China's rich give back as philanthropy surges

By Susan Fenton

HONG KONG (Reuters) - Philanthropic donations in China are surging, as the country's nouveau riche expands with economic development, and should be boosted in the next few years by much-needed tax incentives, analysts say.

Donations from the top 50 publicly disclosed philanthropists in China have risen eight-fold in the past three years, totaling US$10.9 billion so far this year, according to investment bank

UBS AG (UBSN.VX) (UBS.N).

They are led by 85-year-old Yu Pengnian of Shenzhen-based trade and property group Pengnian Industries, who has donated US$260 million to health and higher education since 2003, according to the Beijing-based Hurun Report's league table.

Yu is followed by a younger crop of entrepreneurs headed by Zhu Mengyi of property developer Hopson Development (0754.HK), with donations totaling US$140 million in the past four years, and Niu Gensheng of Inner Mongolian milk producer Mengniu Group who has given away US$85 million, according to the Hurun Report.

Education is the biggest beneficiary of philanthropy followed by social welfare causes, healthcare and poverty alleviation.

Donations to charity are restricted to fewer than 20 charities approved by the government, says UBS.

Individuals, meanwhile, can offset just 2 percent of their salary against tax for charitable and philanthropic donations, although the government plans to increase that to 12 percent as soon as next year.

That's still low compared with a 25 percent tax exemption in Hong Kong and 20 percent in Taiwan, but it's a start and should trigger much higher contributions, analysts say.

Poor tax incentives and difficulty in establishing a charity in China have encouraged wealthy Chinese to establish foundations in neighboring Hong Kong, where the number of registered charitable foundations has doubled in the past decade to 1,200, according to UBS.

"The Chinese government is trying to encourage people to make charitable donations but it also needs to define who can set up a charity much more clearly," said Calvin Lam, a tax partner at accountants Deloitte Touche Tohmatsu DLTE.UL.

PHILANTHROPIC HUB

Under an overhaul of China's corporate tax system due to come into effect next year, companies will be able to deduct up to 10 percent of their profits from tax for charitable donations.

UBS expects environmental causes to become one of the four biggest beneficiaries of charitable donations in China in a few years.

"Philanthropists try to take care of poverty first. As the economy matures they look more at the environment," said Terry Farris, head of UBS' Asia-Pacific philanthropy services.