How China’s Education Modernization Policy Impacts Foreign Investors
Two implementation plans to modernize education in China were released by the Central Committee of the Communist Party of China (CPC) and the State Council on February 23, 2019.
The plans outline the government’s education policy to improve China’s education initiatives as the country looks to transition up the value chain by establishing world class education institutes, achieving universal education, promoting domestic innovation, and creating expert educators.
What is the direction of China’s education policy?
Detailed strategies to modernize Chinese education are listed in the 2018-2022 Plan and the 2035 Plan, respectively. The strategies are modeled off the United Nations 2030 sustainable development agenda. They will have, both, a direct and indirect impact on FDI into China’s education market.
There are 10 key strategies in the policy:
- Promotion of Xi Jinping thought on socialism with Chinese characteristics;
- High-quality education with Chinese characteristics;
- Quality of education at all levels and equal access to basic public education;
- Lifelong learning systems;
- Training and innovation of first-class talents;
- Specialized and innovative teachers;
- Educational reform for the information age;
- The opening up of education to the outside world; and
- Reform of education in key areas as they become necessary.
Opportunities for FDI in education
Strategies likely to provide opportunities for FDI relate to teacher training, vocational programs, IT education products and services, special schooling for the disabled, and joint programs with Belt and Road Initiative (BRI) regions.
China’s 2018 Negative List notes that if approved, private schools may be established, vocational qualifications, vocational skills training, vocational skills assessment and appraisal, and other services may also be carried out.
What is meant by other services generally relates to training in sports, art, and culture.
For the time being, China lacks expertise and reputation in certain areas of education that foreign providers can deliver on. The prestige of western programs, practicality of skills training, quality of industry standards, and holistic life skills are a distinct advantage for foreign providers.
Challenges for foreign investors
The new policies seem to forecast a push back by domestic firms against the edge that foreign companies possess.
Several strategies under the policy to modernize education will increase government control and encourage domestic innovation of education-related projects. This could reduce future demand for foreign education providers.
China has already rolled out social credit systems for individuals and enterprises and is now exploring a similar scoring system for private education in China.
Credit ratings are used to incentivize desirable behavior and discourage undesirable behavior. Such systems use algorithms to process available electronic data about a specified individual or organization and determine a rating that confers a status in a given system.
China’s social credit score system confers a score which determines the degree of human rights or privileges one may have access to in future, according to past behavior. This credit system model will take the form of third-party quality accreditation for private schools.
The move relates to efforts to upgrade existing domestic education infrastructure by encouraging the provision of ‘quality’ education. Non-compliance will presumably result in the loss of one’s business license or otherwise crucial documentation necessary for business operations.
Experimental education projects, domestic innovation drives, and regulations that favor domestic enterprises are other drivers of competition for foreign providers in China’s education market.
For example, the global EdTech (education technology) market is massive and is led by Chinese firms.
Support by the Chinese government has developed areas like the MOOC Times Building, a 22-storey building filled with EdTech startups in Beijing’s Zhongguancun startup district.
Whether or not foreign firms can capitalize on the Chinese market potential considering the new education policy’s goals is a point of interest.
The 2035 modernization of education in China plan creates several opportunities to improve education in China, yet any favor given to domestic providers will reduce the scope for foreign firms to compete profitably.
Another strategy that will indirectly impact FDI opportunities is the call to promulgate Xi Jinping Thought, which aims to maintain government control that the CPC seeks in order to maintain social harmony and continue economic growth targets.
China’s safeguard measures to ensure implementation
Three important ‘safeguard measures’ for realizing the modernization of education are mentioned in the 2035 plan.
The Party’s overall leadership in education shall be strengthened
This appears to reiterate that curricula at all levels of education is set to remain in domestic hands.
China’s negative list further supports this stance. FDI is encouraged in vocational education but not in compulsory education K-12.
Commitment to improve the investment support for the modernization plans
At present China commits four percent of its GDP to education. As funding increases, the education market will continue to expand.
Foreign led vocational and extra-curricular education in China is popular due to the lack of practical skills acquired in schools and universities at present.
This trend is slowly changing as Chinese operators acquire the know-how of foreign education firms operating both within and outside of China.
Improving the implementation mechanism for achieving the 2035 modernization plan
Here it is worth noting that each of the strategies noted in the plans are written in language that is purely speculative.
It will take tangible changes over the next 12-24 months to predict how these plans will be executed over the remainder of the plan’s term.
The 2035 end game
The 2035 plan includes eight core concepts: virtue; overall development; everyone; lifelong learning; individualized teaching; the unity of knowledge and practice; integrated development; and co-construction and sharing.
These values reflect a western view of learning where student-centered learning replaces teacher-centered learning. If such a shift is achieved over the course of the 2035 plan, a western standard of education seems to be the goal.
This conforms to China’s gearing up for a service economy where soft skills in industries like law and finance will take precedence over engineering and STEM subjects to a degree.
As such, training and education providers will need to develop critical and analytical thinking skills in their graduates.
Key drivers fueling growth in the Chinese education market
Culturally, Chinese families devote substantial amounts of their disposable incomes to education, starting from pre-school and then spanning K-12 education.
Demographically, 20 percent of the world’s population lives in China.
Technologically, there are high rates of adoption of mobile and online products and services. Economically, the government has increased its percentage of GDP spent on education each year since 2011.
This broad combination of factors in conjunction with education policy in China indicates that the education market is highly fertile at present and is likely to continue experiencing these trends.
Education will continue to be attractive to investors, yet risky as far as regulatory issues and other competing economic interests go.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Dalian, Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong. Readers may write to email@example.com for more support on doing business in China.