Aug. 10, 2006
Reprinted from The Economist print edition.

An education policy torn between the market and the state

The students at Shengda Economics, Trade and Management College, in the quiet rural town of Longhu, in the central province of Henan, are among the most privileged in China. So why did they go on a rampage at the beginning of summer? In June thousands of them stormed through the grounds of their college, smashing windows and throwing stones at police cars. It was one of the biggest and most unruly protests on a university campus reported in China since the 1980s.

At first glance, the cause of the riot might look unremarkable. Shengda students have long been unhappy with the college’s strict regime. This includes compulsory physical exercise at 6.30am, a ban on alcohol and smoking, and confinement to campus at weekends except for those with written permission to venture out. What self-respecting student wouldn’t protest? But the trigger for the violence was in fact quite different. It was the college’s decision to add the word “Shengda” to its students’ graduation certificates. The fact that this apparently trivial change provoked a riot illustrates the parlous state of China’s education system — and the difficulties of reforming it.

Since the early 1990s, China’s embrace of market forces has upturned the provision of public services. Although most schools and colleges are still funded by the government, they now operate much more like businesses. They are allowed to generate extra revenue and so improve their facilities and attract more students. And, crucially, they have been permitted to raise fees — often in a disguised form to evade nominal government-imposed limits. The Chinese Academy of Social Sciences says that households now spend more on education than anything else, even though town- and city-dwellers are allowed to have only one child. In 2004 fees provided 18% of the revenues of schools and colleges, up from 4.4% in 1991.

A common way for state schools and universities to earn extra cash is to start schools of their own, which they then run, in effect, as expensive private schools. The trend began some 15 years ago among primary and junior schools, and has reinforced an existing inequality. For most of the communist era, a two-tier system identified a few “key schools” that receive extra money and other favours in order to nurture pockets of academic excellence.

In June, a revision to the education law abolished the key-school system, which had caused much resentment. This left these pampered establishments in an excellent position to attract the highest fee-payers to their new quasi-private facilities. They can also charge high fees from students from outside their official catchment areas. This levy, which is known as a “school selection charge”, can amount to thousands of dollars. Many less privileged state schools are also prospering: after dividing their intake into separate streams, for example, they charge more for the classes with better teachers and facilities.

Following the schools’ lead, state universities had by the end of the 1990s also increased their incomes, often in partnership with private capital. Shengda, which was founded in 1994, was an early pioneer. A decade later, China had 249 such quasi-private colleges with a total of 680,000 students, more than half a million of them studying for undergraduate degrees.

At every level, the rich now have much better access to good education than the less well-off. At the same time, the opacity of the privatisation process stops fair competition between fee-charging institutions. State-funded institutions, especially those formerly designated key schools, dominate the market and deter genuine private investment.

In the past two years, local governments have begun imposing business taxes on (genuine) private schools. Unable to make ends meet, some are now going bust. One of the biggest private education companies, South Ocean Education Group, which ran ten schools with some 10,000 pupils and 400 teachers, collapsed last year after officials in one province accused it of raising funds illegally. Even the official media suggested that its fate was more related to the reluctance of state-owned banks to lend to private schools.

Shengda, a quasi-private college, has been blessed with more than 200m yuan ($25m) from a Taiwanese entrepreneur. This has enabled it to build an attractive lakeside campus. But what matters more to the students is the name of its parent institution, Zhengzhou University, one of the most prestigious in central China.

Shengda students pay more than twice the fees of a Zhengzhou University student in exchange for a degree certificate with the words “Zhengzhou University” on it. The decision in June to add the word “Shengda”, they felt, drew unwanted attention to the fact that this was not quite the real thing. In a fiercely competitive job market (despite rapid economic growth, graduate unemployment has been rising), one word could make a grave difference. Employers often regard graduates from private or quasi-private universities as inferior to those from state institutions.

Blacking out the news

The authorities moved quickly to contain the violence at Shengda, which erupted on June 15th. Hundreds of riot police were sent in. Their mere presence was enough to quell the riot. Sit-ins continued on the following day, but with the summer break looming they quickly fizzled. Even so, the authorities were worried enough to order a complete news blackout. To appease the students, the college principal was fired. But Zhengzhou University is still insisting on putting the word Shengda on the graduation certificates.

It has no choice in the matter. The Ministry of Education, after years of indecisiveness over how to manage the rapid growth of hybrid state-private facilities, is now trying to draw a clearer distinction between them and their parent bodies. Regulations issued three years ago — but implemented by parent universities with little enthusiasm — require the full name of quasi-private colleges such as Shengda to be spelled out on graduation certificates. It has been galling for Zhengzhou University graduates to end up with roughly the same certificate as their Shengda counterparts, who they will have had to outperform in exams in order to win their university place. Encouraging further confusion between the two institutions, Shengda has nearly half as many undergraduates as Zhengzhou University, which has 32,000.

In recent months a handful of other campuses have seen protests similar to Shengda’s. An education-ministry official says concerns about possible unrest are slowing efforts to separate the hybrid universities from their parent bodies. And pressures are growing from the less affluent parents who often cannot even think of sending a gifted child to university at all. An official revealed in July that more than a quarter of bursary applications from impoverished students are turned down. In 2003, some 5,500 people, including teachers and parents, visited the education ministry in Beijing to seek redress over issues ranging from high fees to corruption and unpaid wages for teachers. In 2004, the number rose to 7,000.

A big part of the problem is the central government’s disinclination to spend money on solving it. Government spending on education has failed to match the pace of economic growth. It has not come close to meeting the demands of a compulsory education law introduced in 1986 that required local governments to ensure that all children receive nine years of free education. Nor has there been enough money to cope with the more than threefold increase in the number of tertiary students since 1999, to some 15m today. By 2010, this is expected to rise to 25m. Schools and universities have been turning to banks for help, which has encouraged them to raise fees and other charges even higher in order to meet interest payments. Many universities are now saddled with large debts that are likely to turn into bad loans.

As a proportion of GDP, government spending on education hardly changed at all in the 1990s. A target set in 1993 of raising this to 4% of GDP by 2000 has yet to be achieved. The aim now is to reach this level by 2010. According to a recent OECD study, China’s total spending on education, including both government and private as a proportion of GDP, was just ahead of India’s in 2001. But it was lower than in several other Asian developing countries with a similar age structure, such as Thailand and the Philippines. Government spending in India was higher as a proportion of GDP than in China.

Compounding the problem has been the huge share of the spending burden that is borne by the lowest levels of government. For rural governments, the obligation to provide schooling for all has meant devoting the lion’s share of their budgets to the task. In many cases it has still been insufficient. In poorer areas teachers often go unpaid for months, and school buildings unrepaired. Recent central-government efforts to reduce the tax burden on rural folk have left many local administrations even shorter of cash. This year the government announced that, by the end of 2007, fees would be entirely abolished at rural schools, given rising dropout rates in poorer areas. But it is unclear who will pay for this. Local governments fear that they will again be left with the tab.

But who will pay?

A recent report by the Chinese Academy of Social Sciences found that the “commercialisation” of education had led to “a serious collapse of its public reputation”. The education ministry appears to have no clear idea of how to separate state-funded schools and universities from their new private add-ons. The recent revision of the education law will — when it takes effect in September — ban local governments from “changing the nature of state schools”. This has been interpreted as meaning that setting up quasi-private schools will be prohibited. But the official media have expressed some scepticism, suggesting there would be strong resistance from state schools as well as from private ones affiliated with state institutions. The revised law also says that fees will be scrapped, but does not suggest who will pay for the policy.

A ministry spokesman caused an uproar in March when he clumsily compared education to shopping for clothes, saying it was natural that “a well-off man can go to a brand-name store to buy a 10,000 yuan suit, while a poor person can buy a 100 yuan suit from a vendor.” At least China’s clothing market, unlike the education sector, is not dominated by a state monopoly with little concern for the majority of its customers.

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