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Higher Education In China . . doing business on a changing landscape . .

Higher Education In China . . doing business on a changing landscape . . VTA Conference 2005 – Melbourne, Australia 21 st & 22 nd April, 2005. Law fostering private education 2003. 21 st Century Education Plan 1999.

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Higher Education In China . . doing business on a changing landscape . .

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  1. Higher Education In China . . doing business on a changing landscape . . VTA Conference 2005 – Melbourne, Australia 21st & 22nd April, 2005

  2. Law fostering private education 2003 21st Century Education Plan 1999 Regulations for Running Educational Establishments 1997 Education Law 1995 Liberalizing The Regulatory Environment • Formally acknowledged the existence of private schools and encouraged private investment in education • Confirmed legal status and criteria for establishing private higher education • Plan for development of private and public schools • Promoted “mass” education • Foreign institutions required to partner with Chinese institutions • Allowed school owner s and management teams to make profit from school operations • > 50% members of governing body must be Chinese citizens • Some controls over tuition fees

  3. No. of Students in Higher Education Institutions (2003) • Public Higher Education Institutions: 16,000,000 • Regular Higher Education Institutions: 9,000,000 • Adult Higher Education Institutions: 7,000,000 • Private Higher Education Institutions: 1,400,000 • Regular Minban Higher Education Institutions: 560,000 • Recognized Diploma Granting Institutions: 310,000 • Non-diploma Vocational programs: 530,000 Source: China Ministry of Education/ Y Shea 2003

  4. Household Spending on Education Rising % of HH income spent on education • In 2004 HH spending was over 10% Source: China Ministry of Education/ Y Shea 2003

  5. Education expenditures from public and private sources as share of GDP (1980-2001) Public = 66% Private = 34% Public = 66% Private = 34% * Estimated 40% in 2005 ©Knowledge for Development, WBI; IFC estimates for 2005 Source: Angang Hu 2003; WBI; IFC staff estimates for 2005

  6. China’s Higher Education Enrollment Growth % of students between 18 to 25 yrs enrolled in higher education • Total enrollment has more than doubled in the last 5 years • In 2004 there were 17.6 million students in higher education institutions • By 2010 there will be 27 million – then possibly a plateau effect Sources: China Statistics Year Book 2002; H Levin & Z Xu, Columbia University, 2003; IFC 2004;

  7. Actual and Projected No of New Entrants 30.0 No of primary school entrants No of junior secondary school entrants 25.0 No of senior secondary school entrants Demographic projection of HEI entrants 20.0 15.0 million students 10.0 5.0 0.0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 China’s changing demographic outlook Source: IFC; SweDevelop Report – 2003/04

  8. Challenges Ahead for Higher Education in China • Creating Knowledge Economy – increasing importance for creation and dissemination of new knowledge - need flexibility to create courses relevant to economic development – need for lifelong learning systems • Globalization– Economy demands more productive workforce with skills relevant for economic development - to be more competitive in local & foreign markets • Internationalization – promoted by government - compatibility issues • Financing – state cannot fund future education & training needs on its own - needs to mobilize & increase non-state financing & provision • ICT’s – the Internet - increasing infrastructure - changing demographics and use of technology - government wants to advance quality-based mass education delivery

  9. Overview of China’s Formal System 17.6 Million (2003) Higher Education 840% inc 90.3 Million Secondary Education 2.1 Million 72% inc 52.4 Million 145.4 Million Basic Education 142.4 Million 2% inc 1990 2001

  10. China’s Learning Needs Beyond Formal Education Beyond Retirement Age Training for the unemployed Remedial/ Updating/ Upskilling the Participating Workforce Labour Force (750m) Adult learners Higher Ed Government Failure – students out of school Formal Education (244m) Secondary Basic Education

  11. Globalization & Internationalization impact on China’s higher education system • Growing private sector requires knowledge & skills to apply, advance & adapt new & changing technologies; • Economy needs to change from being creators of ‘Volume’ – to better creators of ‘Value’ • Need more highly skilled & adaptable workforce with relevant knowledge & skills for economic development; • Demand for internationally recognized qualifications; • Need to improve quality by increasing international affiliations & joint degree programs (721 as of 2003); • New cross-border models will challenge local mass education initiatives – pricing & quality

  12. Mass Education Initiatives on the increase • CETV has more than 2000 study centers across China • 66 Chinese higher education institutions authorized to offer online courses • Estimate nearly 1 million students study on-line today • The China National Radio & Television University has – 800 branch schools – 18,000 distance learning courses – 1.5 million students

  13. Foreign Investment In China . . . it’s not easy! • Foreign investors still shying away – in practice - entry and exits in China still difficult - other foreign markets are less risk by comparison – difficult to get money out after successful investment made – some cases - permission can still take years – foreign exchange quotas apply – risks associated with having to hold on to shares for long time – bankruptcy laws still being drafted (>10 years) • Some firms are investing through off-shore vehicles – but foreign investors still require permission of government and all other investors before they can transfer shares – this can create more problems

  14. Private Equity Market In China • Although China is the fastest growing large economy in the world today – foreign private equity investment is still low • Volume has risen – from over $50m in 1990 – to nearly $1 billion in 2003 – but low compared to $53 billion foreign investment total in 2003 – in 1st half of 2004 private equity increased over 30%, but this is still low • Most foreign investors still very wary – the difficulties of doing business in China should not be underestimated Sources: Economist October 2004; IFC

  15. Low Capacity Of Trained Managers • More trained managers becoming available – but still far below the capacity the economy needs – some bring back skills learned abroad in multilateral companies – others are locally trained and developed – corporate governance remains a problem – new managers equipped with appropriate finance and business skills, ethics and experience, are still hard to find • ‘Traps’ for poorly managed businesses in a fast growing economy – the ‘get rich quickly’ hype – the failure of not sticking to one’s ‘core business’ – lack of prudent cost controls . . . and others – can all prove fatal in when cut-throat pricing and competition are prevalent in a fast growth economy Sources: Economist October 2004; IFC

  16. Foreign Investor Uncertainty? • Regulatory ambiguities: No mention of distance education in the new regulation on private investment • Economic & investment climate • Market – uneven playing field / competition (public vs. private); pricing affordability; reputation • Partner selection • Choice of good “brand” institution • Divergent approaches to educational administrative capacity and governance - financial status/ condition of the institution

  17. On The Positive Side . . . • Public HEI’s can own private/for-profit subsidiaries – some can make good JV partners – quickest route to market • Potentially strong business drivers – low overheads / costs – unmet demand & supply – demographics • Joint affiliations and revenue-sharing models can work well

  18. Ways of Entering the Chinese Higher Education Market • Partner / affiliate with Chinese HEI’s; • JV/ or acquire for-profit subsidiary of state institution • Focus on short / medium term programs with near-term relevance for economic development & lifelong learning agenda – eg. business admin, marketing; law; accounting; finance; international trade and economics; IT; HR management; • Short & longer term partnerships in health care education, finance and banking sectors; • Innovative mass delivery models – particularly blended models (foreign program/local partner)

  19. Eight Golden Rules 1. Anything is possible in China 2. Nothing is simple 3. Patience and relationship are key to success 4. The answer "yes" usually means “maybe.” “Maybe” means no, and “no” means “keep trying” 5. Rules are subject to interpretation 6. Contract is an agreement of understanding 7. When you are optimistic, think about rule number two 8. When you are discouraged, think about rule number one Source: Chu, CIBT School of Business, Beijing

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