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Xu said many other countries do not levy tax on charitable foundations' capital gains. He cited the United States as an example, where foundations are only required by law to spend 5 percent of their previous year's assets, and pay 1-2 percent tax for their investment income.
Internal challenges
Private foundations are still in infancy and face many internal challenges, including unclear missions, poor planning, lack of independence and expertise and low initiative in information disclosure, says a report on China's philanthropy released by the Chinese Academy of Social Sciences published in November 2010.
Yang Yue, an official with the MCA, said these challenges had hampered private foundations to mobilize social resources and render sufficiently large social impacts.
Kang Xiaoguang, Director of the Non-Profit Organization Research Center at Renmin University of China, and other researchers conducted a study on the internal governance in 65 private foundations in China. Their findings released in 2009 showed that 12 percent of them had never disclosed any information.
Only 9 percent of the founders or management of private foundations had proactively, objectively and comprehensively disclosed key information, the study finds, while most organizations disclose only the information mandated by the government.
The Regulations on Foundation Administration that went into force in June 2004 require foundations to submit annual work reports, including financial statements, to the government department they are registered with and the information should be published in authorized media.
In June 2010, the China Foundation Center's website (www.foundationcenter.org.cn) was launched to create a platform for foundations to disclose financial and program data to the public. The website was initiated by 35 public and private foundations including Narada Foundation, China Youth Development Foundation and the China Foundation for Poverty Alleviation.
Currently, the government appraises a foundation's performance annually. Shi Huaimiao, an official responsible for foundation management at the Beijing Municipal Civil Affairs Bureau, said foundations failing to comply with government requirements will face penalties including warnings, suspension and termination, and can not enjoy any preferential tax policies.
Yang said the MCA and the civil affairs department of local governments would support the growth of private foundations through laws and regulations, strengthening and improving supervision. They will also increase the channel for information disclosure.
A philanthropy law is still in the making in China. The MCA finished a draft in 2006, yet due to issues such as how to define charity and the roles of charitable organizations and the government, the draft has not been deliberated in the National People's Congress, reported the Guangzhou-based Southern Weekend newspaper.
A New Way to Give
At five and a half years old, Heungkong Charitable Foundation is China's oldest private foundation. It was formally launched in 2005 by Zhai Meiqing with a 50-million-yuan donation ($7.26 million) from her company, Heungkong Group.
Since its inception, Heungkong group has donated a total of 300 million yuan ($44.8 million). After 2005, it mainly donates money through Heungkong Charitable Foundation, which focuses on education, poverty and disaster relief.
Last year, Forbes China ranked the foundation third on its list of private foundations in China.
"My wealth is from society, so I should give back to society," said Zhai, who rose to become one of China's earliest millionaires from a furniture saleswoman early in 1988 when she was 24 years old. "Business and philanthropy are my careers, one makes money and the other gives out money where it's needed and I feel happy that I can help others."
Heungkong Charitable Foundation was registered on the same day China's Regulations on Foundation Administration went into force on June 1, 2004. The regulations give a green light for individuals or businesses to set up private foundations.
Before the regulations, most charitable foundations in China were either set up or backed by the government, said Liu Zhongxiang, an official working on foundation management in the MCA.
Since the publication of the regulations, the number of private foundations has soared, said the Chinese Academy of Social Sciences in its annual report on China's philanthropy published in November 2010.
In 2009, China had 846 private foundations, accounting for about 46 percent of a total of 1,843 charitable foundations in the country. The number was 32 percent more than that of the previous year, much higher than the 4 percent growth rate for public foundations during the same period.
Private foundations have not only grown in number and scale, but also in creativity. "They have made new contributions in discerning social needs, solved social problems and promoted social progress," said Yang Yue, an official with the MCA.
The emergence of private foundations marks the transition of philanthropy from sporadic and direct assistance to recipients to long-term planned charity, said Jin Jinping, Director of the Non-Profit Entity Study Center at Peking University Law School.
"They make charity more professional and institutionalized," Jin said.
The institutionalization of charity enables rich people to set up enduring foundations that can outlive the founders themselves, said Jin. Although founders of some famous private Western foundations such as the Carnegie Foundation, Rockfeller Foundation and Ford Foundation have passed away, their foundations are still running under their initial missions, Jin said. | 
