Social Enterprises and Benefit Corporations in China

Abstract

The reform of China’s social welfare system, the development of civil society, and the prosperity of corporate social responsibility have nourished the seeds of social enterprises in China, while the introduction of international social enterprise concepts has inspired social enterprises to take root. There are no legal forms specifically designed for social enterprise. Therefore, social enterprises have to adopt a legal status with one of the existing legal forms, such as enterprises, civil nonenterprise units, and specialized farmers’ cooperatives, and they are regulated and protected by the laws and regulations related to them. Also, the identity of social enterprises is given through the B Corp certification system or the indigenous certification system. Although the Chinese government is still cautious about formulating specific social enterprise laws and policies at the national level, there have been breakthroughs in local governments’ supportive attitudes and actions toward social enterprises. From a macroperspective, the state’s emphasis on the participation of market forces in public services and the introduction of China’s innovative policies in areas such as rural revitalization, elderly care, and so on have a positive impact on the practice of social entrepreneurship.

1 Introduction

Social enterprises (SEs) originated in the United Kingdom, dating back as far as the Rochdale Pioneer—generally considered the forerunners of the “social enterprise movement” in 1844,¹ but it was not until the 1990s that they emerged globally and became a public issue. As social enterprises are different from both purely commercial enterprises and nonprofit organizations (NPOs) in general, existing laws in various countries were not fully adapted to the requirements of social enterprises. In order to introduce the special characteristics of social enterprises and improve the institutional environment for social enterprises, many countries have enacted legislation on social enterprises or amended their existing laws, such as the Law on Social Cooperatives (1991) and the Law on Social Enterprises (2006) in Italy, the Act on Social Enterprise (2003) in Finland, the Community Interest Company Regulations (2005) in the United Kingdom, the Social Enterprise Promotion Act (2007) in South Korea, and so on. These countries have provided a legal basis for the development of social enterprises.

Before the twenty-first century, social enterprises were rarely known in China. It was only in 2004 that the concept of social enterprise was first introduced to China by Dr. Liu Jitong of Peking University. He translated part of the report of Social Enterprise, drafted by the Organisation of Economic Co-operation and Development (OECD), and published it in China Social Work Research.² In 2006, Wu Shihong translated David Borstein’s book How to Change the World: Social Entrepreneurs and the Power of New Ideas,³ making the concept of social enterprise further known. Subsequently, the British Council launched the “Skills for Social Entrepreneurs” project across China. This encouraged a large number of social entrepreneurs to join the wave of social entrepreneurship and innovation practices or actively explore the transition to social enterprises. Since then, social enterprises have taken root on Chinese soil. At present, macropolicies at the national level provide a wide scope for the development of social enterprises in China, and there have been breakthroughs in the attitude and actions of local governments to support the development of social enterprises. For example, the governments of Beijing, Chengdu, Shunde district in Foshan, and Futian district in Shenzhen have issued policies to support social enterprises. This experience sets a positive example for other local governments. However, the development of social enterprises in China is still in its infancy. There is no legislation on social enterprises in China, nor is there a specific policy at the national level.

The framework for this paper is as follows: firstly, it focuses on the context in which social enterprises emerge in China. Secondly, considering that China has not yet devised a specific legal form for social enterprises but rather grants a social enterprise status through certification, this paper will give an overview of the general situation of social enterprise certification in the country, including the B Corp certification of B Lab and the indigenous social enterprise certification system in China. Thirdly, the policy environment for social enterprises in China will be discussed. On the one hand, social enterprise policies issued by local governments will be systematically explained, and on the other hand, macropolicies at the national level will be discussed. Finally, suggestions are made for improving the social enterprise policies in China.

2 The Background of the Social Enterprises in China

2.1 Governments’ Promotion and the Origin of Social Enterprises

The prototype of social enterprises in China emerged from the reform of the social welfare system in the 1980s. At that time, the Chinese government introduced revenue-generating reforms to state-owned welfare entities. This reform advocated the diversification of financial resources and services for state-owned welfare entities and encouraged them to seek new sources of income by providing paid services and operating businesses.⁴ The reform of the welfare system has driven continuous change and innovation in all types of formal organizations in China. As a result, social welfare enterprises (SWEs), specialized farmers cooperatives (SFCs), and projects such as community service and reemployment programs were born—arguably the earliest prototype of social enterprises in China.

Firstly, the Chinese government has introduced a series of policies to facilitate the transformation of social welfare factories into SWEs through measures such as lowering the threshold for opening SWEs and providing tax incentives. Since The People’s Republic of China (PRC) was founded in 1949, under the leadership of civil affairs departments, production units were widely established around 1950, which were composed of families of martyrs, disabled soldiers, and poor people. The functions of these production units were multifaceted, such as special care, social relief, and social welfare, and they developed into social welfare factories of a certain scale after the mid-1950s. However, social welfare factories were heavily dependent on government resources and lacked financial sustainability. It was not until the 1980s that social welfare factories were transformed into SWEs, driven by the market economy. Their organizational purpose of pursuing economic efficiency was further strengthened. In 1990, the state issued the Interim Measures for the Administration of Social Welfare Enterprises,⁵ which regulate the recruitment requirements for disabled employees as well as the management of SWEs. According to the Measures of Qualification Accreditation for Welfare Enterprises, issued by the Ministry of Civil Affairs in 2007, social welfare enterprises must employ at least 25% of the employees with diabilities and have at least ten disabled employees.⁶ SWEs possess the social and commercial features of a social enterprise. This is close to the modern meaning of “work-integrated social enterprises”. Therefore, some Chinese scholars view social welfare enterprises as a “quasi-social enterprise” (准社会企业).⁷ Although the number of social welfare enterprises has shrunk dramatically since the Ministry of Civil Affairs abolished the qualification for welfare enterprises in 2016, it is undeniable that some social enterprises were born out of social welfare enterprises, such as Canyou Group—an SWE with several branch offices across China employing people with disabilities.⁸

Secondly, in the context of economic reform and opening up, SFCs began to emerge in China. In 2007, China introduced the Law on Farmers’ Professional Cooperatives and provided that an SFC is a mutual economic organization dedicated to providing benefits to its members.⁹ China’s SFCs have played social functions, such as microfinance, preservation of traditional crafts, and rural community building, as well as economic functions, such as agricultural production and trade. They are required to achieve a balance between promoting agricultural development and protecting the interests of member farmers, ensuring their economic benefits, and gaining social equity for them.¹⁰ Thus, SFCs embody characteristics typical of social enterprises. According to the latest statistics from China’s National Bureau of Administration for Commerce and Industries, there were 1.933 million SFCs nationwide by the end of August 2017, with an average of three cooperatives per village and 46.8% of the country’s farming households enrolled. However, some scholars have argued that the operation model of Chinese SFCs is business dominated or government dominated¹¹ and so does not reflect the most basic characteristics of cooperatives, namely voluntary, autonomous, and people governed.

Finally, to oversee the restructuring of the economy, deepen the reform of state-owned enterprises, and solve the problem of resettling laid-off workers, Chinese labor authorities implemented nationwide “re-employment programs” in 1995. During this time, Shanghai took the lead and established a reemployment service center in July 1996, ensuring for the laid-off workers vocational training, job referrals, labor export, payment of living expenses, payment of pension and medical insurance premiums, and other management services. Moreover, in 1998, the State Council issued the Notice on Effectively Ensuring the Basic Livelihood Standards and Re-employment of Laid-off Employees from State-Owned Enterprises, stipulating that all state-owned enterprises with laid-off workers must establish reemployment service centers and perform three basic functions: first, to pay basic living expenses to laid-off workers; second, to pay pension, medical, and unemployment social insurance fees on behalf of laid-off workers; and, third, to assist laid-off workers to participate in vocational guidance and reemployment training and to guide and help them achieve reemployment. In 2001, eight central administrative departments, including the Ministry of Labor and Social Security, issued the Several Opinions on Promoting Community Employment to turn the growing demand for community building into a new approach to tackling large-scale urban unemployment and to help more unemployed people to rejoin the workforce in urban community building. Under this policy, community-based employment entities (CBEEs) are the main workplaces for providing community employment for laid-off workers. This approach has been also identified by Chinese scholars as a prototype of the work-integrated social enterprise (WISE), which emerged during the market reforms.¹²

2.2 The Development of Civil Society

The development of civil society has laid an important foundation for the emergence of social enterprises in China. Civil society is a civil public sphere formed spontaneously by citizens who freely associate, discuss public issues, and independently engage in social activities outside the political sphere and market economy. As its core elements, it has various nongovernmental and nonbusiness organizations. Before the reform and opening up, civil society in China was absent or subsumed by the state. Since the reform in 1978, changes in China’s political and economic systems have provided the conditions and space for the growth of civil society. On the one hand, the shift from a planned economy to a market economy has established the necessary economic foundation for the emergence of civil society, while on the other hand, the government has changed from direct full-scale planning to indirect macroregulation and control, creating a relatively loose political environment. In this context, the citizens’ awareness of self-government developed considerably. In 1988, there were only 4446 social organizations in China.¹³ By January 2021, the total number of social organizations exceeded 900,000.¹⁴ It is evident that social organizations have grown rapidly over the past two decades as a new driving force for social and economic development.

There are three legal types of social organizations in China: social associations, ¹⁵ civil nonenterprise units (CNUs),¹⁶ and foundations.¹⁷ While all three types of social organizations are gradually increasing in number, many scholars have pointed out that CNUs may display more features of social enterprises than the other two forms.¹⁸ CNUs, as nonprofit entities, are established by nongovernmental organizations and individuals through the use of nonstate resources. They play an important role in providing various types of social welfare services. To solve the problem of the lack of sufficient funding, there is a trend for some CUNs to operate on a commercial basis. They adopt enterprise-style management and engage in a variety of market-based income-generating activities, such as providing paid services, participating in government-purchased services, partnering with commercial companies in charitable activities and charity marketing, and making venture capital investments. CUNs with innovative spirit and autonomy consciousness have actively taken the initiative to engage in solving social problems through social entrepreneurship. Such broad social engagement has expanded the cohort of social entrepreneurs.¹⁹

2.3 Chinese Enterprises and CSR

China’s profound Confucian business thought, the development of the market economy, and social concern for corporate social responsibility (CSR) have also provided a constant impetus for the emergence of social enterprises in China.

Firstly, Chinese Confucianism—balancing righteousness and profit—has prompted entrepreneurs to take the initiative to fulfill their social responsibility. Zhu Xi²⁰ said, “the doctrine of righteousness and profit is the core essence of Confucianism.” Modern ethnic entrepreneurs who received traditional Confucianism education have aligned their business interests with the benefits of the state and society. For example, Zhang Jian²¹ was deeply influenced by the essence of Chinese traditional culture, especially the Confucian doctrines and orthodox ethics, in his world outlook, life philosophies, and values. He spent his life serving society with all his wealth. He first set up businesses, then used his business to support education, and donated his business profits to charity and local public welfare. When President Xi Jinping visited the Nantong Museum and saw the exhibition of Jian Zhang’s life on November 12, 2020, he pointed out that Zhang was a pioneer and model of Chinese private entrepreneurs as he invested the money he earned from running his business in education and social welfare. The Confucian concept of “unity of righteousness and profit” has always accompanied Chinese entrepreneurs and the historical evolution of business organizations. This has laid the value base for the emergence of social enterprises.

Secondly, with the further separation of the government from society and the market, Chinese enterprises have gradually become independent market players. After the founding of the new China, China practiced a planned economy and a centralized statistical system. This system meant that the state exercised comprehensive control over all areas of social life. Production, supply, and distribution in the economic sphere were entirely arranged by the state. Under the dominant spirit of national collectivism, the interests of the state and society were a priority over commercial interests. After the reform and opening up, the market became the main subject of resource allocation, transforming from an accessory of the government to an independent subject. Also, the development of entrepreneurial spirit which had been imprisoned for almost 30 years, was able to resume. Nowadays, their entrepreneurial spirit has led enterprises to constantly focus on new social issues and see problems as new opportunities.²²

Finally, in the past few years, CSR has been gaining momentum in China. Part of the impetus for the CSR movement comes from the Chinese government’s promotion of the idea of common prosperity, which aims to narrow the gap between the rich and the poor. First, some government policies led to a rapid increase in the number of private foundations, creating new channels for companies to get involved in philanthropy. For instance, the Regulations on the Administration of Foundations, issued in 2004, allow companies and entrepreneurs to use their private assets to set up foundations for public good.²³ Before the 2016 Charity Law, the public fundraising status was sought and enjoyed only by public foundations, many of which were government-organized nongovernment organizations (GONGOs). Only a few private foundations were able to obtain a public fundraising status. The 2016 Charity Law has effectively erased the distinction between public and private foundations by allowing all organizations that have held a charitable organization status for two years to apply for a public fundraising status.²⁴ Nowadays, private foundations have grown very quickly and now far outnumber their public foundation counterparts. Second, an increasing number of companies are undertaking CSR. On the one hand, the revised Company Law in 2005 introduces a CSR clause, which states that “companies must comply with laws and regulations, abide by social and business ethics, be honest and trustworthy, accept the supervision of the government and the public, and assume social responsibility when engaging in business activities.”²⁵ On the other hand, the Wenchuan earthquake in 2008 accelerated Chinese companies' commitment to philanthropy and CSR. In addition, the rise of philanthropic ventures in China has facilitated companies’ initiative to help Chinese NPOs overcome financial, technical, and human resource barriers through this approach.

2.4 The Global Social Enterprise Movement

The introduction of a foreign social enterprise concept has also contributed to the emergence of social enterprises in China. In 2006, Muhammad Yunus, Nobel Peace Prize winner and founder of Grameen Banks, came to Beijing and popularized the idea of a microfinance business model. In October 2009, the Grameen Trust of Bangladesh and Alibaba Group joined forces to create Grameen (China). The aim is to provide microfinance services to China’s poorest residents, creating income-generating opportunities for the poor and helping them escape poverty. One of the key events in the development of social enterprises in China was the three-day social entrepreneurship skills training program conducted by the British Council in 2008, covering strategic planning, financial management, marketing and media communications, social impact assessment, and fundraising.

The British Council has established partnerships with several organizations and social investors, including Narada Foundation,²⁶ YouChange China Social Entrepreneur Foundation,²⁷ and so on. By providing mentorship and funding, they help project participants grow and build successful social enterprises in many areas. In 2009, the British Council started the Social Entrepreneur Award Program²⁸ in collaboration with YouChange China Social Entrepreneur Foundation. This program has awarded outstanding social enterprises in the form of cash grants or noncash grants, including no-interest loans, equity investments, and stock share investments. In eight years, the program has trained over 3200 social entrepreneurs around the world. Also, this program has greatly contributed to the understanding of the concept of social enterprise in China and has brought more attention to successful social enterprise cases. At the end of the British Council’s project, or in 2014, 17 organizations, including Narada Foundation and Leping Social Entrepreneur Foundation, launched the China Social Enterprise and Social Investment Forum (CSESIF), after half a year’s deliberation and consultation, to integrate resources and jointly promote the development of social enterprises and social investment.

Indeed, the introduction of foreign programs, such as Yunus’ microfinance and the British Council’s social entrepreneurship skills training program, has not only improved the acceptability of the social enterprise concept in China but has also attracted the participation of partners. They have certainly facilitated the localization of this social enterprise concept. Along with these foreign social enterprise concepts, some Chinese entrepreneurs, have taken the initiative to identify, develop, and exploit social opportunities hidden in the social market and solve social problems through social innovation.

3 The Social Enterprises Phenomenon in China: Some Data

3.1 B Corps in China

Founded in 2007, B Lab is dedicated to promoting B Corp certification, which defines a B Corp as a new type of business that balances social purpose with the pursuit of profit. B Corps shall simultaneously consider the interests of employees, customers, suppliers, communities, and the environment in their articles of association and organizational decisions. B Corps are committed to promoting business for good and building a more inclusive and sustainable economy. According to the news released by B Lab, as of May 2021, the number of global co-benefits has surpassed 4000 in 77 countries or territories.²⁹

In China, the B Corp movement has only recently arrived in the mainland. The first B Corp in mainland China was First Response from Shanghai, which mainly provides first aid training.³⁰ This organization was accredited as a B Corp in June 2016. In 2017, B Corps China was established as an independent task force developed by the Leping Social Entrepreneur Foundation.³¹ B Corps China aims to create a thriving leadership community with high working standards, cutting-edge ideas and methods, and the power of a collective community. And then it will promote the B Corp movement in China with the goal of “business for good” and encourage the cocreation of a social ecosystem with the “stakeholder economy” as its core value. Since 2021, Leping Foundation has led the B Corp China to empower the “Common Good Economy” with intelligence and system building and promote the establishment of a sustainable business ecosystem in China with “Business for Good” as the core value and enterprises as the main driving force. As of August 2021, a total of 30 companies in mainland China have been certified as co-benefits.³² The details of these companies are shown in Table 1.

Table 1 Information on B Corps in China

Number of Certified B Corps

In 2016, the certification of B Corps began in mainland China. From 2016 to 2021, the number of newly certified B Corps per year in mainland China is generally on a wave-like upward trend. The number has increased by nine times, from three in 2016 to 30 in August 2021, with a relatively rapid development rate. In 2020, nine new certified social enterprises were added, which is mainly attributable to B Lab China’s strong promotion and advocacy in the mainland. In 2021 (as of August), six B Corps have been certified, and the overall development trend is good (see Figs. 1 and 2).

Fig. 1

The newly certified B Corps per year

Fig. 2

The total certified B Corps per year

Geographical Distribution

Geographically, most domestic B Corps are located in the Yangtze River Delta region, with 12 located in Shanghai and one each in Hangzhou and Jinhua (see Fig. 3). This is strongly linked to the fact that B Lab China is located in Shanghai. Meanwhile, B Corps is mainly located in China’s first-tier cities, with six in Beijing and five in Shenzhen, in addition to the 12 located in Shanghai.

Fig. 3

The distribution of B Corps in China

Industry Sectors

Thirty B Corps in mainland China cover an extremely diverse range of sectors, including education, elderly care, catering, health, culture and creativity, fashion brands, natural care products, textiles, construction, agriculture, and more. Of these, there are six co-benefits in the education sector, two each in Beijing, Shanghai, and Shenzhen. It should be noted that the majority of B Corps in mainland China are active in the service sector, and only a few are active in the manufacturing sector.

Legal Structure

Under the current legislative framework in China, there are no legal forms specifically designed for social enterprises. Therefore, social enterprises in China have to adopt a legal status with one of the existing legal forms. B-Corps certification for Chinese companies is evaluated through B Lab’s B Impact Assessment (BIA) system.³³ In practice, this means that companies amend their articles of association to reflect the principles of the BIA. Overall, of the 30 B Corps, only one is legally structured as a general partnership,³⁴ i.e., Fugun Law Firm, while the rest are limited liability companies. It is important to note that six of these companies are either wholly owned by Hong Kong, Macau, and Taiwan corporations, or wholly owned by foreign corporations, or joint ventures. They are People’s Architecture Office, JUMP Consulting, Norlha, BA YAN KA LA, LearningLerders, Danone ELN Greater China.

3.2 Indigenous Social Enterprise Certification

In China, social enterprises are identified through accreditation rather than registration. Indigenous social enterprise certification in China includes two major systems: firstly, industrial certification, meaning that social enterprises are certified by civil society organizations throughout the country, such as the social enterprise certification held by China Charity Fair. The second is local social enterprise certification, which is initiated by local governments. In 2015, the Shunde District of Foshan city was the first to break the ice in certifying social enterprises, and since then, social enterprise certification has been carried out in Chengdu and also in Beijing.

3.2.1 Industry Certification for Social Enterprise

In 2015, China Charity Fair launched the first social enterprise certification, becoming the organizer of China’s first civil and industry-based social enterprise certification. The specific certification implementation work was assigned to the China Social Enterprise Service Platform (CSESC). As of January 2020, 297 social enterprises have been certified by CSESC, covering 16 social sectors, including environmental protection, barrier-free services, community development, social finance, elderly care, education, employment of disadvantaged groups, agriculture, poverty alleviation, Internet, public safety, and women’s rights, and focusing on 14 specific groups (see Fig. 4). The most concerning areas are barrier-free services (employment, rehabilitation, empowerment), children and youth (education), disadvantaged groups, community development, elderly care, and rural development. Of the 297 social enterprises, 207 organizations (around 70%), have a legal status of an enterprise, 88 belong to NPOs, and three are farmers’ specialized cooperatives.³⁵

Fig. 4

Areas and groups of interest for social enterprises in China (Data provided by China Social Enterprise Service Platform. See A Guidebook for Social Enterprise Certification of China, p. 13)

From 2020, the China Charity Fair has handed over the certification of social enterprises to CSESC. It defines a social enterprise as “an enterprise or social organization with the primary objective of solving social problems without mission drift, innovatively solves social problems in a manner consistent with social entrepreneurship, with clear and measurable results.” The scope of the certification includes limited liability companies initiated and established in accordance with the Company Law and its relevant regulations, social associations, civil nonenterprise units, and mutual economic organizations established in accordance with the Farmers’ Specialized Cooperatives Law. The abovementioned organizations should have been in operation for one year or more, have a robust financial system, and conduct independent accounting. Meanwhile, CSESC has released the latest social enterprise certification standards, covering indicators in four dimensions: social mission, social enterprise’s stakeholders, value creation and profit distribution, and environment and sustainable development (see Fig. 5).

Fig. 5

CSESC’s accreditation criteria for social enterprises (Data provided by China Social Enterprise Service Platform. See A Guidebook for Social Enterprise Certification of China, p. 14)

3.2.2 Local Social Enterprise Certification

A. Shunde Social Enterprise Certification

The Shunde District of Foshan was the first local government in mainland China to undertake social enterprise certification. In 2012, the Shunde Social Innovation Center (SSIC) was established as a quasi-governmental agency initiated by the Shunde government. The SSIC is a think tank and support platform for social innovation and a builder of the regional social innovation ecosystem. Shunde District has carried out four sessions of social enterprise certification: in 2015, 2016, 2018, and 2020. A total of 32 social enterprises have been accredited after expert assessment. The business areas cover disability support, public safety, education, culture, and international communication. The Shunde social enterprise certification is only for market entities, including joint-stock companies, limited liability companies, individual proprietorships enterprises, partnerships, privately or individually owned businesses, and farmers' specialized cooperatives. Starting from the fourth certification, it has cooperated with the CSESC to further enhance the standard and influence of the certification process. The assessment criteria are shown in Table 2.

Table 2 Shunde government’s accreditation criteria for social enterprises^a

B. Chengdu Social Enterprise Certification

The accreditation of social enterprises in Chengdu is conducted by CSESC, a third-party organization commissioned by the Chengdu Market Supervisory Authority (CMSA). According to the Opinions on Fostering Social Enterprises for Community Development and Governance, a social enterprise in Chengdu is a specific type of enterprise approved by the enterprise registration organ whose purpose and primary objective is to solve social problems, improve social governance, and serve disadvantaged and special groups or the interests of the community and whose main methods is to innovate business models and operate in a market-oriented manner, with part of the profits reinvested in its own business, the community, and public welfare causes according to its social objectives, and whose social objectives are sustainable and stable.

Since the beginning of 2018, Chengdu has carried out three sessions of social enterprise accreditation, certifying 12, 27, and 33 social enterprises, respectively, in every session, with a total of 72. Both the number of declarations and the rate of passing the preliminary examination have continuously increased. In terms of the number of declarations, a total of 177 enterprises applied for accreditation in 2020, an increase of 101 enterprises from 2018. In terms of the preliminary approval rate, it was 39.47% in 2018, 47.37% in 2019, and up to 57.95% in 2020. With regard to the services, Chengdu’s certified social enterprises cover 11 major areas: education and training, community economy, housing improvement, technology innovation and the Internet, medical and health care, elderly security services, employment promotion and skills, agriculture, livestock, fisheries and rural development, culture, sports and arts, green economy and ecology, and social support services. Education and training as well as employment promotion and skills are the two most concentrated areas. In the aspect of organizational form, four social organizations have transformed into social enterprises, three are farmers' specialized cooperatives, and the rest are enterprises. The assessment criteria are as follows (see Table 3).

Table 3 Chengdu government’s accreditation criteria for social enterprises

C. Beijing Social Enterprise Certification

The Beijing social enterprise certification is organized and implemented by the Beijing Social Enterprise Development Promotion (BSEP), a nonprofit social organization approved and registered by the Beijing Civil Affairs Bureau. Since its establishment in 2018, BSEP has issued the Beijing Social Enterprise Certification Measures (Trial) and carried out the first certification under the guidance of the Social Work Committee of the Beijing Municipal Committee (SWC).³⁶ According to the document, Beijing social enterprises are legal entities that prioritize the pursuit of social benefits as their fundamental goal; continuously use commercial methods, products, or services to solve social problems; innovate public service provisions; and achieve measurable social results. Organizations applying for Beijing certification need to meet the following conditions: first, they have been registered in Beijing for more than one year according to law; second, they have a full-time salaried team of not less than three people; and, third, they have a sound financial system and an institution that implements independent accounting. These organizations include all kinds of enterprises, social associations, civil nonenterprise units, foundations, rural collective economic organizations, farmers' professional cooperatives, and other units. A total of 46 social enterprises passed the first certification, and 19 organizations passed the second certification, making a total of 65. In terms of organizational forms, 45 organizations belong to enterprises; the remaining belong to social organizations, including 15 civil nonenterprise units; and five are social associations. Beijing social enterprises mainly cover the following service fields: ecological protection, culture and education, elderly care and disability, community development, and public welfare support. Their evaluation criteria are shown in Table 4.

Table 4 Beijing government’s accreditation criteria for social enterprises

3.2.3 Conclusion About Indigenous Social Enterprise Certification

In terms of quantity, China Charity Fair and CSESC have conducted five sessions of social enterprise certifications, certifying a total of 297 social enterprises; Shunde, Chengdu, and Beijing have certified 32, 72, and 65 in their respective areas. By combining data based on industrial and local government certifications and removing overlapping organizations, it was found that as of August 2021, a total of 414 organizations in the mainland were certified under the indigenous social enterprise certification system, spreading carpet-like across 25 provinces/municipalities directly across the country (see Fig. 6). The top three provinces are Sichuan (117), Guangdong (103), and Beijing (91). With regard to the legal forms, the two most common ones are social organizations and enterprises. Social organizations are registered in civil affairs departments, including civil nonenterprise units and social associations, while enterprises are registered in industrial and commercial departments. 305 of the social enterprises are business entities, representing 73.7%; 104 are social organizations; and five are specialized farmers cooperatives. However, it is important to note that, in practice, some social enterprises are strategically registered as “two brands”—both as companies and as civil nonenterprise units, with two organizational entities. According to the China Social Enterprise and Social Investment Landscape Report 2019, 5.1% of the SEs surveyed have more than one legal form.³⁷

Fig. 6

The distribution of certified social enterprises in China

Table 5 compares different indigenous social enterprise certification systems. Both industrial certification and local government certification require that the applicant organization has been established and has operated for one year, with at least three full-time salaried employees and good credit status, and pays social insurance and taxes on time. Regarding the scope of certified organizations, the requirements in Beijing are the loosest, and the applicant organization includes various companies. Industrial certification contains only limited liability companies, civil nonenterprise units and social associations, as well as mutual economic organizations. Shunde and Chengdu require that the applicant organization must be a company or a farmer's specialized cooperative and exclude social organizations. Whether it is an industrial certification or a local government certification, despite slight differences in some indicators, the important core indicators remain the same, such as mission priority, profit distribution, asset lock-in, credit status, innovation, and so on. Even though there are no specified demands toward profit distribution and asset lock-in, the accrediting agencies suggest that a portion of the annual profit should be allocated to support social objectives and members or shareholders give or transfer their remaining property on a voluntary basis to social enterprises, community foundations, and charitable organizations with similar objectives. In summary, social enterprises can generate positive social and environmental impacts through a viable business approach, thus integrating the philanthropy spirit with entrepreneurship.

Table 5 A comparison of social enterprise accreditation systems in China

4 Laws and Policies on Social Enterprises in China

4.1 Hierarchy of Legal Force in China

In this paper, laws, regulations, and rules are collectively described as policies. According to the relevant provisions of the Legislation Law of the People’s Republic of China and the Constitution of the People’s Republic of China, the hierarchy of legal force in China can be divided into five levels (see Table 6). The first level is the Constitution adopted by the National People’s Congress and its Standing Committee. The Constitution is the fundamental law of the PRC and has the highest legal force. The second level is the laws adopted by the National People’s Congress and its Standing Committee. The third level is the administrative rules and regulations made by the State Council according to the Constitution and laws. Generally, they include regulations, rules, measures, etc. The fourth level is the local laws adopted by the local people’s congresses and their standing committees and the departmental regulations of the State Council promulgated in the form of ministerial decrees by the State Council departments. The fifth level is local government rules, normally called regulations or measures, issued by local governments in the form of government decrees in accordance with laws, administrative regulations, and the local laws and regulations of the region. In addition, binding documents (Notices, Opinions and Guidance, etc.), which are issued by various authorities (legislative, administrative, and the Communist Party) at both national and local levels, are important sources of policies and have certain regulative force. However, they are not formal legal documents, so their legal force is the lowest.

Table 6 The hierarchy of legal force in China^a

Regarding the policy environment of social enterprises in China, first, social enterprises use existing legal forms, mainly enterprises, CNUs, or SFCs, and therefore, social enterprises are regulated and protected by relevant laws and regulations. Second, the special policies for social enterprises are only found in local government regulations (the fifth level), and the country has not yet formulated laws, administrative regulations, and departmental regulations at the national level. Third, some departmental regulations currently issued at the national level would be beneficial for promoting the prosperity of social enterprises.

4.2 National Laws and Regulations

4.2.1 The Regulation for Civil Nonenterprise Units

The State Council promulgated The Interim Management Regulation for the Registration of Civil Non-enterprise Units (Level 3) in 1998. It regulates the registration and supervision management of CNUs. According to the regulation, social enterprises that adopt the form of CNUs are restricted by the principle of nondistribution. Any organization or individual shall not embezzle, privately distribute, or misappropriate the assets of a CNU.³⁸ The legitimate income of a CNU must be used for the activities specified in its charter. In terms of registration, it also designates the Civil Affairs Department as the registration authority for CNUs. However, before filing the registration application, the CNU’s founders must first secure the consent of a “Professional Sponsoring Unit” (PSU), which is the relevant regulatory authority for the area in which the organization works.³⁹ This is called the “dual-management system” of nonprofits.⁴⁰

From 2011 to 2016, Beijing, Shanghai, Guangzhou, and other local governments piloted the implementation of the direct registration system. In August 2016, the General Office of the Central Committee of the Communist Party of China (CPC) and the General Office of the State Council issued the Opinions on Reforming the Management System of Social Organizations to Promote the Healthy and Orderly Development of Social Organizations, which clearly states that social organizations in the categories of industrial associations, science and technology, public welfare and charity, and urban and rural community services can register directly at the civil affairs department. In addition, according to the Charity Law promulgated on March 16, 2016, a CNU may apply to its registered civil affairs department for its recognition as a philanthropic organization, but it needs to meet the following conditions: (1) have a charitable mission as defined by law; (2) not be established for profit; (3) have a qualified name, residence, articles of association, property, governance structure, and personnel; and (4) meet other requirements, including a maximum administrative fee and minimum charitable expenditure thresholds.⁴¹ In short, social enterprises registered as private nonprofits need to meet more regulatory requirements than for-profit enterprises, such as restrictions on dividends, disclosure obligations, and a cap on the charity’s administrative costs.

4.2.2 The Company Law

The Company Law was first enacted in 1993 and has been amended four times since then. Except for foreign-invested companies, which are governed by a separate law, the Company Law defines two types of companies: limited liability companies (LLCs) and companies limited by shares (CLSs). The LLC is the most common legal status among certified social enterprises. The shareholders of an LLC are liable to the company to the extent of the capital contribution they have subscribed and those of a CLS to the extent of their shares. The main differences between the two are as follows:

• The number of shareholders: an LLC is limited to less than 50 shareholders; a CLS, on the other hand, must have 2200 promoters, and there is no limit to the number of shareholders.

• Differences in the form of equity expression: the total equity of an LLC is not divided into equal amounts, and the equity of shareholders is expressed through the proportion of their subscribed capital. The shareholders are entitled to rights and liabilities in proportion to their subscribed capital when voting and repaying debts. In contrast, the entire capital of a CLS is divided into equal amounts, and shareholders receive dividends based on the number of shares they hold.

• Method of establishment: LLCs can only raise funds from the promoters and cannot raise funds or issue shares to the public. CLSs, meanwhile, can not only adopt the methods of establishment of an LLC but also raise funds publicly from society and be listed for financing.

• Information disclosure: the production, operation, and financial status of LLCs are only required to be disclosed to shareholders for their inspection during the period stipulated in the articles of the company. CLSs, on the other hand, are required to publish their financial status on a regular basis, and listed companies are also required to announce their financial status to the public through public media.

A critical issue for social enterprises is the balancing of the shareholders’ right to obtain a return on their investment and the pursuit of social goals. Under the Company Law,⁴² shareholders of LLCs may reach a consensus among themselves to distribute dividends, not according to the amount of each shareholder’s paid-in capital. In local social enterprise certification in China, profit distribution is not used as a decisive indicator for the recognition of social enterprises, but accrediting agencies will assign social enterprises to different levels based on different profit distribution ratios. In terms of profit distribution indicators, both industry certification and local certification encourage companies to voluntarily invest a portion of their annual after-tax profits to support community development, social welfare, philanthropy, designated community foundations, corporate development, or their social goals. In contrast to CNUs, social enterprises operating as a company are not legally prohibited from distributing profits. Social enterprises with LLCs status can make more flexible profit distributions，and they can choose to receive a lower profit distribution rate to balance the company’s financial return and social mission. Therefore, Chinese LLCs are more likely to meet the requirements of the dual mission attributes of social enterprises.

4.2.3 Law on Specialized Farmers Cooperatives

The Law of the People’s Republic of China on Specialized Farmers Cooperatives was first promulgated in 2006 and then amended in 2017. The Law defines specialized farmers cooperatives as mutual-help economic organizations joined voluntarily and managed in a democratic manner by the producers and operators of the same kinds of farm products or by the providers or users of or the services for the same kinds of agricultural production and operation.⁴³ SFCs need to register at the administrations for industry and commerce.⁴⁴ The assets of a cooperative include members' capital contributions by their members, common reserve funds, subsidies received directly from the government, donations, and other legitimately acquired assets.⁴⁵

The newly revised law has relaxed members' capital contribution requirement; i.e., members can now make capital contributions in money or nonmonetary property, such as in-kind, intellectual property rights, land management rights, forest rights, etc. This nonmonetary property can be monetized by currency and transferred according to law.⁴⁶ In a word, this revision in the law helps to increase the enthusiasm of farmers’ investment. In terms of profit distribution, the Law stipulates: “the surplus of the year after making up for losses and withdrawing the provident fund shall be the distributable surplus of the cooperatives.” This profit distribution system, which is mainly based on the volume (amount) of the transactions affected between the members and the cooperative, is fundamentally different from companies based on capital contribution. The total amount returned shall not be less than 60% of the surplus. After returning the amount, the remaining part is distributed to the members in proportion to the amount of their capital contribution and the shares of common reserve funds recorded in the members’ accounts, as well as the average quantified shares of the assets accumulated from subsidies directly given by the government and donations made by other persons to the cooperative.⁴⁷

Since members of SFCs are both investors and beneficiaries, they have less tension in pursuing financial and social goals. Therefore, as long as the operation of SFCs complies with their legal requirements, there should be no legal obstacle for them to become social enterprises. At present, China promotes the development of SFCs through financial support, tax incentives,⁴⁸ science and technology, and human resources, as well as industrial policy guidance.

4.3 Local Policies

Local governments in China have issued specific policies to support social enterprises. The Opinions on Strengthening and Innovating Social Management and Promoting Social Development Comprehensively, issued during the Ninth Plenary Session of the Tenth CPC Beijing Committee in 2011, is the first official normative document that mentions “social enterprises.” An enabling policy environment is a necessary condition for the rapid development of social enterprises in a country or region. In this paper, we have sorted out the policies mainly related to social enterprises. The current status of social enterprise policies in China is as follows (see Table 7).

Table 7 The local policies of social enterprises in China

With regard to policy strategies, some local governments are aware of the importance of social enterprises in innovating and participating in social governance. Therefore, the prosperity of social enterprises becomes one of the priorities in local governments’ development plans. For example, in 2011, the Outline of Social Construction Planning for the 12th Five-Year Plan of Beijing included “actively supporting social enterprises” as a special section. In 2016, the Beijing Municipal Social Governance Plan for the 13th Five-Year Plan explicitly proposed to strongly develop social enterprises, focusing on serving people’s livelihood and public welfare. In 2011, the Shunde District government issued the Opinions on Promoting Comprehensive Reform of the Social Regime and Strengthening Social Construction, which proposed to guide and support the enterprises in fulfilling their social responsibilities and support social enterprises as well. In the document Outline of Deepening Comprehensive Reform Planning in Shunde District (2013–2015), this government pointed out even more clearly that they would formulate social enterprise standards and policies, actively cultivate social entrepreneurs, guide social capital to establish social enterprises, and so on. The Chengdu municipal government, on the other hand, has issued a policy specifically for social enterprises—Opinions on Fostering Social Enterprises for Community Development and Governance—to encourage social forces to set up social enterprises. This is of leading and exemplary significance in promoting the healthy development of social enterprises nationwide.

Regarding policy tools, in accordance with the classification by Rothwell et al. (1985), there are supply-side tools, demand-side tools, and environmental tools for social enterprises.⁴⁹

Supply-side policy tools are considered push factors for the construction and development of social enterprises, i.e., the government enhances their capabilities through infrastructure construction, capacity building, talent support, and financial investment. In terms of infrastructure construction, local governments actively promote the construction of collaborative social enterprise platforms, such as the BSEP, promoted by the SWC; the SSIC, established under the guidance of the Shunde District Social Work Committee; and the Chengdu Social Enterprise Integrated Service Platform, established by the Chengdu Market Supervisory Authority. For capacity building, these collaborative platforms provide certification counseling, professional training, brand communication, business development, networking, and cooperation services. In terms of talent support, Chengdu and Shunde have introduced relevant policies. For example, the Chengdu government provides financial support to high-level professionals working in social enterprises and allows them to enjoy convenience in talent apartments, children’s schooling, and health care coverage. As for capital investment, Chengdu provides seed money,⁵⁰ financial incentives, and subsidies for certified social enterprises, while the Shunde District government provides business support funds and financing guarantees.

Demand-side tools are considered pull factors. Governments have used these tools to reduce market barriers to the implementation of social enterprise through certification systems and service procurement. Firstly, social enterprise certification has been carried out in Chengdu, Beijing, and Shunde, and accredited social enterprises in Chengdu can use the word “social enterprise” in their corporate names. Given that there is no specific legal form for social enterprises in China, this officially recognized certification is beneficial for them to obtain public recognition and external financing. Secondly, the governments have made more efforts to purchase the services and products provided by social enterprises and add social enterprises to the list of government purchase candidates. Social enterprises enjoy the same policy support to social organizations regarding the government purchasing procedure, the purchasing standard, and related rights and responsibilities in the purchasing process.

Environmental tools refer to the external impact of policies on social enterprises. The government creates an enabling environment for social enterprises through regulation, financial support, tax incentives, and other policies for growth. Firstly, local governments monitor accredited social enterprises. For example, Chengdu has established a system of information disclosure and a withdrawal system to prevent social enterprises’ mission drift. Secondly, local governments give financial support to social enterprises. In 2008, the Shanghai Civil Affairs Bureau started the practice of venture philanthropy, a type of impact investment that takes techniques from venture capital financing to achieving philantropic goals. After Shanghai, many local governments around China have followed this practice. In addition to investing in social organizations, the government also chooses social enterprises as investment targets. Shenzhen Futian District issued the Support Measures for Building a Highland of Social Impact Investment in 2018, supporting the issuance of social impact bonds and the establishment of a special fund for social impact investments. This has created a favorable financing environment. For social enterprises that obtain “the Growth Loan” of Wuhou District,⁵¹ the Wuhou government gives a 10% loan interest subsidy based on the benchmark loan interest rate of the People’s Bank of China during the same period (the total amount of each enterprise per year shall not exceed 100,000 yuan). Thirdly, local policies provide tax incentives. Although the tax incentives for social organizations or enterprises introduced by the state are still applicable, tax incentives specifically for social enterprises are not common. At present, only the Measures for Supporting Social Enterprises in Wuhou District, Chengdu, have mentioned tax support; i.e., for the first two years after certification, social enterprises will be given a refund of the actual tax paid in Wuhou District.

It has been pointed out that the Chengdu government plays a triple role in promoting social enterprises, i.e., as a referee, sponsor, and coach (see Fig. 7).⁵² However, the governments of Beijing and Shunde District also play the same role. First, as a referee, the governments establish an enabling institutional environment by constructing a certification system, an information disclosure platform, and a social enterprise delisting mechanism. As a sponsor, the governments provide financial support to social enterprises through seed money, tax breaks, subsidies, procurement priority, and social investment. As a coach, the government, firstly, establishes a social enterprise incubation platform through technical support and a competitive purchase mechanism; secondly, it establishes a database for quasi-social enterprises and provides them with capacity-building services, such as registration and certification counseling, business model sorting, capacity building, and brand communication according to their different stages of development; finally, it links resources from all walks of life to help social enterprises with product matching (see Fig. 7).

Fig. 7

The roles and actions of the governments in promoting SE development (see Hua (2021), pp. 1–12)

It is worth noting that Chengdu is the first city in China to promote the development of social enterprises at the municipal level. Compared with Beijing and Shunde District, the Chengdu government has the strongest policy support system; not only has it issued special policies, but currently, nine districts (counties) in Chengdu have, one after another, issued policies to support social enterprises. In addition, Chengdu is the first city to facilitate the development of community-based social enterprises (CBSEs).⁵³ In 2021, the Urban and Rural Community Development and Governance Committee of the Chengdu Municipal Committee issued Several Measures to Deepen Urban and Rural Communities to Reduce Burdens and Increase Efficiency, which mentions the importance of improving the mechanism for fostering CBSEs and formulating policies on supervision and management. This policy also encourages urban communities to set up CBSEs managed by residents’ committees, with mixed ownership of state-owned capital and social capital.^.54 In September 2021, the Community Development and Governance Committee of Wuhou District, together with the Organization Department of District Committee, the District Civil Affairs Bureau, and the District Market Supervision Bureau, issued the Implementation Measures on Fostering and Developing Community-Based Social Enterprises (Trial) to further foster the development of CBSEs, revitalize community resources, and promote the sustainable development of communities.

4.4 National Policies

At the national level, more and more attention is being paid to market forces participating in public services. In 2013, the General Office of the State Council issued the Guiding Opinions on the Purchase of Services by the Government from Social Forces, which proposed that entities purchasing services from the government include not only social organizations registered with the civil affairs department but also enterprises registered with the business administration department. This relaxation will provide more opportunities for social enterprises with diverse legal forms. In 2015, the General Office of the State Council forwarded the Guiding Opinions on Promoting Government-Social Capital Cooperation in Public Services issued by the Ministry of Finance, the Development and Reform Commission, and the People’s Bank of China, explicitly requiring a reform and innovation of public service supply mechanisms, enabling market to play a major role in resource allocation, and guiding and encouraging social capital to actively participate in public service supply. In 2017, the General Office of the State Council issued the Opinions on Further Stimulating the Vitality of Investment in the Social Sector, highlighting the exploration of investment opportunities in the social sector, and the stimulation of investment vitality in the fields of healthcare, pensions, education, culture and sports. On January 1, 2021, the Management Measures for Government Procurement to Promote the Development of Small and Medium Enterprises, jointly issued by the Ministry of Finance and the Ministry of Industry and Information Technology, was officially implemented. According to the policy, the responsible budget units need to specifically allocate procurement shares for small and medium enterprises (SMEs). Firstly, small procurement projects (goods and service procurement projects below two million RMB and engineering procurement projects below four million RMB) are in principle reserved for SMEs. Secondly, for procurement items exceeding the abovementioned amount, more than 30% of the total budget of that part of the procurement item is reserved exclusively for SMEs.⁵⁵ Most social enterprises in China are SMEs, and the introduction of this policy is beneficial for social enterprises to receive financial support from the government. In short, the above policies provide a good macropolicy environment for social enterprises.

In addition, the introduction of China’s innovation policies in the fields of rural revitalization, elderly care, medical care, environmental protection, culture, and disability assistance will have a positive impact on the innovation practices of social enterprises. For example, to facilitate rural development, the Central Committee of the CPC and the State Council released the Strategic Plan for Rural Revitalization (2018–2022) in September 2018 to make a phased plan for the implementation of the rural revitalization strategy. On February 21, 2021, the central government’s no. 1 document, the Opinions on Accelerating Agricultural and Rural Modernization by Comprehensively Promoting Rural Revitalization, pointed out that for the nation to be revived, the countryside must be revitalized. Rural revitalization has the dual objectives: economic development and social welfare supply. This provides opportunities for social entrepreneurship which helps villagers discover rural values and realize value co-creation through empowerment methods.⁵⁶ Social enterprises in the countryside can both promote the sustainable development of the rural economy and maintain the supply of public services in backward areas. Therefore, they have advantages in solving rural social problems, especially in areas of poverty reduction, public service, and the revitalization of marginal communities. In the area of elderly care, China will implement the national strategy to actively cope with the aging population during the 14th Five-Year Plan period. It will also actively develop the silver economy, promote the synergistic development of the elderly care business and the elderly care industry, and cultivate new business models for the elderly. In 2019, the General Office of the State Council once again issued the “Opinions on Promoting the Development of Senior Care Services,” which proposes to give loan support to individuals and small and medium-sized enterprises that are engaged in the elderly service industry. It also advocates “medical care integration” and the Internet Plus elderly care model. In a word, these policies mentioned above will guide social enterprises to explore new directions.

5 Analysis of the Legal System

First of all, there is a context-specific source of the emergence of social enterprises in China. Over the past decade or so, social enterprises have taken root under the government-driven reform of the welfare system, the rapid development of civil society, the dramatic growth of the market economy, and the introduction of international ideas. For example, social welfare enterprises, farmers’ specialized cooperatives, and reemployment programs specifically were born under the welfare system reform and became the earliest prototypes of social enterprises. These organizations concealed the genes of social enterprises. Meanwhile, the rapidly growing social organizations in China have laid the foundation for the development of social enterprises. Guided by the spirit of entrepreneurship and innovation, they have been prompted to transform into social enterprises, thus expanding the cohort of social entrepreneurs. Moreover, the immersion of Confucianism and the attention of corporate social responsibility have created an atmosphere of “good business,” providing a constant impetus for the emergence of social enterprises. Last but not least, the global social enterprise movement has not only popularized the concept of social enterprises in China but also improved the acceptability of the social enterprise concept, leading a group of Chinese social entrepreneurs to systematically solve social problems through commercial approaches.

Secondly, various legal forms of social enterprises have been developed around the world, such as the community interest companies of the United Kingdom, low-profit limited liability companies, and benefit corporations of the US. However, unlike other countries, the Chinese government has not yet designed a specific legal form for social enterprises, and they mainly follow the established legal forms, such as enterprises, civil nonenterprise units, social associations, and farmers’ specialized cooperatives. Depending on the legal form they choose, social enterprises have different characteristics in terms of their ownership, tax-exempt status, profit distribution, and governance models.⁵⁷ It is important to note that social enterprises in China are not given a unique status by their legal identity, but rather through industry certification or certification by local governments. As a result, the requirements for the legal form vary from one local government to another, as well as the fact that there are a significant number of social enterprises that have not yet awakened or been discovered. However, from a macroperspective, the state’s emphasis on the participation of market forces in public services and the introduction of China’s innovative policies in areas such as rural revitalization, elderly care, healthcare, environmental protection, culture, and disability assistance will have a positive impact on the practice of social enterprise innovation.

Thirdly, the Chinese government is still cautious about introducing specific social enterprise policies and legislation at the national level. According to Yu (2020),⁵⁸ the conditions for developing national level policies are not ready yet. The ambiguity of the concept of social enterprises and the diversity of the legal forms have led to greater coordination among government departments, increased complexity of management, and greater difficulty in connecting with existing policies. In turn, this affects the state’s understanding and attitude toward social enterprises to a certain extent. Meanwhile, there are no widely used social impact assessment methods for evaluating the social and economic benefits that are brought by social enterprises. Pushing the commercial operation of nonprofit organizations without a tried-and-true assessment approach may bring new regulatory challenges and policy risks, particularly in light of the Chinese government’s and the public’s growing concerns about the credibility and transparency of charitable organizations. Overall, compared to Western societies and many other Asian countries, Chinese social enterprises still lag behind in terms of their scale and impact. Social enterprises in China are concentrated in developed regions that have relatively high levels of economic development and strong purchasing power of social services. Their development is slow in under-developed regions. Therefore, it may seem premature to start a new policy at the national level.

Lastly, as far as local policies are concerned, supply-side, demand-side, and environmental policy tools are not sufficiently applied. Only municipal- or district-level authorities are trying to explore social enterprise policies. The government’s support has not yet risen to the level of national strategy. As a result, social enterprises have limited access to policy resources, such as human, material, and financial resources.⁵⁹ Meanwile, no perfect supervision system has been established. At present, domestic social enterprises mainly exist as social organizations and enterprises, and the government manages and supervises them according to different laws. However, social enterprises integrate social and economic benefits, which is different from social organizations and enterprises. The absence of a unified legal system may encourage inadequate legal supervision and social enterprises’ mission drift. Also, the incentive mechanism for social enterprises is not sound. There are fewer tax incentive, financing incentive, and talent incentive policies for social enterprises. Moreover, existing policies restrict the development of social enterprises. For instance, some social enterprises’ legal form is the CUN. However, the rules for CNUs, according to Xu (2017), have severely hampered the development of social enterprises and have also hampered the conversion of these organizations into social enterprises. These rules include no property rights for investors, no profit distribution, inability to obtain bank loans, and prohibition of establishing branches.

6 The Future of Social Enterprise Policies

The development of social enterprises urgently needs policy support and legal protection from governments. First, governments need to make comprehensive planning, promote the collaboration and integration among the constituent entities in the ecosystem, and ensure the systemic and complete policy system. Second, governments shall strengthen policy development of social enterprises. In regions where policies are relatively well-developed, higher-level governments should make more effort to develop social enterprise policies. Horizontally, local governments need to strengthen exchanges with other local governments, publicize the advantages of social enterprises, and promote the governmental practice of social enterprises to more places. Third, they need to strengthen research work on social enterprise policies. Local governments also need to organize multiple social forces to study existing policies and adjust policies that are not helpful for the development of social enterprises. At the same time, they need to study and formulate local laws and regulations on social enterprises. Fourth, they have to clarify the legal status of social enterprises. Governments shall consider integrating social enterprises into the existing legal system, and improve the supervision mechanism of social enterprises at the same time. Fifth, they need to improve incentive policies. For example, governments may provide incentives to social enterprises through favorable tax regulations and manpower policies. They may also encourage financial institutions to enhance their support to social enterprises under the guidance of policies and regulations.