LOVE WITHOUT BOUNDARIES: Residents in Chengdu City donate at the Red Cross Society of Sichuan Province for quake-hit areas of Japan on March 20 (CFP)

Hu said the government had not only failed to formulate relevant laws on charitable funds, but also had done little to mandate charitable organizations to make public their accounts.

"While it is incumbent on Red Cross organizations to show the public where their donations go, the government should also reform the laws governing charities," he said.

The RCSC is the charitable organization that receives the most donations in China. As government funding is mainly for staff, salaries and routine office expenses, the assistance the RCSC provides is dependent on donations.

A recent report issued by the National Audit Office listed what it said were the RCSC's five financial problems. They included overspending and the improper allocation of funds.

"There is a distance between people's expectations and the degree of transparency of Red Cross and other charitable organizations," said Wang Junping, a commentator at the People's Daily.

"While the RCSC claims it has nothing to do with Guo, the statement alone is not proof of its innocence," Wang said. "Due to growing distrust, netizens have dragged past scandals involving Red Cross organizations back into spotlight. Worse still, the RCSC's finances remain opaque and this is a major contributor to the widespread distrust," he said.

Although the RCSC said there was not an organization affiliated to it called Red Cross Commerce, it admitted to having approved the establishment of the China Business System Red Cross Society in 2000 by the China General Chamber of Commerce. Li Qingyi, Deputy Secretary General of the China Business System Red Cross Society, said the organization primarily engaged in charity fundraising in China's commercial sector and funds raised by his organization were channeled directly to the RCSC.

Digging by netizens uncovered Li was also Vice General Manager of Wangding Co., a consulting firm, and the legal representative and majority shareholder of the Wangding Co., Wang Shumin, also served as vice president of the China Business System Red Cross Society.

The research of bloggers showed this consulting firm has only 100,000 yuan ($15,400) as registered capital, but has been involved in almost all programs initiated by the China Business System Red Cross Society.

"I doubt they make their money simply by raising donations and organizing charity work," said Qian Jiangbin, a microblogger.

Netizens and media organizations accused the China Business System Red Cross Society of using its charity affiliation to disguise embezzlement.

Media investigations showed the group had cooperative agreements with several businesses and its leaders also worked as the heads of several enterprises. The group had been given discretionary power over the use of donations raised through some of its charitable activities.

In response to this stream of allegations and admissions, the RCSC said on July 1 it would suspend the operation of the China Business System Red Cross Society and hire auditors to investigate the organization. The society also asked the China General Chamber of Commerce to set up a committee to probe the group and investigate claims of misused funds.

Mending reputation

On July 7, Beijing's police authorities said its investigations had revealed Guo had no connection to the RCSC and the company "Red Cross Commerce" and her title "general manager" were fabricated.

Despite the results of this investigation, many of those who had followed the story remained unconvinced. A microblogger calling himself Monkey Ox responded by saying, "This result is quite superficial. It doesn't cover even half of our doubts, such as where Guo's money is from." Another microblogger, known as Chairman of Weibo, posted, "Enough! We've heard the same old story a thousand times. "

"The scandal has triggered an outburst of frustration over Chinese Red Cross organizations' murky bureaucracy and questionable governance," said Yu Jianrong, a researcher at the Chinese Academy of Social Sciences. "Faced with this crisis of trust, the RCSC failed to give a convincing explanation. It will lose its credibility completely if it does not learn lessons from the scandals involving overspending on meals and other spending irregularities."

On July 4, the RCSC opened its official microblog on Weibo.com.