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Vice-Premier Li Keqiang urged governments at all levels to provide favorable policies and a good environment to attract more charitable enterprises, and for people to take part in them.
Li made the remarks when he met winners of the seventh China Charity Award in Beijing on Tuesday.
This year, 20 individuals, 20 projects and 40 companies received the award, China's highest for charity work, established by the Ministry of Civil Affairs in 2005.
Li attached great importance to charity enterprises for the development of the whole society.
"Charity is a positive supplement to the social security system, and shows the development of a modern society. To some extent, charity could be considered as the third round in the distribution of wealth," he said.
Generally speaking, the first round of wealth distribution is market-based, and governments play a key role in the second round of distribution. Therefore, Li said, the government should help develop the charity sector in a healthy way.
"The government should properly implement and improve preferential tax policies for the enterprises and individuals that have made donations, give them awards and honors to encourage their charitable undertakings, and help to develop charitable organizations."
Meanwhile, Li emphasized that charitable organizations should improve their credibility through better management and transparency, and public scrutiny.
"Credibility is the lifeline for charitable organizations. They must make sure that every donation will be distributed to the right place and people in urgent need, based on the donators' wishes," he said.
Last year, the reputation of charities in the country, especially those with government involvement, was greatly tainted after a series of scandals involving misuse of funds.
Deng Guosheng, a professor specializing in non-government organization studies at Tsinghua University's school of public policy and management, said the government should focus on both governmental and civil charitable organizations when developing the charity sector.
"In China, governmental organizations dominate the charity business and they have very rich resources. They must fully play their part, as it will take a long time for civil organizations to mature," he said.
However, he said government organizations should reform as they lack transparency and public scrutiny.
"The government should give a bigger space to the organizations while doing more regarding their legislation and supervision."
Deng said the preferential tax policies mentioned by Li was a good idea, but "the bigger challenge is how to carry out the policies in practice".
"At present, it will be very time-consuming for enterprises and individuals to claim tax rebates because the procedures are so complicated," he said.