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How Policy Entrepreneurs Convinced China’s Government to Start Procuring Public Services from CSOs

---By Yang Tuan, Huang Haoming and Andreas Fulda.
(After authors’ consent, this article is reprinted from the Book: Civil Society Contributions to Policy Innovation in the PR China.)
A shifting donor-recipient landscape in China
The donor-recipient landscape is changing rapidly for Chinese civil society organizations (CSOs). After an era of mainly internationally-funded civil society building, the Chinese government has become a donor in its own right. It has started to provide funding for Chinese CSOs that are willing to align with government policies. Government procurement of public services has a short history (it has started at the municipal level in 2000), which explains why it does not yet have a political and legal framework. Like many of China’s social and economic policies, local experimentation preceded national initiatives.
The Shanghai Department of Civil Affairs took the lead in 2000 when it established offices in six districts and twelve sub-districts (jiedao banshichu) to provide funds for social organizations caring for elderly people. In 2004, three Shanghai-based ‘people-run non-enterprise units’(minban feiqiyedanwei) were established and received funding to employ social workers in the sub-districts, the administrative equivalents of UK boroughs, to combat drug use and to engage in community correction and community youth work. In 2006, Shanghai’s new Pudong district started to provide funding for charitable aid and education for migrant workers’ children. Eight municipal government departments and thirteen social organizations signed procurement contracts worth RMB 60 million.
In Shenzhen,an industrial city best known for its role as one of China’s first special economic zones, the municipal government has been fostering the growth of social-work organizations since 2007. CSOs were told to establish social-work centers and then apply for government funding. Shenzhen municipality has already donated more than RMB 100 million towards community building, social welfare, aid, youth education, health, community restructuring, disability rehabilitation and services for migrant workers. Central government agencies and funds from the national lottery (caipiao zijin) partially paid for the municipal government’s experiments in procuring CSO services. In July 2010, the Beijing municipal government supported 300 welfare projects to the tune of RMB 100 million. Local experiments were scaled up to the national level in 2012 when the MoCA allocated RMB 200 million to support CSOs delivering social services. Officials have hailed the devolution of government functions to CSOs as a major breakthrough in the way the Chinese party state provides social services. According to Liu Zhenguo, deputy director-general of MoCAs Bureau of NGO Administration, the ministry started its funding pro- gramme in 2012 with a view to providing better public services and to increase CSO capacity for project work.
From the vantage point of officials like Liu, government procurement reduces costs, increases choice in public service, modernizes government functions and helps to institutionalize relations between government agencies and Chinese CSOs. It also encourages officials to see Chinese citizens and their associations as partners in social development. This shift in attitude is an indication of the increased confidence of the Chinese government that it can actively shape the development of China’s civil society rather than just react passively to social organization from below. The central government’s changed attitude also mirrors the local-government incentive to procure CSO services. At both local and national levels, government officials have to face the complexities of a transition from a planned economy to the more diversified public-service provision of a market economy. As such, the Chinese party state has recognized the value of CSOs as intermediary organizations and service providers. It speaks to the adaptive capacity of the Chinese Communist Party to integrate societal actors into the bureaucratic state administration.
While in the past the mix of sticks and carrots favored the stick, for example in the form of strict government control of CSO registration, this new development signifies a transition towards carrots, for example in the form of funding. It provides a window of opportunity for any Chinese CSO willing to align itself with the policy goals of the Chinese government. This development, which occurred against a background of 30 years of rapid economic growth, is highly symbolic because it signifies Chinas ability to innovate in the areas of drafting and implementing social policies. Socio-economic changes subsequently led to a high demand for public services and provided the opportunity for China’s CSOs, researchers and local-government officials to engage in policy innovation.
This chapter has three parts, each on the government’s procurement of public services from social organizations. In the first, we examine the origins of the phenomenon and the role of policy entrepreneurs in pioneering new forms of local governance. In the second, we reflect on its evolving models and key characteristics and, in the third, we analyze its apparent shortcomings. In effect, we provide a state of the field report on a highly dynamic development in relations between the Chinese state and Chinese society. We provide insights for academics into how local experimentation with new administrative practices informed national policies. Foundations and policy makers will be able to familiarize themselves with this new development, which signals the emergence of new funding streams for social policy initiatives in China.
Evolution of the Chinese government’s procurement of public services from social organizations
In 2002, the Chinese government passed the Government Procurement Law of the People’s Republic of China. This law stated that:
‘Government procurement refers to the purchasing activities con­ducted with fiscal funds by government departments, institutions and public organizations at all levels, where the goods, construction and services concerned are in the centralized procurement catalogue compiled in accordance with law or the value of the goods, construction or services exceeds the respective prescribed procurement thresholds.’
This law, however, only covered conferencing and information services: it did not cover social services. The new impetus for the government procurement of social services came in 2011 when MoCA and the National Development and Reform Commission (NDRC) jointly issued their twelfth five-year plan for the development of civil affairs in which they proposed 'establishing a government funding system, promoting government procurement of social organization services, aiding social organizations to develop charitable projects, and incubating social organizations’.
What in the first place prompted China to invent and develop a political and legal framework to procure public services from CSOs? We argue that local experiments by policy entrepreneurs played a key role in the process. In this context, policy innovation consisted of pioneering government officials and civil society practitioners influencing the policy decisions of existing actors on behalf of the collective interest. Schumpeter took innovation to mean 'the novel recombination of pre-existing factors of production or a change in the production function’. Policy innovation can thus be achieved through a novel recombination of policy instruments such as hierarchy, market and network. Policy entrepreneurs either individually or collectively invest their resources in promoting pet pro­posals or issues. Furthermore, they are instrumental not only in prompting decision makers to pay attention to the issue, but also in matching solutions to problems, and problems and solutions to the political process.
Our first case study, which is from Shanghai, sheds light on the inter­actions between the Shanghai municipal government, or more specifically the social-development bureau of Pudong, and a social organization, in this case the Shanghai Young Mens Christian Association (YMCA). It also involves academics from the Chinese Academy of Social Sciences (CASS). These policy entrepreneurs collectively nurtured a more cooperative relationship between the Shanghai local state and a non-state actor. The reputation of this pilot initiative eventually spread across provincial boundaries and ultimately helped inform the national policy debate on the government procurement of CSO services.

Why local experients matter:the case of the Luoshan Citizens'club in Pudong, Shanghai
In 1996, Mrs Ma Yili, then director-general of the social-development bureau in Pudong New Area, Shanghai, identified an empty public facility in Luoshan Street that could be put to new use. The original plan was to develop the premises into a kindergarten, but since there were not enough children living in the area, that idea was soon dropped. Eventually, the social-development bureau decided to transform the public facility into a citizens’ club and was looking for a volunteer organization to manage it. Mr Wu Jianrong, secretary-general of the Shanghai YMCA, seized on the opportunity and started to communicate and cooperate with local- government officials. While the YMCA has a long tradition of providing social services in other countries, it had been unable to do so in China because, after the establishment of the PRC in 1949, the Chinese govern­ment assumed responsibility for all these services. After some initial investigations and assessments, the YMCA submitted a proposal to the social-development bureau. The offshoot of this was that the municipal government agreed to provide the land, along with the facility itself, and to cover the costs of refurbishment. The social-development bureau in the Pudong New Area assumed responsibility, for the main facilities, but the YMCA would manage the citizensclub, and the YMCA signed a management agreement with the government. Initially, a multi­-stakeholder management committee was set up to take charge of both decision-making and operations.
The YMCA soon realized that the committee would find it too arduous to service and manage the centre on a daily basis. It had become necessary to separate strategic decision-making from daily operations. The YMCA appointed a staff member to be director of the citizens’ club and restricted the committee’s role to decision-making on strategic matters. This left the YMCA in charge of the centre’s operation and financial supervision. In 1999, the Social Policy Research Centre at CASS conducted a systematic evaluation of this novel approach. Its findings helped support the new procurement model and were used to advocate the replication of similar non-profit community-service management centers in other parts of China. As such, the pilot initiative in Shanghai helped inform the national policy debate on municipal governments supporting community services through community centers. By 2013 the YMCA was managing nine centers constructed and financially supported by the Chinese municipal government.
The Luoshan Citizens’ Club in Shanghai Pudong was the first successful case of a Chinese CSO delivering social services commissioned by a Chinese municipal government. To sum up its operational mode, the government took the lead; other stakeholders cooperated with the government; and one CSO manages the club - in other words, it is an example of civic engagement. The municipal government played a leading role in that it came up with the idea of a jointly-managed club, which it subsequently entrusted to a CSO to manage, and mobilized the foun­dations to invest in its development. The club’s management committee, on the other hand, played the role of consignor, consignee, investor and consumer. Its decision-making functions were separate from the daily operations, which were left; to the social organization. This local experiment created the separation of decision making from production. This involved a triangular relationship between the procurer (engaged in planning, financing, management and monitoring), the producer (or supplier) and the customer (who benefited from this synergistic production).
In the case of the Luoshan Citizens Club, the municipal government procured the service, the YMCA produced it and citizens consume it. The latter not only play the role of consumer, but also participate in service delivery as active citizens. They single-handedly manage the library, the gym and the teahouse. Such citizen engagement both strengthens the capacity for community autonomy and promotes a voluntary public spirit.
In this process, Mrs Ma Yili, director-general of the social-development bureau in Shanghai Pudong New Area played a key role as policy entre­preneur. To achieve her project objectives, she identified a CSO with high organizational capacities, the Shanghai YMCA, and cooperated with scholars. In 1999, she supported a research team from the Centre for Social Policy Studies at CASS, which launched an evaluation of the Luoshan CitizensClub. The results of the evaluation, which lasted a month, were presented at an international conference and later, in 2001, published as a Chinese-language edited book. As the first publication to analyze the Shanghai municipal government’s procurement practices, it influenced the domestic and international debate on procuring public services from CSOs and provided policy guidance for further government-procurement activities. This case study shows policy innovation drawing on the contri­butions of municipal government, CSOs, foundations and academics. Individuals engaged in collective policy entrepreneurship together raised relevant issues and, after critically reflecting on evolving practices through evaluations, jointly found a solution to their problem. The sum of all individual contributions is of critical importance in the process of inno­vating local policies and administrative practices.
Local reforms such as the Luoshan CitizensClub in Shanghai in 2000/1, and subsequent experiments with extending this model to municipal governments procuring services from social-work organiz­ations in Shanghai between 2004 and 2006 and from Shenzhen in 2007, paved the way for large-scale reforms at the national level. We can consider these local pilot initiatives to be a textbook example of what Sebastian Heilmann referred to as China’s experimentation-based policy cycle, which he defined as the existence of a sophisticated indigenous policy-making method­ology of proceeding from point to surface (youdian daomian),... [which] suggests air entrenched legitimacy of decentralized experimentation that goes far beyond the sporadic and uncon­nected local experiments that were carried out in other authoritarian polities or in the paradigmatic Party-state of the Soviet Union.
The process of scaling up a local experiment 'from point to surfacetook about ten years. In 2012, MoCA successfully applied for RMB 200 million from the central government as a special fund to help NGOs participate in public-service projects. Then, in cooperation with the Ministry of Finance, MoCA produced a manual in support of using central funds to help NGOs participate in public-service projects. It established a project steering group, jury and project office from which to publish announcements, and 377 projects were approved for implemen­tation. MoCA set out four main areas for government procurement - community services, services for the elderly, medical assistance, and disaster relief. By 2013, 470 projects were deemed eligible. The appli­cations, which were submitted online, underwent assessment by a jury and approval by a leading group before the successful ones were announced in a bulletin on 8 February 2013.
For this initiative, MoCA required participating CSOs to provide half the amount in matched funding. This created an obstacle for smaller social organizations unlikely to be able to mobilize sufficient internal resources to do so. In terms of implementation, MoCA stipulated that each project had to establish a leading group, an advisory board and a project office. It published national regulations laying out the conditions, scope and type of CSOs needed for public-service projects. In the procurement process, MoCA emphasized the necessity for a transparent, just and impartial selection process. It followed the rules contained in documents with cumbersome titles such as 'Ministry of Finance, Ministry of Civil Affairs on the Issuance of Central Financial Support for Social Organizations to Participate in Public-service Projects Funds Management Approach and the '2013 Central Budget to Support Social Organizations to Participate in the Project Implementation Plan, as well as other relevant national regulations. In March 2013, MoCA issued guidelines on the financial management, audit and implementation of projects. In addition, it organized training sessions to enhance the professional skills of participating CSOs, clarify requirements and provide guidelines on how to supervise project funds and evaluate projects. MoCA also requested that, to enhance project effectiveness, participating CSOs should improve their reporting capabilities. Supported CSOs had to accept that public supervision and evaluations would be part of the implement­ing process.
Policy innovation on the national level thus benefited from the following three factors:
  1. Policy entrepreneurs both inside and outside the government worked together consciously towards achieving the same goal, and integrated their respective resource advantages.
  2. Social organizations with high organizational capacities played an important role in pioneering new local practices, which led to policy innovation on the national level.
  3. Some coastal cities such as Shanghai not only took the lead in econ­omic reform, but also contributed to social system reform. Arguably, their local experimentation gave a boost to the reform in the whole country. Policy innovation from the grassroots level up thus has been a feasible reform strategy. Local experimentation reduced the political risk of failure and helped gain maximum benefits at minimum costs.
Models and key characteristics of China’s government procurement of public services from social organizations
Our discussion thus far has centered on the question of how government procurement of CSO services in China has evolved in the past decade. The following analysis will focus on models and characteristics of China’s procurement of public services from CSOs. In developed countries, the main approach of government procurement is service contracting.
There are three models for service contracting - the competition model, the negotiation model and the cooperation model. Their use depends on the amount of competition in the market and the characteristics of the purchasing service. Models for payment usually include contracting out, public-private partnerships, user payment, or an allowance system. But what are the specific characteristics of the government procurement of public services from CSOs in China?
Wang Ming, Le Yuan and Wang Puqu have attempted to create models of government procurement of public services that are particularly pertinent to China. In their research they distinguished between an independency and a dependency model, which they based on the degree of autonomy of a given social organization. They then drew a further distinction between competitive and non-competitive models of govern­ment procurement.
In a later study, Jia Xijin and three other authors formulated three models - formalism, non-completion (or delegation), and completion. In the formalism model, the government either organizes the suppliers or enjoys close relations with them. Here, the contractors benefit from their personal relations with government officials and the bidding procedure may not be truly competitive. The non-completion model (also called the delegation model) resembles the cooperation model in that it usually includes a selected contractor and government who share integrated resources. Higher uncertainty and complexity characterize this model, which often comes in the form of a pilot or special procure­ment project such as the Luoshan Citizens Club. In the competition model, the government selects from a large number of potential suppliers, so has ample choice from various bidders. Here, openness, fairness and impartiality are the key principles in the bidding and selection process.
Against the backdrop of these theoretical debates, we argue that there is a profound difference between international practice and the way China procures public services from CSOs. In other countries, such procure­ments follow market rules and compulsory and competitive tendering is the norm. In China, however, government procurement is more focused on the relationship between government agencies and their suppliers, which is hardly surprising given that, with recent social reforms, the relationship between the Chinese government and social organizations is still evolving.
Despite the recent upsurge in government funding for CSOs, a number of key challenges persist that are likely to impede the develop­ment of a collaborative relationship between Chinese government organizations and CSOs. On a national level, MoCA only started to procure CSO services in 2012. In many localities, cadres are still unaware of CSOs. CSO developments across China have been fairly uneven, with clusters in urban centers like Beijing and Shanghai, and to a lesser extend in more remote provinces like Qinghai or Yunnan. In such places, civil society practitioners often have to use their own organizational resources to convince local governments to cooperate with them. By showing the utility of Chinese CSOs to local-government officials, they hope gradually to win their hearts and minds. Successful government procurement of CSO services thus mainly depends on the enthusiasm of local officials and their ability to tap into the new government funding streams.
In the absence of any overarching political framework for collaborative party-state relations with China’s emerging civil society sector, such personal relationships have a tendency to be short lived. Owing to Chinas cadre rotation system, many CSOs have to rebuild personal relationships once a cooperating cadre (yibashou) is promoted and moves on to another administrative division or locality. This over reliance on personal contacts leads to an underdevelopment of the formal systems based on the rule of law that should guide government procurement of CSO services. This situation indicates that there is scope for future international cooperation with China over projects that will enhance MoCA and the capacity of its local departments to institutionalize transparent and accountable rules for the procurement of CSO services.
Since cross-sectorial collaboration between local governments and CSOs is currently highly contingent on local contexts, it comes as no surprise that different kinds of procurement models have evolved. They range from direct procurement of CSO services, which are ad hoc and issue based, to more long-term project funding for CSO services and government support for public services run by CSOs. In the procurement process, cooperation partners have to negotiate the degree of government donation and CSO ownership. In such open-ended negotiations, the degree of financial dependence or independence of the CSO shapes the respective power relationship. Outcomes also depend on whether or not there is open and fair competition for government funding. Where CSOs are financially dependent, they are easily co-opted into the party-state bureaucracy. Where procurement standards and government rules are unclear, conflicts between cooperation partners are likely. Conflicts can be minimized if participants in cross-sectorial collaboration are willing to delineate their respective roles and responsibilities clearly.
The following note from the field by Mr Yun Xiaofei, former project officer of the Beijing Global Village responsible for a government-sponsored environment management and protection project in Beizhuang Town, is a good example of how a well-known environmental NGO, Global Village, successfully engaged in cross-sectorial collaboration with a local government north of the capital city of Beijing.
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