Perspectives

China provides fertile ground for social enterprises to thrive due to cultural and historical reasons. Despite significant political changes, China’s deep Confucian roots and its philosophy of Heaven, Earth and Human Order adhere to the modern notion of people and planet, creating a foundation based on social principles and shared prosperity. After the founding of the People’s Republic in 1949, economic and social impacts were linked in law and in practice. In 1978, reforms driven by former Chinese leader Deng Xiaoping separated economic and social policies, but the notion that business has a critical social function had become embedded in Chinese ideology and practice. In 1996, further reforms to open up China’s economy allowed for the incorporation of “private non-corporate entities.” Thousands were created in sectors including education, healthcare and research. While the term social enterprises did not exist at the time, these organizations very much fit the description used today.

The number of social enterprises in China has grown over the past few years, but given the absence of a standardized, nation-wide system of certification or registration, estimates of the sector’s size vary. China Charity Fair, a nonprofit that certifies social enterprises, puts the figure at 234 as of 2018.[1] China Social Enterprise and Impact Investment Forum and the Narada Foundation estimate that the figure could range anywhere between 1,684 and 1.75 million.[2], [3] Incubators are also citing growth. NPI (the Non-Profit Incubator) has been supporting the creation of nonprofit organizations since they were founded in 2006. In recent years, they have been working with social enterprise startups as well. In 2016, they launched “Cheers Hub”, a co-working space for social entrepreneurs in Shanghai, and launched incubation services for social enterprises across 4 cities (Shanghai, Beijing, Shenzhen, and Chengdu) the following year. Additionally, 37 social enterprises are being incubated with support from HSBC.

Perspectives on the growth of social enterprises

At the conceptual level, there are four main lines of thought influencing the growth of the social enterprise sector in China. Xu Yongguang, president of the Narada Foundation and a well-known proponent of social enterprises, believes that social enterprises should not be restrained by regulatory restrictions or ideological norms, and should be free to pursue whichever strategies their leadership determines is delivering both sustainable business and social impact. Xu’s support for market-driven organizations has played a catalytic role on others’ thoughts on social enterprise, whether they agree with his perspective or not.

A different approach comes from the Yifang Foundation, which has commissioned several studies on social enterprises and impact investing. The foundation emphasizes the importance of an accreditation process for social enterprises to differentiate them from other types of businesses as well as give them the legitimacy and certainty that legal incorporation entails.

Jaff Shen and the Leping Social Entrepreneur Foundation have espoused a third approach: the introduction of the B Corp Certification process to China. B Corp Certification is an international effort aimed at creating a community of businesses that demonstrate profit-achieving with purpose. To be a certified B Corporation, companies must adhere to a list of strict requirements. Currently, there are 13 certified B Corps in mainland China.[4] Interestingly, there are eight in Hong Kong and 27 in Taiwan, the latter being the largest number in Asia. Critics of the B Corp system argue that many of these requirements do not work within the Chinese context.

Finally, Zhao Meng, associate professor at Renmin Business School, China, promotes the idea of social businesses rather than social enterprises.[5] The main difference between the two has to do with the use of additional revenue or “profits.” In a social business, stakeholders cannot receive dividends and investors may only retrieve the actual amount invested with some adjustment for the costs of that capital.[6]

Current trends and future prospects

Beyond the conceptual level, what is happening on the ground in China? There are a few key efforts which are having an important effect on how the sector is evolving. First, the government has allowed several municipalities to experiment with efforts to support social enterprise development. City governments in Beijing and Chengdu and district governments in Futian in Shenzhen and Shunde in Foshan are testing new social enterprise policies in their jurisdictions.[7]

Chengdu, in particular, is a pioneer in promoting social enterprises. In 2018, the city introduced a concrete set of policies promoting social enterprises as a new force for addressing social needs in China.[8] In the same year, it also rolled out a formal registration system for social enterprises, with 12 social enterprises receiving formal certification that year.[9] In 2019, 171 registered corporates applied for social enterprise certification, of which 60 made it to the final screening round.[10], [11] At the time of writing, around 28 are expected to be certified, pending final checks and government approval. The Chengdu government has promised to take further steps to support social enterprises, including the provision of office space and access to capital.[12] It has also vowed to support social enterprises through procurement policies and tax benefits.[13]

There is also more funding available for social enterprises and impact investing is growing. In 2018, Futian became the first municipality in China to announce official support of impact investing, with authorities issuing a set of 18 specific measures to help spur the development of impact investing in the district.[14] These measures range from infrastructure subsidies for establishing a “social enterprise industrial park,” capital support for social impact investment funds, office space subsidies for entities such as social enterprises, and support in recruiting talents specialized in impact investing.[15] In addition to convening impact finance forums, the Futian district government has been preparing to set up one to three of its own social impact investment funds, and four social impact bonds.[16]

In terms of private or non-government funding, Ehong Capital and NPI Impact Fund are among the leading players. Over the past decade, Ehong Capital, a Shanghai-based private equity manager specializing in impact investing, has achieved a 30% internal rate of return from its 27 social enterprise investments, with an average exit period of 6.2 years.[17] Another promising sign is the 2018 US$140-million series-C funding of CD Finance, a Beijing-based rural microfinance institution, in the largest impact investment in China led by The Rise Fund.[18]

More change is afoot. Under the leadership of President Xi Jinping, China has put forth several initiatives to eradicate absolute poverty by 2020—that is, no one in China should make less than 2,800 yuan (US$406) per annum.[19] Local government and companies are part of this ambitious initiative. The Alibaba Group has rolled out a massive poverty alleviation fund that combines corporate social responsibility, private funds of the founders and a crowdsourcing effort to work in collaboration with government efforts around the country. If the initiative does succeed, the next step would be to encourage small-scale innovation and entrepreneurship to help lock gains into place and move more people into higher-income categories. Social enterprises are the perfect mechanism to achieve this agenda.

In addition to partnering with the government to alleviate poverty, companies also have enormous potential to support social enterprises. Around Asia, many companies are providing seed capital, technical resources and business mentoring to social enterprises. While this is not happening with regularity yet in China, it is likely that companies will embrace this important new trend.

Finally, another indicator of the increasing popularity of social enterprises has been the rise of forums and conferences devoted to them. The China Social Enterprise and Impact Investment Forum has been taking place since 2015 and is now considered a showcase of thinking and practice in China. Since 2017, awards have been given out to particularly notable social enterprises that are expected to scale and bring about widespread solutions.

Over the past few years, interest in and development of the social enterprise sector have grown dramatically in China. In some ways, we are currently witnessing great innovation and experimentation in developing new ways to combine business rigor and social outcomes. Likely in the future, we will look back and see that the last two years were the tipping point for social enterprise traction in China.

[1] Xia, X. (2019). 5 trends in the Chinese social enterprise landscape for investors to stay in touch with the ground. Asian Venture Philanthropy Network (AVPN). Retrieved from https://avpn.asia/blog/5-trends-chinese-social-enterprise-landscape/

[2] The two organizations derived the 1,684 figure by combing through lists of “self-identified social enterprises”, the status of which were endorsed by their counterparts. The 1.7 million estimate comes from adding up the number of farmers’ cooperatives (农民合作社), private non-enterprise units (民办非企业单位), and social welfare enterprises (社会福利企业) that were estimated to be in operation in 2018.

[3] China Social Enterprise and Impact Investment Forum, & Narada Foundation. (2019). China Social Enterprise and Social Investment Landscape Report 2019. Retrieved from http://www.cseif.cn/Uploads/file/20190623//5d0f4381b9d97.pdf

[4] B Lab. Directory, Certified B Corporation. Retrieved from August 24, 2019 from, https://bcorporation.net/directory?search=&industry=&country=China&state=&city=

[5] Professor Zhao is also the director of the Yunus Research Center on Social Enterprises and Inclusive Finance at Renmin University.

[6] Villis, U., Yunus, M., Strack, R., & Bruysten, S. (2013). The Power of Social Business: Lessons from Corporate Engagements with Grameen. Boston Consulting Group. Retrieved from https://static1.squarespace.com/static/5c2cc95ccc8fed340f66a526/t/5c2f7d490ebbe850e45b8266/1546616141032/The+Power+of+Social+Business.pdf

[7] China Social Enterprise and Impact Investment Forum, & Narada Foundation. (2019). China Social Enterprise and Social Investment Landscape Report 2019. China Social Enterprise and Impact Investment Forum, & Narada Foundation. Retrieved from http://www.cseif.cn/Uploads/file/20190623//5d0f4381b9d97.pdf

[8] Xinhuanet. 成都出台政策 “破局” 鼓励社会力量兴办社会企业. [Chengdu issues breakthrough policies to encourage social forces to encourage the setup of social enterprises]. Retrieved August 24, 2019, from http://www.xinhuanet.com/gongyi/2018-05/16/c_129873598.htm

[9] Xia, X. (2019). 5 trends in the Chinese social enterprise landscape for investors to stay in touch with the ground. Asian Venture Philanthropy Network (AVPN). Retrieved from https://avpn.asia/blog/5-trends-chinese-social-enterprise-landscape/

[10] Chengdu Social Enterprise Certification Office. 成都市2019年社会企业认证申报结束暨尽调安排与要求通知 [Closure of Chengdu 2019 social enterprise certification application and notification on due diligence arrangement and requirements]. Retrieved August 24, 2019, from https://mp.weixin.qq.com/s/4repuzM4_UJqXPJ4fuu_KQ

[11] Chengdu Social Enterprise Certification Office. 成都市2019年社会企业认证申报结束暨尽调安排与要求通知 [Closure of Chengdu 2019 social enterprise certification application and notification on due diligence arrangement and requirements]. Retrieved August 24, 2019, from https://mp.weixin.qq.com/s/4repuzM4_UJqXPJ4fuu_KQ

[12] Xinhuanet. 成都出台政策 “破局” 鼓励社会力量兴办社会企业. [Chengdu issues breakthrough policies to encourage social forces to encourage the setup of social enterprises]. Retrieved August 24, 2019, from http://www.xinhuanet.com/gongyi/2018-05/16/c_129873598.htm

[13] Ibid.

[14] Justice Bureau of Shenzhen Municipality, the People’s Republic of China. (2018). 福田区人民政府办公室印发《福田区关于打造社会影响力投资高地的扶持办法》的通知. [Notice of the People’s Government of the Futian District to issue the "Futian District's support measures for building a highland of social impact investment"]. Retrieved from http://sf.sz.gov.cn/gfxwjcx_171068/201904/t20190424_17044107.htm

[15] Ibid.

[16] China Social Enterprise and Impact Investment Forum, & Narada Foundation. (2019). China Social Enterprise and Social Investment Landscape Report 2019. China Social Enterprise and Impact Investment Forum, & Narada Foundation. Retrieved from http://www.cseif.cn/Uploads/file/20190623//5d0f4381b9d97.pdf

[17] Wang, O. Y, & Wo, B. (2019). China: Social Investment Landscape in Asia. Asian Venture Philanthropy Network (AVPN). Retrieved from https://avpn.asia/download/47239/

[18] Ibid.

[19] Zhuang, P. (2017, September 6). Five things to know about China’s huge anti-poverty drive. South China Morning Post. Retrieved from https://www.scmp.com/news/china/policies-politics/article/2109848/five-things-know-about-chinas-huge-anti-poverty-drive