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Published in Print: September 24, 2003, as China Seeking U.S. Investment In Private School Sector

China Seeking U.S. InvestmentIn Private School Sector

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In a massive effort to expand and improve education for its more than 240 million students, China is encouraging American and other foreign for-profit companies and universities to establish and invest in private schools and colleges there.

World Learning PageSince 1993, when then- President Deng Xiaoping began loosening the Communist government's grip on business and education, tens of thousands of private precollegiate schools and college-degree programs have set up shop in the 1.3 billion-person country. They are run by Chinese entrepreneurs on their own as well as jointly with American and other foreign universities and for-profit companies. More than 40 percent of China's education funding now comes from private sources.

Despite the proliferation of private education, the road toward setting up foreign-Chinese schools is often rife with hurdles, from vague and often-confusing regulations to the indirect negotiating style of the Chinese, experts say. A law that took effect Sept. 1 may make that process a little easier, however.

The Private Education Promotion Law, passed in March by the National People's Congress, cuts down the bureaucratic red tape, and better spells out the requirements to form and operate the joint schools. It requires, for instance, that local governments, which grant or deny approvals for schools, must do so in writing within 45 days. Previously, there was no time limit.

With the new law, the Chinese Ministry of Education also acknowledges the issue of "reasonable profit," a concept that while practiced daily, was frowned upon by Communist officials. The exact percentage has yet to be approved, but it will likely be in the 10 percent range, say Chinese officials and education experts.

"The law gives us some leverage," said 36- year-old Seth Kaplan, an American education consultant and a co-founder of Ying Hua Mei, a chain of three colleges in Jiangsu that are the largest foreign-run colleges in that eastern coastal province. "This is a cleaner version of the [old] law, and it's also a bit more open."

Global Player

Private schools are far from a new concept in China. The philosophers and educators Confucius and Lao Tzu established private schools for commoners more than 2,000 years ago, breaking the government's monopoly on education.

Such schools coexisted with government-run schools until 1949, when Mao Zedong's Communist forces defeated President Chiang Kai-shek and his nationalist Kuomintang party. Afterward, all schools fell under government rule, and it wasn't until the early 1990s that private schools again took root.

That's partly because China, a new member of the World Trade Organization and intent on becoming a competitive player in the global marketplace, doesn't have the money or manpower to educate its masses. It faces a funding shortfall in education at all levels, and especially in its rural, outlying areas. Only one in 10 high school graduates, for example, is able to enter college, owing to lack of space in existing institutions.

As a result, Chinese officials say that they will increasingly rely on for-profit companies, universities, and other entrepreneurs to fill the education gap.

"They're trying to use private education to jump-start China's heavily bureaucratized system of schools," said Gerard A. Postiglione, the director of the Wah Ching Center of Research on Education, at Hong Kong University. "It has to restructure across the economy, and education is part of the economy."

Others have a less charitable view of China's moves to open up private education to foreign investors. The country spends far less on education compared with other countries, according to reports by the Paris-based Organization for Economic Cooperation and Development. China allots less than 3 percent of its gross domestic product to education at all levels, while Brazil, a country at a similar stage of development, spends 4.8 percent. The average expenditure among countries is 6.1 percent.

"It's a way of passing the buck," said Ian Whitman, the head of the program for cooperation with nonmember countries under the OECD's education directorate, from his office in Paris.

Guanxi Needed

While the new law is a welcome improvement for U.S. companies and universities, some Americans say they have no illusions that it will make the process of operating schools in China worry- free. Laws may or may not be followed to the letter there, and they're often interpreted differently from region to region. Rather, the new measure is seen as a sign that the Chinese government realizes the need to be more flexible when dealing with foreign education investors.

"There's more opportunity now, but there are still lots of challenges," said Daniel Curran, the president of the University of Dayton, a private, Roman Catholic institution in Ohio whose law and engineering schools have programs with Nanjing University and Shanghai Normal University. "You'd be making a mistake if you think you can simply transfer the methodologies we use here in the U.S. to China."

The law is not a major change, but rather reflects changes in the mind-set of government officials, said Mr. Kaplan, the American entrepreneur. And like many Chinese laws, it may not be implemented consistently. Officials in the more business-savvy Shanghai, for example, may be more conducive to allowing joint Chinese-foreign schools, while more rural provinces may resist doing so.

"It's not going from [step] A to Z, but from A to G," Mr. Kaplan said. "We are on a long path."

He and others say the process is still difficult for someone who doesn't have guanxi, loosely defined as "connections." Even if you have enough funding and a sound business plan, if you don't know the right people in the right places, they say, establishing a school in China could be impossible.

Mr. Kaplan found that out the hard way. When he arrived in China in 1996, with a newly minted M.B.A. in hand and a grand plan to start a chain of for-profit universities, he was confident he'd have his schools up and running in no time.

After all, he'd had six years of business experience in Asia under his belt, he could speak fluent Mandarin and Japanese, and he had arrived in China just as its private education market was booming.

But Mr. Kaplan faced opposition from local government bureaucrats, who didn't know him and so didn't trust him or his Chinese, but Westernized, lawyer. Mr. Kaplan also approached two highly recommended Chinese schools as possible partners. But after a promising start, negotiations slowed, then stalled.

After much trial and error, Mr. Kaplan opened his first college in Nanjing in the fall of 1998, and the other two soon after. Finding people who had relationships with key government bureaucrats and could navigate Chinese regulations was a key to his success, he says.

"It's very challenging to do business in China, but especially in education," he said. "Education is a very corrupt business in China. High government involvement, plus people dependency, equals corruption." Efforts to get a response to such charges from the Chinese Embassy in Washington and China's Ministry of Education were unsuccessful.

The process of setting up an education venture can be much easier if the Chinese government actually approaches a foreign education company. That's what happened with Blackboard Inc., based in Washington. The e-learning provider announced its partnership with the Beijing-based China Education and Research Network, or CERNET, this month to bring online-learning courses to 1,000 universities in China. CERNET is financed by the Chinese government and managed by the Ministry of Education.

"We're following CERNET's lead," said Karl Engkvist, the chief operating officer of CERNET-Blackboard Information Technology Company Ltd. "We've been able to avoid much of the red tape that might come into play."

Blackboard also benefited from a national educational technology initiative in China, whose e-education market is expected to grow from $196 million in 2001 to nearly $1 billion in 2005, according to BDA China, a Hong Kong-based market-research firm.

So far, 10,000 upper-secondary and adult Chinese students have registered for courses in Blackboard's online study center, and that number is expected to rise to as many as 100,000 students, Mr. Engkvist said.

Twenty-five percent of Blackboard's revenue now comes from its overseas business. Soon, Mr. Engkvist said, "We expect the international side to outpace the domestic side."

Coverage of cultural understanding and international issues in education is supported in part by the Atlantic Philanthropies.

Vol. 23, Issue 4, Page 8

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