Social Impact Investing in China – A Tipping Point
We recently returned from an eight-day trip to China and came away invigorated by the rapidly-evolving Chinese philanthropic landscape. From the financial capital of Shanghai and Beijing to the social entrepreneurs of Shenzhen, we sought to understand and uncover opportunities for The Rockefeller Foundation to bring its expertise in innovative finance to support China’s effort to achieve its own development goals along with the global Sustainable Development Goals (SDGs) agreed to by every nation in 2015. China’s unprecedented wealth generation, emerging philanthropic regulatory structures, and its population of 1.4 billion people present an exciting opportunity to partner with the Chinese private and public sectors to support the growth of impact investing.
Indeed, The Rockefeller Foundation has a long and established history in China, dating back to the establishment of Peking Union Medical College over 100 years ago. Coupled with its recognized role in defining and leading the impact investment sector globally, the Foundation sees an opportunity to forge partnerships with leading philanthropists, foundations, investors, and municipal level governments to support the growth of the sector in China.
As China has established itself as a global economic leader over the past decades, the country’s unprecedented growth has generated enormous wealth for its citizens and catalyzed a dramatic reduction in global poverty. Indeed, China’s economic emergence has lifted some 800 million people out of poverty since 1990 – and the country is currently home to over 800 billionaires, the largest cohort in the world. Yet the explosive wealth accumulation in China has not yet translated to high rates of traditional philanthropy. Philanthropic giving as a percentage of China’s GDP hovers around 0.15 percent, compared to approximately 2 percent in the United States. One challenge is that infrastructure, training, and legal frameworks are still nascent and will need further encouragement to ensure donations and other philanthropic activities go to good use. As Alibaba founder Jack Ma said in 2015, “giving donations is much harder than earning money.”
Collaboration and partnership between Chinese and international impact investors can unlock a new era of global philanthropy.
There are now several indications that this dynamic is changing, and that China is well-positioned to assume a leadership position in global philanthropy – and specifically in the area of impact investing, or ‘social impact investing’ as it is called in China. Charitable giving has more than tripled since 2008, and the number of private foundations is exploding. There are signs that the Chinese market is particularly well suited to social impact investing, as a civil society that has excelled in business enterprise shifts toward maximizing stakeholder rather than shareholder value.
First and foremost, the rise of family offices in China has resulted in a pool of flexible, business-oriented capital that is seeking to foster public good. In our view, Chinese family offices are ideally situated to introduce and adapt existing impact investing models, which have proven successful elsewhere, to the Chinese market. By employing risk capital and local savvy, family offices can adapt established methods like blended finance for local use, positioning existing models for future growth in China. At the same time, the rapid growth of venture capital in China has given rise to a new generation of Chinese venture philanthropist models and funds that deploy risk-tolerant capital to innovate for public good. Just as in other countries, a younger generation with strong social values is exerting increasing control over private wealth, and fueling social entrepreneurship activity to boot.
Corporations, too, play an important role through corporate social responsibility (CSR) activities, which constitute approximately 65 percent of charitable giving in China, and reinforce a business-minded approach to development efforts. And though still largely silent on the issue outside of a few dedicated regions (such as Shenzhen), the Chinese government has also signaled increasing support for social impact investing, with a recent regulation change giving philanthropic organizations more flexibility to engage in charitable, for-profit investment activities.
Crucially, these movements and the enthusiasm they represent are primarily organic and domestic. Chinese institutions like the Narada Foundation, the China Global Philanthropy Institute, Ehong Capital, and CreditEase are fueling growth in the sector. A number of strategies would serve to accelerate current growth, from improving the enabling environment by creating a shared understanding around impact frameworks like the SDGs to making direct and intermediated investments that demonstrate the social and financial benefits of impact investing.
China represents a significant new market opportunity for impact investing to grow, and institutions like The Rockefeller Foundation can help. The Rockefeller Foundation has worked with China for more than 100 years to create solutions in health, food, education, and innovation that accelerate progress and prosperity for the Chinese people. Today, as China’s philanthropic sector continues to grow explosively, we believe collaboration and partnership between Chinese and international impact investors can unlock a new era of global philanthropy – not only elevating China’s philanthropic and social impact investing ecosystem, but also helping to solve global problems together.