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Making it easier for the rich to donate
To be rich can mean much more than having a lot of money. For some wealthy people, it means their material affluence is well illustrated by luxury goods. For others, it means social recognition and self-fulfilment through donating to charity. To spend and to give: Both lines of thought are materializing in China, where the rapidly expanding economy is churning out an increasing number of successful and rich people. China has become one of the most important emerging markets for luxuries. In 2003 the domestic market value of luxury goods was estimated at some US$2 billion. Experts say the growth rate is the fastest in this sector worldwide. Investment bank Goldman Sachs estimated Chinese customers have already become the fourth-largest group in the industry, representing 12 per cent of global turnover. Analyst Yue Zheng from Pricewaterhouse Coopers, one of the world's largest accounting firms, said there may be over 100,000 customers for luxury items in Shanghai alone. On the other hand, the rich are donating an increasing amount of money to education, poverty reduction, the environment and health. The public, however, feel rich people can give even more. Forbes releases lists of the richest people and top philanthropists in the country. But the richest are often not among the most generous. In a transitional economy like China, some tycoons have accumulated their wealth through shady means. They have tarnished the image of rich Chinese people and make some people see all business moguls as robber barons. The country's gaping chasm between the rich and poor has worsened bad impressions of the rich. The Gini Co-efficient, an international gauge of a country's income gap, is estimated by some researchers at more than 0.4, which is the benchmark for alert, although official Chinese statistics reckon it to be less than the warning limit. Wealthy people's consumption of luxury goods has stoked public sentiment. The price of a Louis Vuitton handbag or a pair of Versace sunglasses may equal or even double the yearly income of a farmer or ordinary worker in China. Glancing through comments on websites, one can easily find netizens calling on the rich to cut consumption of luxury goods and donate some of their cash to the poor. Rich people who are fond of luxuries might be feeling somewhat annoyed by this. Whether they are showing off or take their consumption as a way of life, it is of course their right to buy extravagant goods and enjoy them. But of course, entrepreneurs and other rich people can play a crucial part in promoting social advances. Donations from the rich have helped hundreds of thousands of people fight physical pain, raise their living standards and improve the environment in China. Admittedly, the Chinese rich have to date donated much less than their US or European counterparts. It is estimated that their donations account for less than 1 per cent of China's gross domestic product while in the United States, the ratio is as much as 7 per cent. Personal fondness of luxury goods should not be taken as an excuse. The question is: Are wealthy Chinese people just unwilling to give? The financial weakness of Chinese business owners may be a factor behind their relatively meagre donations. China's private enterprises have prospered only in the last 10-20 years. As a whole they are yet to become as rich as their US or European counterparts. The rich often worry about the public knowing details of their finances, which could bring even more trouble. It may be another reason why some wealthy people do not want to donate a lot. Above all, the country needs to devise encouraging policies and make proper arrangements to mobilize those people who want to donate to charity. US taxation laws encourage people's enthusiasm to donate. If donations of a US enterprise exceed 10 per cent of its taxable revenue, then a 10 per cent tax cut will be granted. If its donations do not exceed that ratio, the donated money is deducted from the firm's taxable income. In China, the ratio is 3 per cent. Worse, in China's tax sharing regime, the local government has to make up the deducted taxes of donations. Therefore many local governments do not encourage local enterprises to donate. Last June, China's new fund management regulations took effect. Analysts say they aim to push forward the country's charity-oriented private donations by encouraging the establishment of new charity funds. The new rules also set out the principle of granting more tax rebates for charity donations. However, the regulations require that before new funds are registered, a State department should be available to be the nominal head in charge of such funds. Not all private funds can meet such a requirement. They may have to register as commercial companies and are subject to high corporate tax rates. This makes it easier for the State to manage the funds, but isn't there a better way of balancing regulations with efficiency? Besides tax reductions, the government should devise other methods to make donors feel it is easy to donate, such as simplifying donation procedures. As the culture that values donation and charity grows, there will certainly be more rich people who would like to share their money with the needy.
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