Social entrepreneurship takes off in China

According to Forbes magazine total giving by China's top 100 philanthropists has plunged by 41% leaving social entrepreneurs to pick up the slack.

Seven years ago, Hong Kong natives Legward Wong and Jeff Ng decided to set up a small business to tackle what they believed to be a big social problem.

In traditional Chinese culture, the elderly were revered for their wisdom and contribution to their community.

After decades of raising children and working to support the family, they used to be able to look forward to their golden years of being pampered by the younger generation.

But because flats in this cramped city of more than seven million people are notoriously tiny and residents here tend to work long, gruelling hours, many senior citizens have ended up in nursing homes, instead of being cared for by family members.

According to Mr Wong, in the 1990s, the government gradually stopped subsidising care for the elderly through non-profit organisations because of the high cost.

"High land costs and high labour costs in Hong Kong not only bring up a huge social concern, it also means taking care of elders becomes more difficult," he tells BBC News during a visit to the Evangel Home for Senior Citizens in the western suburb of Yuen Long.

As a result, privately-run group homes, often offering a lower quality of care, became more widespread.

Nursing home Many senior citizens live in nursing homes in Hong Kong

Some senior citizens found themselves in homes that could not cater to their needs, creating anxiety for their families.

New business model

So Mr Wong and Mr Ng set up the Home of the Elderly, a service to match senior citizens with nursing homes based on their requirements.

The seniors and their families were not charged. Instead, the nursing homes paid the company a fee for each successful placement.

This business model, unknown in Hong Kong at the time, became the basis for one of the city's earliest social enterprises.

Start Quote

In every country, it is the entrepreneur who can respond more quickly to meet a need than anyone else”

End Quote Ross Baird Village Capital

Today, their company has a staff of 40 people and works with almost half of Hong Kong's 600 nursing homes.

It made a profit of about HK$1m ($129,000; £79,000) last year, about one-third of which was donated to their charitable foundation, promoting awareness of seniors' needs.

Emerging trend

Unlike non-profit organisations, social enterprises must aim to be money-making and self-sustaining.

But while they make money, often they make less money than regular businesses, and they re-invest the profits in a related charity, targeting social problems.

In China, social entrepreneurship is a growing trend.

Business of Giving

The rich are getting ever richer, big companies are getting bigger, while new fortunes are being created faster.

However, some of the super-rich are discovering that with a lot of money comes a lot of responsibility.

In a new series we will be looking at how companies and rich individuals are discovering their social responsibility and are using their wealth to change society and the wider world.

In a 2011 study of family philanthropy in Asia by Swiss bank UBS and the Insead business school, 40% of the China-based respondents rated the emergence of social entrepreneurship as the most highly-anticipated trend.

When billionaires Bill Gates and Warren Buffett travelled to China to persuade the country's richest people to give away their wealth, they were reportedly told by internet entrepreneur Jack Ma that rich Chinese people preferred to invest their money in socially responsible businesses, rather than giving it to charities.

For Ross Baird, executive director of Atlanta-based Village Capital, who works with social entrepreneurs in China, the US, Kenya and India, that makes sense.

"I think the Chinese are among the most innately entrepreneurial people in the world. And in every country, it is the entrepreneur who can respond more quickly to meet a need than anyone else," he says.

Although hard data on the rise of social entrepreneurship is hard to come by, Mr Baird says opportunities for investors like Village Capital to put money into these types of businesses are growing exponentially.

He cites one of his partners, the Empowering Chinese Social Enterprise Leaders fellowship, which is affiliated with the Clinton Global Initiative, as receiving 100 applications for one of its programmes in 2011.

Legward Wong Mr Wong is already thinking about his next project - recycling prosthetic limbs

In 2012, the same programme received 1,000 applications, he says.

Lack of trust

The popularity of social entrepreneurship in China is also being driven by a lack of trust among the general public in state-run charities, says Home of the Elderly's Mr Wong.

"It is easier to create value by yourself than asking people for donations, because the social trust level between people is not high," he says.

According to UBS and Insead, mainland China has the strongest level of government control over philanthropy of the Asian countries surveyed.

Most private charities in China are prohibited from raising money publicly.

In 2008, 89% of donations went to government-backed organisations such as the Red Cross Society and other groups under the Department of Civil Affairs, according to the study.

A devastating earthquake in the south western province of Sichuan in 2008 led to a brief boom in corporate and personal giving.

Start Quote

Catlin Powers

We realised that in order to reach all the people who have this need, we would have to scale in a big way. And the only way to do that sustainably is by generating sustainable profits”

End Quote Catlin Powers One Earth

But last year, a high-profile scandal in which a young woman named Guo Meimei posted online photos of herself enjoying a lavish lifestyle funded in part by the Red Cross hurt China's charities.

The Red Cross denied the connection.

A man, reportedly her boyfriend, who worked for a company affiliated with the charity resigned from the firm when the scandal spread, but the damage had been done.

According to Forbes magazine, total giving by China's top 100 philanthropists plunged by 41% in response, mirroring wider mistrust in state-backed charities.

Working together

Despite the scandal, some social enterprises are choosing to partner with the Chinese government to reach the greatest number of people in need.

The flagship product of One Earth Designs, based in eastern Hong Kong, is a solar cooker weighing about 20kg that can harness energy from the sun to boil a litre of water in about 10 minutes.

The target customers are rural residents in the vast, impoverished areas of western China, where electricity is scarce.

Catlin Powers, the company's co-founder, says she was drawn to tackling the massive scale of the environmental and health problems faced by villagers burning solid fuels such as wood, dung and coal.

"We actually started out as a non-profit and in the process of working on community projects we realised that in order to reach all the people who have this need we would have to scale in a big way," she says.

Solar cooker One Earth will sell solar cookers to the government, which will then subsidise them for rural villagers

"And the only way to do that sustainably is by generating sustainable profits."

In China, Ms Powers estimates that about 700 million people use solid fuels that cause pollution and pollution-related deaths.

A similar number exists in India, while about 300 million burn such fuels in South East Asia.

In rural areas where villagers cannot afford the $100 to $200 price tag for each of the cookers, One Earth plans to sell directly to the Chinese government, which will then resell them at a heavily subsidised price.

The company, which will begin to sell the cookers this year, expects to break even next year. By 2016, sales are projected to top $45m.

Across town, with one company under his belt, Home of the Elderly's Mr Wong is already dreaming up his next venture.

A prosthetist by training, he wants to recycle prosthetic limbs no longer used by patients in the West.

He aims to drive around China in a truck, providing the prosthetics to people in need.

He is still working out details of his business model, but he is certain that doing business is the best way to solve social problems.

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