beyondbrics

China’s national audit office shone an unflattering light this week on the finances of local governments. Its report about their heavy debts, which total more than a quarter of Chinese GDP, has received extensive coverage from Western media, including, of course, the FT.

In China, however, another report from the audit office this week has garnered as much, if not more, attention.

In a review of spending by public organisations, it noted a series of financial irregularities at the Red Cross Society of China – relatively minor allegations that the Red Cross has rebutted but that have nonetheless caused a big stir.

The timing could not have been worse. The Red Cross was already embroiled in a bizarre controversy which it was struggling to douse when the audit was published. That controversy centred on Guo Meimei, a 20-year-old woman who claimed to work for something called the Red Cross Commerce Association.

Guo had posted photos on her Weibo account (the Chinese version of Twitter) flaunting her wealth – leaning on the hood of a Maserati and showing off expensive handbags and a luxurious villa. Within days, her Weibo had attracted more than 100,000 followers, making it the top-trending microblog in China.

The conclusion appeared to be obvious: Guo was siphoning off charitable donations to fund her lavish lifestyle. The Red Cross was forced to set the record straight. There was no such thing as the Red Cross Commerce Association and Guo had no connection whatsoever to the Red Cross, it said.

The curious saga of Guo Meimei resonated in China because of the immense suspicion with which philanthropy is viewed. Partly, this is justified. Poor regulation of charities has turned some into conduits for bribery and tax evasion. But there is also a deeper problem in the lack of trust in a society whose wealthiest members often get rich through government connections. The idea that people would, out of the goodness of their hearts, give money away is scoffed at.

Little by little, attitudes towards philanthropy had begun to improve. The 2008 Sichuan earthquake was an important catalyst for that change, prompting an unprecedented outpouring of donations, many of which were channeled through the Red Cross. The question now is whether Guo Meimei and the audit findings will set back the cause.

To the credit of the Red Cross Society of China, it has tackled the controversy and the allegations head-on. It has held a news conference, published two statements on its website to refute the various Guo Meimei rumours and issued a detailed response to the five problems found in the audit. Charities in China must be hoping that the public accepts its explanations. A lot of good work hangs in the balance.

Related reading:
China’s emerging municipal mess, FT
China rich list loses billionaires to philanthropy, beyondbrics
Why Are Chinese Millionaires So Stingy?, The New Republic