Social enterprise and impact investment take off

In 2011, public confidence in philanthropy was undermined by a series of scandals. Today, while major charities in China have upped their game and enhanced standards, transparency and accountability, the wholesale reform of charities many anticipated has not taken place. Instead, many in China are now looking past traditional charities to new models such as direct "micro-giving" through the Internet, and, on a larger scale "impact investing" approaches that combine measurable social effects with financial sustainability. It may be that China can make a "generational leap" to advanced models of social enterprise and social investment.

To explore this hypothesis further, a major study was undertaken by the Social Enterprise Research Center at Shanghai University of Finance, the Center For Civil Society Studies at Peking University, 21st Century Business Herald and the University of Pennsylvania and sponsored by UBS AG.

The study is the first comprehensive survey of the field undertaken by academics attached to leading Chinese universities. The report outlines the progress made to date in China, analyzes key legal, institutional and financial issues in further development and offers key steps to accelerate these sectors for the benefit of China's 1.3 billion population. The report also features an international panel of experts in these fields convened by UBS to offer their insights on strategies China can adopt for promoting private sector solutions to social problems.

To date, no broadly accepted definition of, or administrative arrangements for social enterprise, exist in China. However, there is an existing model, the welfare enterprise, which dates back decades. Welfare enterprises typically provide employment opportunities to disadvantaged groups, notably the physically handicapped. In the mid-90s with government incentives and support, the number of welfare enterprises exceeded 60,000 in China, employing more than 900,000 people. Since then, with greater market liberalization, the number has halved. Nevertheless, welfare enterprises provide an authentic tradition in China on which social enterprise may build.

The first and most successful social enterprises have grown out of the welfare enterprise tradition. Of these, perhaps the best known is Canyou, headquartered in the fast-growing city of Shenzhen, an IT services company of which more than 95 percent of employees are disabled. The company started in 1999 with five disabled employees and one computer. It now has 32 subsidiaries in 11 provinces, employing more than 3,700 people.

The outpouring of public support after the 2008 Wenchuan earthquake has also provided a spur to establish sustainable enterprises to bring long-term support to affected areas. One such venture is the Aba Qiang Embroidery Support Program, which provides employment opportunities to craftswomen in a minority ethnic group facing extreme poverty. The first store for the venture opened in the southwestern city of Chengdu in 2010. A total of 14 are planned by the end of 2013.

The biggest single spur to the development of new social enterprises comes through China's enthusiastic adoption of the Internet, with more than 600 million users. One early example is Free Lunch, providing meals to poor rural children. Within a month of being set up, Free Lunch had received more than 1 million yuan ($159,000) in donations from 100,000 online users. Pure online donation models have quickly evolved into social enterprise models. Buy42.com, based in Shanghai, is an example, based on benefiting two - buyers and sellers. Inspired by charity shops in the United Kingdom and some of China's vast online marketplaces, they allow people to donate and purchase unwanted goods via the Internet. Facilitation of the e-commerce model is undertaken by disabled people, with net proceeds going to recognized charities and training and work placement opportunities for the disabled.

In 2012, its second year of operations, Buy42 generated more than 600,000 yuan in contributions. It is launching a mobile app in 2013. China's online social enterprises are quickly growing in complexity and ambition. An example would be the Zhihui Eldercare Cloud Service Platform, which currently includes 1.4 million users. The virtual eldercare platform provides telemedicine monitoring for indicators for diabetes and cardiovascular disease via wireless-enabled sensors provided to users. Additional services include information about over-the-counter drugs, psychological support and a "timebank" allowing seniors to offer services to each other on a mutual aid basis.