Some Thoughts on Social Innovation and Social Enterprises in China

This week’s reading focuses on high-level topics: innovation diffusion (SIB), funding and evaluating. Combined with last week’s lecture on innovation diffusion, I realized that only designing an innovative product that satisfies people’s needs is far from enough, thus figuring out why prof said the goal of this class is to by no means to make us experts in this area but to make us sound less stupid… social innovation means innovations in Every aspects: Product, Organization Structure (hybrid enterprises), Financial Resources (social impact bond), Diffusion Approaches (SIB), Evaluation Methods, Government Policies and even people’s, especially investors’ Mindset…

Then I examine several factors in China to get a clear picture of why China lags behind and how we can do better. Among those success stories in social innovation field, majority of them happens in India and Africa instead of China.

1.       Government Engagement:

Before 2011, the threshold for establishing NGO in China is high since China has a “two-tier registration system” , which means they should get the approval from both Ministry of Civil Affairs and the so-called “professional government supervision department”. Thus the non-profit model of social enterprises can’t work out.  Luckily, in July, 2011, ministry of civil affairs announced the end of this two-tier system, meaning that millions of NGOs will have a legal identity in China.

Another thing worth mentioning is China has a distinctive type of company called “social welfare enterprises” (SWE) which bears some relevancy with social enterprises.  SWE is established with a mission to help the disabled. At least 35% of the company’s employees should be the handicapped and the business line should be something “suitable” for them to operate. SWEs enjoy tax deduction and other kinds of advantages from the government while other social enterprises cannot. That is why many social enterprises in China are related with the handicap. There is research saying that the number in Hong Kong is more than 70%. From this fact, we can see that the government regulations have great influence the development of social innovations.

In some European countries, government procurement of public service from social enterprises is a sign of support and important revenue for social enterprises. In China, only “social organizations” can apply for government procurement. Thus many enterprises registering in Ministry of Industry and Commerce are not eligible to apply.

2.       Funding:

This week’s reading “the funding gap” lists several funding sources, including direct and intermediary. In China, funding approaches are relatively simple. In recent years, many foundations, both domestic and some international organizations are launching initiatives to invest in social innovations. However, most of the efforts are in small scale. They give social enterprises seed funds and limited training on business management skills, very few of them touches on venture capital funds or other investment approaches (bond, equity..)

There are far more issues to analyze about China's social innovation and social enterprise status. In the researching process, i sensed that nearly all parties in China are increasingly paying attention to this area and i believe  many success stories will spring upin the coming decade.