A Chinese charity has been accused of "hoarding" donations for corporate investment after a severely malnourished student died despite 1 million yuan ($210,600) being raised to save her.

Key points: More than 1 million yuan was raised for the treatment of Wu Huayan

More than 1 million yuan was raised for the treatment of Wu Huayan Only a small percentage of the money ever made it to the hospital treating Ms Wu

Only a small percentage of the money ever made it to the hospital treating Ms Wu Critics say Chinese charities are often used as "a tool for making profit"

It has been revealed only 2 per cent of that money was sent to her hospital and the charity admitted another 6 per cent was taken for "administration fees".

Chinese student Wu Huayan died in hospital in Guizhou Province, in China's south-west, at the age of 24 after suffering heart and kidney problems due to years of poverty and food deprivation.

Ms Wu, whose parents had died when she was younger, was reportedly surviving on two yuan (42 cents) a day and lived for many years with very little food as she tried to save money for her sick brother.

"The most difficult time was to eat only one steamed bun per day, I eat plain rice mixed with pickled chilli for five years, but there was no other way," Ms Wu had told Chinese newspaper Chongqing Morning Post from hospital.

A public appeal to try and help her recover raised more than 1 million yuan ($210,600), far more than was thought to be needed for the surgery Ms Wu required.

The appeal was part of the 9958 Children's Emergency Relief Project run by the China Charities Aid Foundation for Children (CCAFC), which is a national organisation under the administration of China's Ministry of Civil Affairs.

Chinese charity accused of 'hoarding' donations

Wu Huayan was said to have been living on two yuan a day. ( Supplied: Photosensitive Plan )

One of the founding members of the project and former CCAFC employee, Zheng Hehong, accused the charity of "hoarding" the donations for corporate investment and said Ms Wu's case was used as a "money collecting tool".

"[They] keep the patient blinded and raise excessive funds, but do not allocate the money in a timely manner, hoarding the donations until they die," she said in an interview with Chinese media Feng Video.

"They tend to raise money for those who are incurable, critically ill or coming from a poor background, and are unable to track the numbers from the charity; this is their usual practice over the years."

Between 2017 and 2018 the amount of money under CCAFC's management grew by 44 million yuan ($9 million), reports said.

Ms Zheng is also a member of a charity watchdog group. She said they had discovered 10 to 20 violations of the law in the 9958 Project since June 2018 and have reported the findings to the Ministry of Civil Affairs.

On Friday, the Government stepped in as public outrage continued to grow calling for greater charity accountability.

"The Ministry of Civil Affairs will further investigate this fundraising activity by China Charities Aid Foundation for Children and will take necessary measures based on law and regulations accordingly," the ministry said in a statement.

According to a public listing, funds raised by the 9958 Project are "to be used for medical aid, psychological care and living expenses for children aged 0 to 18 who are suffering from serious illness".

Going by this description, Ms Wu who was 24 years old, wouldn't even be covered by the project.

The ABC contacted the CCAFC and a spokesperson said the director, Wang Yu, was unable to comment at the time, but that the charity would put out a statement later this week.

"We have set up an investigation team to carry out an investigation, and we will follow up on the remaining money," she told the ABC.

'Charity in China is a tool for making profit'

Independent commentator and veteran journalist Shangguan Yunkai said Ms Wu's plight showed how corrupt China's charity industry was.

"Charity in China is a tool for making profit," he told the ABC.

The Guo Meimei scandal in 2011 severely damaged the reputation of the Red Cross Society of China. ( Guo Meimei )

"The charity industry is highly unregulated, there's no oversight from the Government, therefore we have seen people making profit in the name of philanthropy."

In 2011, the scandal of Guo Meimei severely damaged the reputation of the Red Cross Society of China and broke many people's trust in charitable organisations in the country.

The 23-year-old flaunted her wealth online and falsely claimed to be a manager of the Red Cross.

It led to a public probe into the charity which ultimately uncovered rampant corruption and misuse of donations.

"I'm very concerned about the future of China's charity industry. The Government cannot be absent anymore," Mr Shangguan said.

Despite President Xi Jinping's high profile anti-corruption campaign, China slipped 10 spots to 87th place in Transparency International's 2018 Corruption Perceptions Index, with 2019 results due later this month.