NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Embarrassed by scandals in its traditional charity sector, China is urging a bigger role for social enterprise in society and the economy. In response, socially-minded businesses are taking off.

The concept is still new. China’s social enterprise movement took off after the 2008 Sichuan earthquake, and it has encountered challenges as it grows. Banks that regularly loaned money to state-run operations have been reluctant to make loans to young entrepreneurs for their businesses. But the government supports the movement and is working to lift monopolies.

In 2013, the government announced policies that defined its role as a regulator and investor in the public services sector.

Then in November, international speakers and policymakers assembled in Shanghai for the Scaling Social Enterprises conference, hosted by the International Centre for Social Franchising, to discuss how to take the most effective social change projects from other parts of the world and replicate them in China. Participants identified the government’s crucial role in assisting the social enterprise movement in China.

China opened up its state monopolies, allowing private investment in elder care, health care, affordable housing and environmental protection.

The government also is drafting financial reforms that would support more investments in micro-businesses, and has committed to purchasing more public services from social businesses.

While the government works on reforming policies, social entrepreneurs continue to struggle with accessing bank loans. Many Chinese banks limit their larger loans to state-owned enterprises.

To link entrepreneurs with partners who can provide technical and financial help, Chinese organizations are receiving a boost from the United Kingdom through the British Council’s Skills for Social Entrepreneurs program.

Since 2009, the British Council, which promotes international educational and cultural opportunities, has partnered with more than 25 Chinese organizations to train about 1,200 social entrepreneurs in the skills they need to operate a business. The program connects them with private investors that supply the necessary capital for running a business.

“The concept of social enterprise was only introduced to China about 10 years ago, but the young sector is developing rapidly, and there is enormous demand,” said Carma Eliot, director of the British Council in China.

More than half of Chinese social enterprises are less than three years old.

The country has a tradition of social assistance dating back to the “welfare enterprises” established by Mao Zedong in 1949. Through this program, organizations received tax breaks for employing a certain percentage of disabled people in order to create a more egalitarian economy.

While the number of welfare enterprises has decreased significantly since the 1990s with the opening of the free market economy, they created a platform for future social enterprises.

The Chinese government recognizes the need for new approaches to social resources, said David Hayward Evans, the head of philanthropy and values-based investing for the Asia Pacific at UBS, a global financial services company.

“There is a strong entrepreneurial culture and social expectation that the wealthy must give back to society,” Evans told The Guardian.

Entrepreneurs unaffected by the devastating Sichuan earthquake created social businesses to help the less fortunate recover from the disaster.

For example, Aba Quiang Emboridery Support was established to help disaster-affected women learn the ancient art of Qiang embroidery, providing employment while also protecting an endangered cultural heritage. With 14 stores across China, the enterprise lets rural women earn an income without having to migrate to urban areas.

Road to Green, which collects used clothing to resell and recycle, also took off following the disaster. The organization employs young people who lack work experience and provides them with sales skills, field training and basic laws and regulations information.

The earthquake recovery also brought to light the corruption and transparency issues associated with China’s traditional charity sector. In 2009, researchers at Tsinghua University revealed that 80 percent of charitable donations to earthquake relief were funnelled to Chinese government officials as “extra revenue,” according to the BBC.

Using market-driven solutions, many in China are looking past traditional charities to help people in need.

Given China’s energy and strong entrepreneurial spirit, and as the social enterprise movement grows and flourishes, the world’s second largest economy could soon be poised to make a significant global impact.

Editor’s note: This post was originally published on Global Envision. It is cross-posted with permission.