How the Sichuan quake damaged charity in China

Sichuan province has been steadily rebuilding after the devastating 2008 earthquake.

But one dark spot has marred the success of China’s reconstruction efforts after the disaster.

In the wake of the national tragedy, China received an outpouring of help and support from around the world.

Within a month after the quake, the country had received $7 billion in donations. By the end of 2009, the figure had reached almost $42 billion, according to the National Audit Office.

But not all the money was properly managed. Many of the funds were not used as intended, with thousands of complaints about corrupt or improper official behavior in the handling of quake relief funds.

And the resulting scandals have caused lasting damage to how the nation thinks of charities.

A scandal unfolds

In 2011, a Chinese celebrity's photos flaunting her lavish lifestyle on social media became the catalyst for exposing the Red Cross Society's mismanagement of the Sichuan quake relief funds.

Guo Meiling, known as Guo Meimei to her two million followers on the Twitter-like platform Weibo, claimed to be working for a Red Cross subsidiary even as she regularly shared pictures of herself posing with luxury cars and branded handbags at upscale resorts and restaurants.

After angry online vigilantes dug into her personal life, it emerged that her lover was a shareholder of an investment holding group affiliated with the Red Cross.

The findings fueled allegations that the donations were lining the pockets of Red Cross employees, sparking international outrage. The government-run Red Cross Society of China ‒ the country's biggest charity organization ‒ had reported receiving $274 million in local and overseas donations for post-quake aid in 2008.

As the scandal unfolded, the organization's executive vice-president Wang Wei admitted to spending an unauthorized $660,000 on medical training equipment, but blamed it on technical glitches. In 2013, the organization admitted it had redirected to other projects more than $13 million specifically earmarked to rebuild an important religious site damaged in the quake.

The following year, Guo was arrested on unrelated charges of running an illegal casino. After the arrest, she appeared on state television expressing tearful remorse for having hurt the reputation of the Red Cross. “I have the vain mindset of a little girl,” she said. She was subsequently sentenced to five years' jail.

But the damage had been done. Although the Red Cross had all along denied ties with Guo, public confidence in the charity had been severely dented in the face of evidence of corrupt mismanagement.

The intense international media attention that the scandal attracted plunged all of China's charity organizations into a massive credibility crisis, from which the sector has yet to recover even 10 years on.

Today, China has one of the world's lowest participation rates in donating money. Just 8% of its population donate money to charities, according to the World Giving Index.

How quake relief funds were misused

But it wasn’t just Guo and the Red Cross Society. Misuse of quake relief happened in many sectors. Here are just some instances.

1) Applying repeatedly for the same projects

In the city of Chongzhou, $193 million was embezzled after its tourism and transport bureaus filed paperwork for relief aid twice. Another $38 million was misappropriated after various reconstruction projects across Sichuan and Gansu provinces made redundant applications for funds, double-counting more than 8,600 households for housing subsidies in a dozen counties.

2) Spending on non-essential and frivolous items

In one smaller case, a branch of the Industrial and Commercial Bank of China splurged on 56 pairs of Nike sports shoes for its staff members, reimbursing the expenses from the bank's special fund for earthquake relief as “raincoats, rubber boots, and umbrellas.”

3) Inflating budgets

The budgets for many rebuilding projects were also found to have been deliberately inflated. In four such projects in Sichuan's Mao county, 20 of the building reports were determined "not truthful," government auditors revealed in 2010.

4) Falsely reporting higher costs

At the quake epicenter in Wenchuan county, a random check on a project for six residential buildings found that actual construction costs were only 35% of the reported spending of about $407,000.