Industry Analysis

Overview of the Private Higher Education Industry in China

The private higher education industry in China has experienced rapid growth as it entered the phase of regulated development when the relevant government authorities made great endeavor in completing the regulative framework for private higher education. Private higher education institutions in China can be divided into three categories, namely, private universities (民办普通本科), independent colleges (独立学院) and junior colleges (民办普通专科). Private higher education institutions are distinct from public institutions of higher education mainly in that public institutions of higher education are generally operated by the PRC national or local governments and their major source of funding is PRC public expenditure on education.

Market Size and Trends of the Private Higher Education Industry in China

The total revenue of the private higher education industry increased steadily from CNY 57.0 billion in 2010 to CNY 92.6 billion in 2015, representing a CAGR of 10.2%. In the future, the total revenue of private higher education in China is expected to increase from CNY 92.6 billion in 2015 to CNY 156.3 billion in 2020, representing an expected CAGR of 11.0%. The following diagram illustrates the total revenue generated by the PRC private higher education industry from 2010 to 2015, and the forecast of revenue from 2016 to 2020.

Development Trends of the Education Industry in China

• Income growth is likely to drive premium education spending. As the PRC economy continues to grow steadily, annual disposable income of urban households is likely to grow as well. The rise of middle class families is likely to motivate the spending on premium education. For example, parents are inclined to send their children to schools with better access to premium education resources; and

Increasing number of higher education institutions focusing on applied arts and technologies. In order to better match market demand, the PRC government issued policies to support the development of profession-oriented undergraduate education in China, as well as the establishment of a classification and evaluation system for China’s regular universities by 2020. It is expected that there will be increasing number of institutions focusing on applied arts and technologies in China in the future.

Market Drivers of Private Higher Education in China

The development of private higher education in China is primarily driven by the following factors:

• Government support: The development of PRC private higher education is significantly driven by PRC government policies and initiatives. Certain major policies and initiatives include:

The National Medium-to-Long Term Educational Reform and Development Plan (2010-2020): Promulgated in 2010, it advocated a strategic development plan in order to increase financial investment in education, support the development of private education and strengthen international communication and cooperation;

Non-governmental Education Promotion Law of the PRC: It was promulgated in 2002 to promote the development of non-governmental education and protect the rights of private schools and students in China;

Implementation Opinions of the Ministry of Education on Encouraging and Guiding Private Capital’s Entry into the Education Sector and Promoting the Sound Development of Private Education: It was issued in 2012 to encourage and support private funding to operate educational businesses in China, including higher education institutions; and

Draft Amendment for Non-governmental Education Promotion Law: This draft amendment contains changes to the existing law. According to the draft amendment, private schools can choose to be registered as for-profit entities or non-profit entities. For-profit entities can determine the tuition fees to be charged without the need to seek approval from the relevant government authorities.

• Increasing wealth and demand for higher education: With the increase in income and improvement of physical living conditions in China, the general public is more aware of the importance of education. Private education has gained ground for development based on the gap between the rapidly increasing demand for higher education and the relatively limited public higher educational resources. With continued economic development, along with Chinese households’ increasing income and wealth, China’s higher education student enrollment rate is expected to continue to increase at a rapid pace. Nevertheless, the development of public educational resources is likely to remain stable. Thus, private education is expected to fill in the gap and witness strong development;

• Growing market demand for technical talents: With continued economic development, the market is demanding more technical talents in all areas. Especially with public higher education expanding their enrollment base, a significant lack of skilled and well-trained front-line workers has been identified; and

Development Trends of the Private Higher Education Industry in China

• Industry consolidation: China’s higher education market is expected to experience increasing consolidation as the leading players continue to develop with the primary strategy of pursuing growth through M&A. Such trend is also heightened by stringent legal requirements, large amount of required capital and long preparation period for the establishment of higher education institutions;

• Transformation from independent colleges to private universities: The transformation from independent colleges to private universities is likely to be a key development trend supported by private education operators’ increasing capability to integrate quality academic and capital resources, as well as their continuously improving education quality and recognition. This trend is also supported by Chinese people’s pursuit of higher education degree levels based on the overall social economic and technological development of China along with the people’s increasing personal wealth and spending on education;

• Encouragement of private capital: Currently, a majority of the education institutions in China are funded and operated by government authorities. The PRC government is likely to welcome more private capital in the educational system in order to improve efficiency, in which case large-scale private education service providers are likely to be favored; and

• Better match of talent cultivation objective and market demand: Universities focusing on applied arts and technologies are able to provide training with practical techniques to better cultivate technical talents, who are well sought after by employers in China. The PRC government is expected to further increase its support for the development of profession-oriented higher education and relevant institutes.

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