Premier Wen Jiabao has signed the Regulation on Foundations Administration into promulgation, and the document will come into force on June 1.

It marks a significant step in China's efforts to boost its market economy.

Helping others with one's own wealth is not a new virtue, but an established institution specifically designed for this mission only came into being at the start of the 20th century.

Originally dedicated to aiding the poor, disabled and children, foundations later diversified their strengths into developing education, scientific research and environmental protection.

Now various foundations act as a medium between the government and the market, offering resources to people and fields not covered by public service or public goods supplied by the government.

As a result, the role of foundations is also referred to as the "tertiary allocation" of society.

In traditional socio-economic theory, the first allocation is done through the market according to the law of market economy.

The second allocation is done by the government with its administrative power, like collecting taxes and aiding the poor. The second allocation could meet needs the market cannot satisfy.

As society develops, public demands and interests are so varied that the government can no longer supply public services or management to accommodate everyone's need.

The third allocation operates on a totally different mechanism. Those involved in foundations only seek rewards through self-fulfillment and social esteem. As a result, foundations are institutes embodying human kindness and dedication under the modern system of market economy.

There are 1.2 million foundations in the United States and the total volume of donations amounts to US$670 billion every year, which is to say, the wealth cycling by the tertiary allocation takes 9 per cent in the US GDP.

China's newly promulgated regulation marks a beginning of the development of foundations in this country.

International experience indicates such development requires several preconditions, the first of which is a sound market economy.

Market economy lays a solid base for the progress of foundations. Without such an economic system, social wealth cannot be accumulated to a degree sufficient for what is required to finance foundations, never mind boosting the value of the funds. This eliminates the possibility of sustained development of foundations.

The second precondition is protection of private property.

During last spring's outbreak of SARS (severe acute respiratory syndrome), many wondered why wealthy residents of the Chinese mainland were not as active in donating as those in the Hong Kong Special Administrative Region. Probably, they were following a traditional way of hiding their wealth for fear of causing envy or even hatred. They were also probably afraid their private property would not be protected.

The Regulation on Foundations Administration was signed soon after the National People's Congress passed the constitutional revision.

Instead of being a coincidence, the constitutional revision about stepping up private property protection added a new engine for the growth of foundations in China.

The third precondition is social credibility.

There are often complaints that many foundations do not operate in a trustworthy way.

This is true. That's the result of distrust - a fear that foundations are not responsible for their behaviour.

As a matter of fact, examples are not rare of individuals abusing people's trust by embezzling money under the name of some foundations.

But such examples should not be used to ask the government to doubt, supervise or take over every foundation.

The regulation stipulates that civil servants should not take key positions in foundations, but foundations are still required to be subject to the "leadership" of certain government departments. That demands credibility of the related departments.

The last necessary precondition is perfection of the legal system, especially when it comes to drafting relative legislation aimed at the same target as the regulation, like tax reduction for donors and financial supervision on foundations.

With these conditions met, "kindness to strangers" will become part of China's social fabric and the entire nation will prosper.

The author is director of the Institute of Social Development of the Shanghai Academy of Social Sciences