The following is a guest post by Qiang Zha, an associate professor at the Faculty of Education at York University, in Toronto.
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During the last decade China has made an extraordinary move to expand access to its higher-education system. By 2010, China’s university and college student population reached 31 million, accounting for 26.5 percent of its 18-22 age population and making China’s higher-education system the world’s largest in absolute numbers. While the expansion has slowed since 2005, enrollment continues to grow.
This dramatic expansion has touched almost every university. Some expanded their enrollment due to pressure from local governments, educational authorities, or competing peers. But many voluntarily embraced expansion—sometimes even blindly. To finance the rapid growth, many universities expanded their campuses and facilities with bank loans. An official source disclosed that a total of 1,164 Chinese universities and colleges were in debt for 263.5 billion yuan, or $41.5-billion, at the end of 2010. This figure is striking when compared to the total 160 billion yuan government appropriation to the entire higher-education system in 2007. Some of the borrowed funds were lavishly spent on unnecessary facilities, including such luxuries as golf courses and star hotels. A local university in Shandong Province spent 3 million yuan on building “a 140-meter-long gateway,” according to the official China Daily newspaper.
There are a few universities that have managed to stay away from such problems. For example, the University of Science and Technology of China (USTC) rejected expansion on the ground that it would distract from its focus on teaching and research. But overall, the rapid growth of China’s higher-education system has come at a price and the Chinese government became aware of this gloomy situation in 2007.
Since then, the government has tightened lending policy towards the universities and not approving new infrastructure projects if university campuses have had the capacity to accommodate the current enrollment. This move, however, hasn’t yet been adequate to rectify this worrisome situation, as the indebted universities now have to pay back loans and interest. Eventually, the Chinese government had to step in further and directly pipe in public funds to bail out those excessively borrowing universities. China’s Ministries of Finance and Education designated 2010-2012 as a “debt reducing” period, when the provincial governments are encouraged to provide funds to help the universities and colleges under their jurisdictions pay back loans. As an incentive, the local governments will receive monetary rewards from the central government, up to 55 percent of the funds that they arrange to write off the debt principal. (This rate varies depending on location and other factors.)
Essentially, the indebted universities can now focus their own funds on paying interest fees, while relying on the government funds to reduce debt principal. According to a policy document, any debts remaining after 2012 will have to be resolved entirely by local efforts. Then, how do we read this move and its possible consequences? Initially, it has been speculated this move “could affect a number of international university collaborations where local and provincial authorities have agreed to fund major construction projects,” according to University World News. On the other hand, the local universities might become even keener to enter arrangement of joint programs with foreign partners, in order to raise their profiles and attract more students.
The good scenario, as it would seem, is that the government support works and helps universities and colleges get back on track quickly. Yet there are possible bad consequences. Those institutions that rejected expanding enrollment and borrowing money, like the USTC, might regret their earlier decisions, and would reconsider their position if such an opportunity returns. Also, private institutions contributed significantly to China’s higher-education enrollment growth, but don’t seem to have the chance to share the benefit of this policy. They have already been suffering from the shrinkage of market share, and now have to face this unequal policy. And then there’s the most vexing question, or the ugly outcome if you will: to what extent have the indebted universities learned a lesson from their borrowing behavior? This kind of “freebie” policy may easily wipe out their painful memory and induce them to resume the same borrowing patterns in the future. Even worse, they might remember this crisis as an opportunity for themselves.
Finally, this policy embodies the emerging Chinese model of higher education, which involves a very visible hand of government intervention. It was this hand that started efficiently the process of higher-education expansion and the effort to create world-class universities in China. This time, however, the jury is still out on whether the intervention will have a positive effective.
