This article focuses on how Chinese foundations distribute funds, i.e. the ways in which they spend their money and how these ways are changing. By reviewing the practices of numerous domestic foundations, this paper identifies two methods of distribution. These methods, referred to as the “closed way” and the “open way,” are differentiated by the fields in which funding recipient institutions work and by the ways in which foundations select funding recipients. The “closed way” tends to be monopolized, mandated top-down, bureaucratic, low-cost, and tends to involve small disbursements. While its simplicity and speed help reduce administrative costs, thereby better leveraging resources, the “closed way” may also corrode foundations’ independence and blur the boundary between governments and foundations. The “open way” tends to be open, transparent, competitive, and selective. This method of distribution facilitates the entry of donations into the civil society sector, and puts resources to work in society. A party to civil organizations’ broad progress over the last 30 years, foundations in China are shifting their methods of distribution from “closed” to “open,” a change we see expressed both in the growth of foundations’ operating partners and in the increasing use of competitive mechanisms. Taking the “open way” will increase foundations’ role in supporting the third sector and help foundations become engines of civil society in China.