as development actors. Impact investments, which aim to trigger positive social and environmental impact, are slightly different from traditional philanthropy. In 2020, private philanthropic foundations mobilized about US$9.6 billion as grants, with Africa and Asia receiving the largest volumes of philanthropic finance. Philanthropic contributions are often earmarked for specific sectors or projects, such as health and civil society. There is a need for philanthropic agencies to provide more untied and unearmarked general support. Philanthropy fosters partnerships, generates knowledge, and supports capacity building and advocacy. However, challenges such as misalignment of interests and criteria for selecting grantees persist. Philanthropy has the financial bandwidth and risk-taking propensity to innovate and implement solutions that can be scaled up. Governments should create enabling conditions for philanthropy, including easier entry and exit norms, easier operating norms, and rewarding exemplary performances in the SDG domain [f1af708a].