Published: July 17th, 2020
According to 2018’s CAF World Giving Index, China's charitable sector is booming; boasting the third-largest number of philanthropists and regular donors on the planet.
As tax incentives for donations expand and the list of organisations with charitable status grows, money has poured into the sector from corporates and high-net-worth individuals. Between 2011 and 2016, donations from China’s philanthropic top-100 nearly tripled, rising to USD 4.5 billion.
But rapid growth has been hampered by concerns about transparency. Chinese foundations score a measly 33.5 out of 100 in the Foundation Transparency Index, with most pegged as "unsatisfactory" for a mix of secrecy and unconventional practices.
China’s Red Cross has been under fire over allegations that it badly misused funds earmarked for victims of the Sichuan earthquakes of 2008 and 2013. New scandals have followed in its wake. Last year the Spring Buds Project, an educational charity for girls from low-income households, was caught diverting donations to boys. Many online campaigns and appeals have been tarnished by allegations of fraud and gifts from hard-to-trace donors.
Critics say China’s charity sector needs more openness and transparency. Paired with better regulation, could blockchain provide the answer? An action plan released by Beijing’s Ministry of Civil Affairs positions blockchain as one way to improve transparency in both social services funding and confirming both the legitimacy and appropriate use of charitable donations.
One platform, a healthcare donation service called Qingsongchou, is building an autonomous and decentralised community of charities and social enterprises by licensing its blockchain-based digital fundraising platform for free. Smaller third-sector organisations and community groups can use the platform to manage their appeals. They can do so independently, but access to any monies received is limited. Donations happen as peer-to-peer transactions that can only be obtained by their beneficiaries. Qingsongchou says it’s helped charities with limited resources strengthen their credibility.
Big names in blockchain and e-commerce like Binance and Alibaba have launched their own distributed ledger-based philanthropic services. Using Alibaba’s online payment platform, Alipay, Ant Financial created a private blockchain in 2016 to record its donations. While Alibaba owned the infrastructure, access to the platform was limited to Ant officials.
Based on that early success, the two companies launched Charities on the Chain (CoC) last year. It’s a blockchain donation platform charitable organisations can use for free. Crypto exchange Binance also launched a blockchain-powered charity platform last year, where recipients receive their donations in cryptocurrency.
All of these companies say their objective in China is not to promote crypto explicitly. They want to make the country’s charitable sector stronger through better donation authentication and improved tracking. Blockchain, they say, is simply the best mechanism to achieve it.
Alibaba said in a recent interview that it CoC would be used to track donations and stop any dodgy donors inflating the amounts of their gifts, plus make it harder for charities to manipulate records of how much they’ve received. Alibaba’s biggest national competitor, online shopping giant Tencent, hasn’t yet released a similar system but says it is creating systems to monitor and regularly audit donations coming in through its charity platform.
Despite China’s well-publicised attempts to ban or strictly control the use of cryptocurrency in the country, neither Beijing bureaucrats nor Chinese businesses seem overly concerned about any potential risks of blockchain use in the third sector. China is embracing blockchain as one way to keep its technology sector a step ahead of the world at large.
As trade disputes pile up from the Trump administration and national leaders like Huawei feel the pinch of sanctions, the Chinese government is looking to blockchain’s potential for solving thorny practical issues in payments as a way to affirm its leading role as a tech innovator. The promotion of transparency and accountability in charity funding offers a perfect opportunity to address an issue everyone wants to see fixed.
If blockchain is being used to re-think philanthropy on a community-based charitable model that also encourages greater collaboration between social enterprises, businesses and the government – with the goal of improving social welfare – who could object?
In every significant economy on the planet, organisations in both the private and public sectors are looking to blockchain solutions as a way to optimise efficiency and remove complexity and manual processes from their operations. That should increase their profitability, but only a few are making blockchain a cornerstone of their corporate social responsibility programmes.
One exception is the EU’s jointly-owned aerospace company Airbus. Through its Netherlands-based charitable foundation, the company has launched an open-source project called Heritage. The Ethereum-based framework helps the foundation receive and manage donations for itself and other third-sector organisations. Launched in 2013 at Airbus’ Silicon Valley division A3, the company is experimenting with different ways to apply blockchain in the foundation's emergency response and disaster relief work around the globe.
That makes Airbus a bit of an outlier. It’s one of the few big companies outside mainland China to embrace blockchain for philanthropy.
While Chinese firms have taken the lead in putting blockchain to work in the charity sector, the technology is still in its nascent phase and seeking wider adoption. That lack of market maturity may be holding many potential users (and investors) back.
And despite blockchain’s well-hyped ability to address everyday problems in all sorts of financial services categories, no solution is likely to succeed on the merits of technology alone.
A sector like philanthropy requires co-ordinated buy-in from its ecosystem of donors, charities, regulators, and service providers – with informed government oversight to ensure a level playing field. Blockchain isn't a panacea – corruption is a bigger issue than any one technology can solve — but attempts to clean up China’s charitable sector will have to start by making it harder for fraudsters to subvert it.