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Published in Print: January 19, 2000, as China Inc.

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China Inc.

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The recent history of private education in the People's Republic is robust, though much of it is effectively off the books.

Fifty years after the Communist "liberation" of China, the world's largest market is being dramatically opened to private education. With no advance fanfare, and little international attention, Premier Jiang Zemin announced last June that market socialism was ready for fee-charging private schools. And while the legal and administrative apparatus to put Jiang's proposals in place have not been hammered out, Chinese families, educators, and entrepreneurs stand poised to incorporate private schools across the board, from pre-K to graduate school. International investors are already gathering in the wings.

Indeed, the recent history of private education in the People's Republic is robust, though much of it is effectively off the books. The best estimate offered at an international conference on private education held in Beijing in October is more than 1,000 private postsecondary schools across China. But so far, only one nongovernment college has been approved to grant degrees. (By way of contrast, China's population is 1.3 billion; the U.S. population of 270 million supports more than 30,000 elementary, secondary, and postsecondary private schools.)

Investor potential in the Chinese market is only now beginning to emerge. The big unanswered question is about for-profit schools. Will they become a major part of the mix, or will Chinese private schools be largely nonprofit, as they still are in the United States? Because most economic activity in China is still tightly controlled by the state, in the emerging private school market it is hard to distinguish between for-profit and not-for-profit enterprises. But the distinction may be more apparent than real. Private schools are permitted to earn a return on investment, and a number of them are doing very well.

Of the six private schools in Beijing visited by this writer, the most interesting is the New Oriental School. Specializing in American college-preparatory courses (English, computer studies, GRE, GMAT, TOEFL, and the like), it was started by Yu Minhong in 1996 with 2,000 yuan (about $250 in U.S. currency). He now has five campuses serving 50,000 part-time students a year in Beijing alone. He reports sales of publications in 1999 of more than 20 million yuan (2.5 million U.S. dollars), in addition to tuition income, which averages $400 per course. A success story by any measure, Minhong's schools offer a vivid commentary on pent-up Chinese demand for high-quality education and the opportunities for imaginative entrepreneurs.

No people on earth value education more highly than the Chinese, and they make no bones about it. While public education at elite schools is very good, enrollment is severely limited. Fewer than 7 percent of high school graduates find places in public higher education. And while there are as yet no market studies detailing demand for higher education, the numbers are clearly high and climbing.

Higher levels of education are essential to the long-term growth of the Chinese economy. China's leadership knows this and is speaking out about it.

It is clear to Premier Jiang and the Communist Party that the demand for additional higher education substantially exceeds public-sector capacity. At the same time, Chinese savings rates are among the highest in the world. China experts estimate that the average urban Chinese family puts 40 percent of its income away. And Chinese families are ready to invest in education. (In pre-Maoist China, it was common for extended families to collectively finance the education of the brightest child among them.) In combination with the success of "one child" family planning, fee-for-service private schooling is within reach of untold millions. (The Chinese describe today's typical family as "4-2-1": four grandparents, two parents, one child. In the short history of modern China, this represents unparalleled disposable income.) All that remains is a private-sector supply response.

As the New Oriental School story reveals, the opportunities for inventive and resourceful entrepreneurs are substantial. While further legal and administrative clarification from Beijing will be welcome, impatient school developers are already hard at work in the provinces. For example, the South Ocean Development Group (named after the sea surrounding Hainan Island in the far south) is expanding aggressively across China. And officials have begun serious discussions about substantial development loans with the International Finance Corp., the commercial lending arm of the World Bank.

How rapidly the market develops will hinge, in part, on government encouragement—if the rules are clarified and bureaucracy minimized, start-ups will be relatively easy. In the short term, foreign, for-profit investors will have to worry about dollar repatriation, but the Chinese dollar overhang is already enormous and growing.

What are the chances that the government will continue to liberalize? There is no question as to policy: The die is cast. But as any amateur political scientist knows, there is many a slip 'twixt policy and practice. Indeed, the big problem on the horizon is the noted propensity of the Chinese bureaucracy to dawdle. (In that respect at least, the Chinese government is like government everywhere.) On the plus side of the ledger, the need is clear and the opportunity great. Private education in China will soak up savings in a socially useful way and keep most of the money at home. And most important, higher levels of education are essential to the long-term growth of the Chinese economy. The Chinese leadership knows this and is speaking out about it. And as inheritors of the world's oldest civilization, the Chinese will not be content to be a nation of blue-collar workers, supplying cheap labor to the developed world. They too want their place in the sun, and they know that education is the high road to success.


Denis P. Doyle is the author, with Louis V. Gerstner Jr., of Reinventing Education. The chairman of SchoolNet.com, he completed last fall a 10-day trip to China, where he visited private schools, met with school and government officials, and delivered an invited paper at the International Conference on Private Schools Towards the 21st Century, held in Beijing.

Vol. 19, Issue 19, Page 39

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