The Administrative Law on Activities of Overseas Non-government Organisations within the Territory of the People's Republic of China (Foreign NGO Law) came into effect on 1 January 2017. The Foreign NGO Law introduced significant registration and reporting requirements for foreign non-government organisations (Foreign NGOs) and granted the Ministry of Public Security broad investigative and enforcement powers.
While the extent to which universities and other higher education providers may be exempt from the registration and reporting requirements under the new law remains uncertain, it is clear that foreign universities operating in China must prepare for unprecedented regulatory scrutiny and engage with authorities to manage compliance risks.
Background: How China's concern with NGOs came to impact universities
The Foreign NGO Law was introduced as one of a suite of three bills focused on national security and counterterrorism in the context of growing concerns amongst China’s leadership about foreign influence and perceived interference in China’s domestic affairs.
Prior to the introduction of the law, Foreign NGOs operated in a legal grey area in China with no specific law governing their activities. The new law formalises the obligations of Foreign NGOs and grants the country’s public security apparatus broad powers to regulate them.
After the second draft of the Bill was introduced, significant commentary emerged on how the law might inadvertently affect education and research cooperation with foreign schools and higher education institutions. In response, the drafters apparently sought to broaden the scope of a carve-out provision in Article 53. However, given continued lack of clarity in the final drafting of the law, universities will need to consider the application of the new law to their activities in China on a case-by-case basis.
Is your university a 'Foreign NGO’ and does the carve-out provision apply?
Article 2 of the Foreign NGO Law defines Foreign NGOs as lawfully established foundations, social organisations, think tanks and other non-governmental, non-profit social organisations lawfully established outside of China.
There is a carve-out provision in Article 53 which provides that: 'The exchange and cooperation between foreign schools, hospitals, natural science and engineering technology research institutions or academic organisations and the domestic schools, hospitals, natural science and engineering technology research institutions or academic organisations shall follow and comply with the relevant regulations and rules of the state.’
The drafting in Article 53 implies that universities' core activities (which already require cooperation with local entities) will not be subject to the registration and reporting requirements in the Foreign NGO Law. However, it is significant that the law does not simply exempt academic organisations from the definition of Foreign NGO and it is likely that a university will be required to register as a Foreign NGO to the extent it engages in activities outside the cooperative ventures referred to in Article 53.
A key area of uncertainty will be programs entered into by foreign universities in cooperation with Chinese entities who do not operate schools, such as third-party providers of study abroad programs or student internships. Issues may also arise where foreign universities or schools organise unilateral activities without cooperation with Chinese entities.
What are the major requirements for Foreign NGOs if your university is required to comply with the regulatory requirements of the new law?
Under the new law, Foreign NGOs are required to register with the Ministry of Public Security and Public Security Bureaus at a provincial level.
A Foreign NGO seeking to conduct permanent activities must also establish and register a representative office with a designated 'Registration Authority' (provincial-level Public Security Bureau), and satisfy the following requirements of such registration:
- The NGO was lawfully established outside of China;
- The NGO is able to independently assume civil liability;
- The NGO’s objective and business scope stipulated in its articles of association are beneficial to the development of public welfare;
- The NGO has been in existence for a continuous period of at least two years outside China and has conducted substantial activities during such time; and
- Other conditions as provided by laws and administrative regulations.
Prior to registration, the Foreign NGO must first receive the consent of a designated ‘Supervisory Authority’ (a government agency designated as such by the State Council) to sponsor and supervise the Foreign NGO.
A Foreign NGO seeking only to conduct temporary activities in China (not exceeding one year) may instead file a record with the Registration Authority.
Regulation & Supervision
A Foreign NGO must use its representative office’s bank account to manage funds used inside China, the use of which is limited to that identified in its registered business scope and the listed activities of its representative office. The representative office must also adopt China’s unified accounting system and the financial reports must be audited by a firm located within China. By 31 December each year, the representative office of a Foreign NGO must submit an ‘activity plan’ for the following year to the Supervisory Authority for approval.
The Supervisory Authority has authority to scrutinise all aspects of a Foreign NGO’s operations, including finances and bank accounts. The government may impose detention for up to 15 days on the person in charge of the Foreign NGO if a Foreign NGO or a representative office of a Foreign NGO engages in conduct including the following:
- incites resistance against the enforcement of state laws and regulations;
- illegally obtains state secrets;
- spreads rumours or slanders, or publishes and disseminates other harmful information that endangers state security or undermines national interests;
- carries out or sponsors political activities, or illegally engages in or provides financial support to religious activities; or
- conducts other activities that are detrimental to state security, national interests or societal public interests.
If a Foreign NGO commits offences such as engaging in separatism, sabotaging state unity, or subverting state power, the person in charge of the NGO is subject to prosecution for criminal liability.
A breach of these obligations may also result in the Ministry of Public Security blacklisting the Foreign NGO and prohibiting it from establishing representative offices or carrying out temporary activities in China.
On 28 November 2016, the Ministry of Public Security released a set of Guidelines for Foreign NGOs in relation to registering representative offices, filing for temporary activates and related matters. The Guidelines also contain appendices which include filing forms and procedural flow-charts. They provide practical assistance for Foreign NGOs and should be referred to in the course of registration and in preparing the Foreign NGO's annual reports and reviews.
The Guidelines also provide the contact details of the Ministry of Public Security Foreign NGO Administration Office which will assist Foreign NGOs to address queries about China's policies on Foreign NGOs.
Regardless of whether the above registration and reporting requirements apply to a university's Chinese activities, Article 5, when read with the provisions of Article 53, prohibits a university from engaging in certain conduct.
Article 5 provides:
'Foreign NGOs that conduct activities within China shall comply with the law of China; shall not threaten China’s national unity and safety and the unity of all ethnic groups of China; shall not jeopardise China’s national interests, societal public interests or the legitimate rights and interests of the citizens, legal persons and other organisations.
Foreign NGOs shall not engage in or provide financial support to for-profit activities or political activities within China. They are also forbidden to illegally conduct or sponsor religious activities.'
The primary concern with Article 5 for universities is that the prohibited activities are vaguely defined. It is unclear what types of activities will fall within the scope of carrying out or sponsoring for-profit activities. For example, issues may arise for a foreign higher education provider where it seeks to provide a training program for executives or business leaders, and program fees are levied.
As political and religious activities are considered threats to China’s national security, higher education providers need to be careful not to engage in or sponsor these activities which may be perceived as harmful to China’s national or social interests. It is likely that regulators will wield a broad discretion in determining which activities are deemed unacceptable. In particular, universities or other higher education providers with religious ties should be extremely cautious as to the related activities they engage in or promote.
Conclusion: hope for the best, plan for the worst
It is highly likely that the carve-out provision in Article 53 will exempt universities’ core educational programs from the registration and reporting requirements to the extent they are comprised of cooperative ventures with Chinese institutions. However regulators have broad scope to decide how the new law will operate in practice and there remains significant uncertainty and risk for universities, including that:
- each of the definition of ‘Foreign NGO’ in Article 2 and the carve-out provision in Article 53 appear purposely vague and will be interpreted by regulators;
- Article 5 (which certainly applies to universities) prohibits ‘profit-making’ activities in China, which could cover activities such as student recruitment, distance education, or technological development or licensing agreements with Chinese companies; and
- it is not clear whether the use of a Wholly Foreign Owned Entity (WFOE) will effectively insulate foreign universities from risk. Although WFOEs are approved and registered through a separate regulatory structure, there is no clear guidance on whether they are exempt from the application of the Guidelines.
While the extent of the impact of the new law on various university activities is unclear, what is clear is that proactive engagement with the Chinese Ministry of Education and other government agencies, such as the Ministry of Public Security Foreign NGO Administration Office, may be required to navigate the provisions of the Foreign NGO Law and minimise compliance risk for the university. Depending on the scope of their operations, universities may need to obtain advice from a local lawyer in China if they are concerned about whether their activities are impacted by the Foreign NGO Law. MinterEllison have offices in Beijing and Shanghai and your local contacts are able to assist in obtaining any necessary advice as required.