But this figure includes non-profit groups that deal with hobbies such as chess, art and ballet, said Fernando Cheung Chiu-hung, chairman of the Legislative Council's welfare services panel.

Some are religious groups that conduct activities in their own narrow circle, while still others are subsidiaries of companies set up either to fulfil corporate social responsibility or because they offer services similar to charities - such as homes for the elderly.

Since 1990, 170 new groups on average every year are granted charitable status. Last year, a record 273 were given the exemptions to profits tax that are associated with charitable status.

But at most there were only about 500 organisations in Hong Kong that served the general population, Dr Cheung said. This explosion in the number of groups calling themselves charities had confused many people, the lawmaker added.

The problem is that the definition of charities is too loose. Under Section 88 of the Inland Revenue Ordinance, any group engaged in poverty relief, education and religious advancement, and other 'beneficial' activities can apply for charitable status.

'Some groups take advantage of the charitable status so they can raise funds in the street and call themselves a charity,' he said, adding there were strong financial incentives such as exemption from profits tax.

Calling for a review of the definition of charities under the law, Dr Cheung said there should be a more concise classification of charities and other non-profit organisations so people understood that their money would be going to a charitable cause, and not a religious or commercial organisation.

This was particularly important because competition for donors' money had intensified.

The demand for services has risen, but government resources have not grown in proportion. So organisations must raise funds or diversify their income sources to be able to continue.

People therefore see this increase in competition for donations, Dr Cheung said.

'When you go out on the street, you can see a lot of groups selling flags or simply raising funds at street corners selling soft toys and key rings and what not,' he said.

Less needy non-profit groups were siphoning money away from true charities, where the money was really needed, he said.

The intense competition was evident when the government in 1993 split the region into different sectors to allow more than one charity to sell flags and introduced no-flag days on Saturdays in 2000, said Joe Leung Cho-bun, head of the University of Hong Kong's social work department.

While the total amount raised from selling flags has grown to HK$99 million last year from HK$79 million in 2000, the amount raised by each charity was likely to be less.

He said another reason for the increase could be due to Hong Kong becoming more pluralistic. People were more likely now to organise among themselves to do charity work if they perceived there was a need that was not addressed by the government.

State of aid

There are now 4,435 charitable institutions and trusts in Hong Kong

Charities raised nearly HK$100 million from flag collections last year