Shen Hengchao, Research Department of Techno-Economy of DRC

Research Report No.230, 2007

The nonprofit scientific research organizations in China can be divided into two categories: public research institutions and private non-corporate research institutions. Both of them are operated and managed as nonprofit organizations.

Some public scientific research institutions are being transformed into nonprofit institutions and are requested to be operated and managed as nonprofit organizations. For this reason, they are modified as "nonprofit" and are called "nonprofit research institutions" in the relevant documents. But they still must be registered as public institutions, instead of pure nonprofit organizations. This paper regards the public scientific research institutions that operate and manage like nonprofit organizations as the nonprofit scientific research institutions and regards the nonprofit research institutions and the private non-corporate research institutions as the nonprofit scientific research organizations.

I. Features of the Development of Nonprofit Scientific Research Organizations

Both the nonprofit scientific research institutions and the private non-corporate scientific research institutions are somewhat different from the foreign nonprofit scientific research organizations. They have the following unique features.

1. Nonprofit scientific research institutions are requested to be operated and managed as nonprofit organizations, but still have to be registered as public institutions

The nonprofit scientific research institutions are a product of the reform of the public research institutions. By the end of 2005, China had 679 public scientific research institutions under the jurisdictions of the departments of the central government and 3,222 public scientific research institutions under the jurisdictions of the regional governments. Some of these institutions are allowed to be transformed into nonprofit scientific research institutions.

The Decisions on Strengthening Technological Innovations, Developing High Technologies and Realizing Industrialization promulgated in 1999 provides that the nonprofit scientific research institutions that cannot receive corresponding economic returns should be operated and managed as nonprofit institutions. The Opinions on Deepening the Reform of the Management System of Research Institutions promulgated in 2000 divides the research institutions into two categories targeting respectively technological development and public services. The nonprofit scientific research institutions, which are mainly engaged in the basic research or provision of public services, cannot receive the corresponding economic returns and truly require state support, will continue to be regarded as public institutions, but will have to be operated and managed as nonprofit institutions.

The Opinions on the Management of Nonprofit Scientific Research Institutions promulgated in 2000 provides that the organizational management and accounting system of the nonprofit scientific research institutions should be submitted by the competent authorities to the Ministry of Science and Technology, the Ministry of Finance, the State Commission Office for Public Sector Reform and the State Taxation Administration for joint examination; and these institutions should be registered with the department in charge of the organizational administration of state organs as public institutions. For the time being, they should follow the accounting system designed for the public scientific institutions and their annual budgets should be examined and pooled by the competent authorities and be submitted to the Ministry of Finance for approval.

According to the provisions specified in the above documents, although the nonprofit scientific research institutions are requested to be operated and managed as nonprofit organizations, they are still public institutions and are somewhat different from the pure nonprofit organizations. The nonprofit research institutions are only internally operated and managed as nonprofit organizations. They still have to be organizationally and financially managed as public institutions. On the other hand, the nonprofit organizations in the general sense have the right to recruit employees and follow the accounting system designed for private nonprofit organizations.

Currently, the nonprofit scientific research institutions vary from one another in the progress of their reforms. Those under the jurisdictions of the departments of the central government have largely completed their reforms or are still in the process of reforms, while those under the jurisdictions of the regional governments have just begun their reforms, with some of them still in the preparatory stage.

2. Private non-corporate scientific research institutions demonstrate profit-making tendency

In the legal sense, China has three categories of nonprofit organizations: social groups, private non-corporate institutions, and foundations. At the end of 2006, there were 186,000 social groups, 159,000 private non-corporate institutions and 1,138 foundations nationwide.

The nonprofit scientific research organizations belong to the private non-corporate institutions. Specifically, they belong to the category of the private non-corporate scientific and technological institutions. In recent years, private non-corporate scientific research institutions have developed rapidly in China, rising from 4,522 at the end of 2003, to 5,824 by the end of 2004 and further to 6,915 by the end of 2005. Nearly all of them were regional institutions. In accordance with the Provisional Regulations on the Registration, Examination and Administration of Private Non-Corporate Scientific and Technological Institutions promulgated in 2000, the private non-corporate scientific research institutions are divided into six categories. The first category comprises research institutions (the scientific and technological research institutes are mainly engaged in scientific research and technological development), and the rest belong to scientific and technological professional service institutions.

The Provisional Regulations on the Registration Administration of Private Non-Corporate Institutions provides that these institutions are not allowed to engage in profit-making activities. But in fact, a considerable part of such institutions have demonstrated a profit-making tendency and are operating more like enterprises. For example, Wu Chuanzhu found in a survey on the private non-corporate institutions in the city of Rizhao that some of these institutions in fact have been individually run and their profits have gone into personal purses. This has a lot to do with the lax regulation of the regulatory authorities and with the social misunderstanding of the private non-corporate institutions. A nonprofit organization is not supposed to be profit-oriented. But that does not necessarily mean it is not allowed to make profit. The profit it makes should not be distributed either by an individual or an organization and instead can only be used for the institutional development of the nonprofit organization.

The relevant regulations and policies do not restrict anyone from investing in private non-corporate institutions for reasonable returns. This is a major reason why these institutions have demonstrated a profit-making tendency. For example, the Law on the Promotion of Nongovernmental Education encourages the capital contributors of the nongovernmental educational institutions to receive reasonable investment returns. Other regulations on the administration of private non-corporate institutions also contain similar provisions. As investment made in these institutions is entitled to enjoy more preferential policy treatment than investment made in enterprises and as there are no major obstacles to prevent them from receiving returns, the result is that private non-corporate institutions continue to grow rapidly in number despite repeated rectifications.

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