But experts remain optimistic, insisting, "everything will be fine". They know the Chinese Government has been trying to forge a favorable environment and a long-term and efficient system for charity development. In September 2004, China made the development of charity an important part of the social security system; in March 2005, the Report on the Work of the Government said it would support charity, which marked the first appearance of the charity concept in such an important report. At the end of 2005, the Ministry of Civil Affairs issued a Guide to China's Charity Development (2006-10).

A promotional law for this purpose is listed in the legislation agenda of the Standing Committee of the National People's Congress. The Civil Affairs Ministry is working with the State Council and consulting a wide range of experts and scholars on its drafting.

Tax-free treatment

No more than 100,000 out of China's registered 10 million enterprises have made donations. "That means about 99 percent of the companies never make any donations," said Xu Yongguang, Vice-Chairman of the China Charity Federation, during a forum of the China Charity Conference last year. He also revealed statistics showing that private donations amounted to a mere 1.7 billion yuan, with a per capita donation of a little more than 1 yuan.

But, personally, many entrepreneurs and individuals are positive about making donations. "We carve out our careers, and we know the importance of giving back to society," is a common refrain. The reason for the high enthusiasm but low rate of donations, according to Chen Xinnian, an expert with the National Development and Reform Commission, lies with system problems, such as tax.

"It's not that the enterprises or individuals don't want to make donations, but that the results may not be good for them," complained Wang Jianlin, Board Chairman and President of the Dalian Wanda Group, a winner in the China Charity Awards of 2005. He said the existing business income tax provisional regulations allowed tax exemption if the donation is within 3 percent of the annual income tax; the individual income tax regulations allow exemptions on individual donations within 30 percent of the tax payment. "The more you donate, the more tax you pay," complained Wang Jianlin.

If charity is an important component of the social welfare undertaking, then realistically it should be tax-free. Though recent government policy allows companies to make donations to certain charity organizations that enjoy tax-free status, these organizations number no more than 20.

"Many donors didn't apply for tax-free treatment because they don't know such a policy exists or they give up applying due to the complex procedures," said Wang Zhenyao, Director of the Disaster Relief Department of the Ministry of Civil Affairs. He once donated 500 yuan to the China Charity Federation and could reclaim the 50 yuan tax under the regulations. But he had to go through 10 different bureaucratic procedures spread over two months to get the money back. "The average person may take longer than me. Our charity donation system does have big defects," said Wang.

But he said the upcoming promotional law for China's charity development would simplify the application of tax-free status.

However, some experts worry that companies may use charity donations as a means of dodging tax.

"The current corporate and personal income tax regulations don't encourage them to make charitable donations, but the upcoming promotional law will bring some changes," said Li Liguo, Vice Minister of the Ministry of Civil Affairs.