Deregulation of Education in China
A Case on High Education

Yushi MAO

Unirule Institute of Economics,  Beijing, PRC.

Presented on New Delhi Conference

4 September, 2007

1)    Historical review

Since the founding of People’s Republic in 1949, high education in China has undergone several big changes. The first change was the Anti-right Party campaign in 1957, which persecuted about a half million intellectuals, most of them were outstanding professors and students in universities and research institutes. This large-scale persecution has changed the political atmosphere and turned out a silent society; where no different voice can be heard. Then ensued the great famine in 1959-61, when about 27 million people died, or a loss of 5% of total population, a rare event happened in peaceful time in world history. 

Along with the worsening oppressed atmosphere, the purpose of high education transformed to serve the political regime, i.e. to strengthen the proletarian dictatorship. The hours of political course were increased; the textbooks were censored, Party organization in universities was extended. Finally it came the second big change, large scale of shutting down universities during Cultural Revolution. 

During the Cultural Revolution, Chairman Mao Zedong commanded: “High education could continue, what I mean is education for engineering and science.” implying high education for social science should not continue. As Mao thought that all the truth on social sciences has been contained in Mao’s theory, and no different theory would be allowed. The number of university students has reduced from 674 thousand in 1965 to 48 thousand in 1970, a reduction of 93%.[1]  University professors and staffs were exiled to countryside to take part in physical labor, which as Mao thought, is the only way to reform their ideology to a healthier status. Most of university camps were occupied by military troops. Mao even declared that the mean people are the wisest and the noble ones are stupidest. The notion: “Knowledge is useless” prevailed nation wide Cultural Revolution is the darkest period of education in China. 

After Mr. Deng Xiaoping came to power in 1978, a pragmatic policy has been followed. Schools including university resumed to enroll students, and number of university students quickly increased to 1.4 million in 1984 more than doubled than before Cultural Revolution. Universities overcame great difficulty in accommodation and lack of teaching staff. In general the quality of both professors and incoming students were not good enough because of ten years’ interruption of normal education. But students’ enthusiasm on learning is extremely high, as they value the opportunity to get university studying is utterly precious. That generation of students is becoming the main work force of the current society in China  

Although the high education in China has been gradually getting on the right track, the bad practice of the command economy dominated in all sectors including education. All kinds of schools, from primary schools to universities, were owned by the State. School principals have little autonomy power. Salary level, total budget, selection of textbooks, invitation of teachers, etc were decided by the government. The Ministry of Education set out the regulation rules to be followed by all schools. Such a rigid institution hinders the better utilization of resources. Especially, along with the people in China getting higher income, they want more education opportunity willing to pay some extra fees. Government appropriation is not enough, and student parents are seeking more and better schools. Private schools, from primary to college, began to emerge in mid 1990s, but all of them are under-ground, with no license and legal registration.  

So change occurred first on high education in 1999  University students were no longer to have free entry, but have to pay a portion of tuition fee. At the same time the enrollment began to increase. The Central Government made a decision in 1999 “To promote high education actively through various measures”. Then the development of high education in China has experienced an unprecedented fast pace, which will be expounded in this paper. 

2)    Education opened to private ownership

In Chinese practice, civil education includes six years of primary school. three years of junior middle school, three years of senior middle school and usually four years university high education, among which the first nine years are considered as compulsory education, with free tuition. But in fact, conditions differ in different regions because of different economic development. In west part of China, students have to pay miscellaneous fees such as textbooks, space heating, and electric bills, due to insufficient government budget. 

Because the development of education nationwide had been much lagged behind the economic growth, the economic demand of education could not be met. The government budget for education in 1995 took only 2.3% of GDP. This percentage has not changed lot up to 1998, then it rose slowly to 2.7% in the period 2000-2004. While the world average has been 4.8%.[2] As the governmental budget could not meet the people’s demand, funding from private sources came in to fill the gap, which has increased from RMB 7.3 billion in 1993 to RMB 30 billion in 2002, an annual increase of 17%, much higher than the average GDP growth of 9.7% in the same period. Private schools mushroomed Monopoly of State ownership of schools has been broken. 

The most important change happened in 2002. On December 28, the Law to Promote Private Schools was passed by the People’s Congress.[3] Before that there were many private schools, from kindergarten to university, but without any Law to protect them. The Law opened a new era of education in China, characterized by the apparent contradiction between State control and free management of private schools, a result of different ownership. The Law remained a few problems not set clear. For example, whether private schools can earn a profit, and how much is permitted. Previously, the Ministry of Education strictly prohibited any profit earning by private schools, saying education is a dignified deed and must be out of market principle. In the Law issued on December, 2002, private schools are permitted to earn a profit, but with a restriction, i.e. the earning is “reasonable”. It is ambiguous how to define “reasonable”. Many papers appeared in newspapers and journals, discussing how much profit is “reasonable”? Some argued that the bank interest rate is reasonable; some argued the average return rate for other industry should be reasonable. One article asked: There is no profit limitation even for cigarette industry, why we should set a profit limit for education?  

As late to February, 2004, the Ministry of Finance and General Office of Taxation jointly issued a new rule to exempt the business tax and corporate income tax for schools including private schools. 

The significance of emerging private schools is the groundbreaking of State monopoly in education sector. One difference between State schools and private schools is the difference in tuition fee. paid by students’ parents. Tuition for State schools is basically free especially for nine-years’ compulsory education, but for private schools, full cost must be covered by tuition. It is natural that the increase of tuition is easier to implement for universities and vocational schools, since these education are not compulsory and to charge tuition is quite natural.  

Another pressure faced by Ministry of Education is the demand of education of children of huge migrant workers from rural to urban areas. There were hundred million workers coming from rural places, some of them brought their children into urban areas. Their governmental education funding was allocated in their home village, not in the cities where they are currently residing. The City Education Department refused to provide schools for those young migrants. Then under-ground private schools emerged, most of them are temporary schools, with very poor conditions. The City Education Department come to interrupt them as their condition could not meet the minimum requirements, in terms of space of playground, teachers’ qualification, classroom illumination, etc. Sometime this has caused serious clash between government and children’s parents. Although Government Departments are backed by armed forces, finally Government Departments have to retreat, as public opinion does not support their action.  

3)    The decision of expanding university admission.

This policy was initiated in 1995 by Dr. Min Tang, the chief economist of ADB Beijing resident office. After made an international comparison of high education he concluded that the high education in China is particularly backward. During the years 1986-1995, the annual growth of university admission was 4%, less than a half of the economic growth in the same period, 10%. Because of the short supply of high-level professionals, the difference of salary between professional and non-skilled labor is big, and this is one of the reasons that broadens the income difference in China. He called the Ministry of Education to increase the enrollment of universities. His policy suggestion has been paid attention extensively, and up to 1999 it became a policy accepted by the Ministry of Education. Then we can see the quick increase of university students as shown in the following graph.[4] 

Figure 1.        Number of university students admitted  million

In the seven years period, 1998-2005,the university students has increased by four times, with an annual growth rate of 25%, much exceeding the economic growth rate 10%, and the population growth rate 0.7% in the same period.  

It is obvious, that if the quality of graduate student from senior middle schools did not improve, the only possibility to increase university admission is to lower the required quality. So the general quality of university students has declined during that period. On the other hand, the capacity of universities in terms of number of professors, the students’ accommodation, etc., could not follow such a quick change. There resulted a decline of education quality in university as well. This is the cost that has to pay for the expansion of universities. 

Who were benefited in this expansion? According to a research [5] the admitted students coming from rural places were 400 thousands, or 37% of the total admission in 1998, while it increased to 2300 thousands, or 51% of total admission in 2004. The population ratio of rural to urban was 60:40. This is the first time that rural students surpassed urban students. Students coming from rural family are mostly poor students. So the expansion improves the equity in education. Accordingly, the financial assistance to these students has greatly enlarged, either by providing student loans or direct funding. 

The quick expansion of university students immediately exerts a pressure on teaching staffs. Students can increase fast by lowering required quality, while teaching staffs cannot increase with the same pace. To foster a qualified professor usually takes eight to ten years. With slow increase of teaching staffs, the workload of professors became very heavy. Small classrooms are replaced by very large ones, with hundreds students in it. 

In the past seven years, universities have paid effort to invite more and better teaching staff by providing a higher salary. Professionals from various fields have come to universities, including those returned students from western countries. Now the salary for a good professor in east part of China can be competitive against those in western countries in terms of purchasing power. But in western part of China, salary remains low, as there are less available resources. The number of full-time teaching staff has increased from 407 thousand in 1998 to 966 thousand in 2005.[6] That means, in the seven years of expansion, the number of teaching staff has more than doubled than the accumulated number in the first fifty years after the founding of the PRC. As well, the number of university also increased from1022 in 1998 to 1792 in 2005. 

With such a quick expansion, students’ dormitory, classroom, dining room library, etc could not accommodate so many students. Therefore in the recent years there have been a vast construction projects for universities. The investment are coming from bank loans, which has reached more than RMB 200 billion yuan [7] Chinese economists estimate that these university loans can never be paid back, since universities revenue usually rely on governmental budget and run on their financial marginal balance. Banks just wish universities would pay them interest. In Chinese case, the bad loans finally will be covered by government budget. 

One unexpected result is the pull-effect on middle schools. Since universities increased their admission, the opportunity of receiving high education enhanced. Though graduated students from senior middle schools increased from 2.5 million in 1998 to 6.6 million in 2005, the admission rate for universities increased from 43% to 77%, as the admission of universities increased even faster. So more junior middle school students are encouraged to go to senior middle schools, giving a big pull to increase students in senior middle schools as shown in the following Figure. 

Figure 2. Number of students (red) and graduated (blue) in senior middle schools in million

Ten years prior to university expansion, the annual growth of senior middle school students was 2.3%, while the annual growth of graduate student from senior middle school was 0.05%, implying most of the increased 2.3% students were dropped out. But during seven years university expansion, the growth of senior middle students was 15%, and the growth of graduated senior middle school students was 14%, implying the dropped out ratio was greatly reduced. 

It should be noticed, that the number of graduated students from senior middle schools only increased 10 thousand or 0.5% during ten years 1988-1998, amounting an annual growth of 0.05%, which is very much lagged behind economic development during the same period, which averaged an annual growth of 10%. It is the expansion of university admission that advanced the growth rate of graduate senior middle school to 14%. 

In Chinese education system, the biggest students reduction happens between junior middle school and senior middle school. Since the nine years compulsory education ends at junior middle school, beyond that students have to pay their tuition. In 1998 only 23% graduated students from junior middle schools were admitted into senior middle schools, but in 2005 that ratio increased to 42%, because of the expansion of university enrollment, producing a pull effect to promote advancement of junior middle school students into senior middle school.

Another unexpected result is the increase of postgraduate students pursuing master or doctor degrees as shown in the following Figure: 

.Figure  3.   Number of post graduate students (blue) and students who got a degree (red)

in thousand

 As stated before, the quality of university education declined during the expansion. The same story happened with the quality of admitted graduated students and the quality of post-graduate program. It is quite often, that one professor has more than ten post-graduate students, and each graduated student can meet his/her supervisor only once a year. As supervision on degree study becomes lax, and diploma of a degree student is important, many governmental officials are looking an easy diploma, without attending any course. Sometimes degree thesis can be bought. Corruption penetrates to education and academic institution.  

The big increase on university students changed the job market. Supply of university students increased by 2.7 times in seven years, while the increase of GDP is only 0.84 times. The result is more difficult to find a job, leading to a declining salary. However, the salary for high professional has stayed high in China. It may be explained as the time lag between university students to become a professional. The declining in salary for university students seems to stop in 2007. The Beijing Municipal government declared a recent statistics showing an increase in salary for university students in Beijing. The lowest 10% of monthly salary is RMB 1770 yuan (an increase of 625 than a year ago), the median is 1972 (an increase of 100 than a year ago), and the highest 10% is 6450 (an increase of 723 than a year ago).[8] The current exchange rate is  UDS 1.00=RMB 7.5 yuan. The big difference between high and low manifests the diversification of the job market and the ability of the job market to identify the difference on individuals.

 Due to the expansion, the average size of university has increased from 3335 students in 1998 to 7704 in 2004. It is not clear, whether an increased size could enhance the economic efficiency, but the fact is the quick rise of university tuition during the period 1994-2004, with an averaged annual increase rate 25% (in current money). The average income growth was 7.2% for urban people, and 5% for rural people (in constant money), much less than the rise of university tuition Previously, the university tuition was supported by governmental budget, but after the expansion, the proportion that students pay the cost was increased from 10% of the total cost in 1994 to 19% in 2004.[9]  It is debated whether the tuition for university should be such high, as it may hinder poor students to receive high education. The argument is that high education is not compulsory, and most of university students are coming from income higher than average families. Those from poor families can get student’s loan. To lower the tuition of university taking. 

Although High education in China has quickly expanded, the average education level is still lagged behind other countries as shown in table 1.[10]

Table 1.          Education level of population with the age 25-64    in %

country	Below junior middle school	Senior middle school	university	Average years of education
USA(1999)	13	52	35	12.7
Japan(1999)	19	50	31	12.6
UK(1999)	18	57	25	12.5
Germany(1999)	19	58	23	12.3
Korea(1999)	34	43	23	11.5
China(2001)	82	13	5	8.0

If economic growth will continue in the coming years, the admission of university will also increase.