The right school

In 1843, when Hong Xiuquan failed the all-important imperial exam for the third time, he suffered a nervous breakdown.

The consequences of Hong’s disappointment were felt by more than his immediate family. Passing the test on Confucian classics would have meant a government job and a better life for the farmer’s son. Failure seemed to promise a bleaker existence. Hong wound up leading a peasant uprising that nearly overthrew the Chinese monarchy. Historians estimate that as many as 20 million civilians died. The Qing dynasty needed the help of French and British forces to restore its authority.

The ‘Taiping Rebellion’ was put down nearly 150 years ago, but education and exams are still a serious business. Today, schooling is largely free only for children between the ages of six and fifteen – anyone wanting to study further must either be reasonably affluent or score highly enough on public exams to win a coveted government scholarship.

With public spending on education low (less than 1% of GDP last year), private companies have found that parents are prepared to pay to give their (often only) child a chance at a better future. It’s a market worth roughly $85 billion, and climbing.

The business has become so lucrative that in the last few months three Chinese test-preparation tuition companies (TAL, Ambow and Global Education) have raised a combined $300 million on Nasdaq and the NYSE. Another, Xueda Education, is expecting to raise a further $124 million at IPO this week.

Investors are so confident of parental commitment to their children’s education that industry leader New Oriental currently has a price to earnings ratio of 48.

The tuition-mania goes far beyond high school and university entrance tests. The next wave of IPOs could very well come from the English-language training market, which the New Weekly magazine expects to grow to Rmb30 billion this year ($4.4 billion). It’s a market that even Disney has entered (a subject we first discussed in WiC13).

“People today have realised that society is very competitive, and they have to be very good to earn a life in the big cities… they have to push their children to study hard before they lose out to the competition,” Li Lulu, a sociology professor at Renmin University explained to news portal China.org.cn. “Basically, they have no choice.”

That’s good news for shareholders but less so for parents, frustrated by the high cost of educating their offspring.

In major cities like Beijing, the financial ordeal starts when the child is just three years old – at pre-school.

“Early childhood education [pre-school] is basic education,” argues Ye Qing, deputy to the National People’s Congress, “[it] should be included in the scope of compulsory education.” Beijing-residents are likely to feel the same, but a shortage of pre-school places and rising fees have put kindergarten beyond the reach of many.

Since pre-school isn’t included in compulsory education, public kindergartens have been able to insist that parents pay a mandatory ‘donation’ (known as a ‘sponsorship fee’) to secure a place for their children.

Fees have been going up. “This year the sponsorship fee of a kindergarten rose to Rmb100,000, and my friend paid,” one outraged netizen wrote on a community internet forum.

Where some of this money ends up is unclear (presumably making potato shapes and playing Simon Says can only cost so much).

“This figure appears surplus to local government budgets and remains hidden from accounts and therefore beyond control or supervision,” argues China.org.cn.

“A climate of corruption exists where no one will speak out as no one wants their child’s education compromised.”

More than 97% of the Beijing parents surveyed by the China Youth Daily said they were unhappy with the fees that they were being asked to pay. “We paid a sponsorship fee of Rmb60,000,” one mother told the newspaper, “what’s wrong with our education system?”

“The increase [in fees] has been even more terrible than house prices,” another distressed parent complained to the newspaper.

In fact, kindergarten bosses in Beijing blame property prices for much of the run-up in pre-school fees now being asked of the parents of prospective students.

There are around 1,300 kindergartens in the capital, but 90% of them are higher-priced private schools rather than state-backed public ones. Beijing’s Municipal Education Commission is trying to relieve the pressure on parents by building 118 more public kindergartens over the next few years. But in the meantime parents will find the cost of educating their children are likely to escalate.

Meanwhile the New York Times reports that even high school principals in the US are sniffing opportunities in China. Stearns High in Millinocket, Maine is an hour’s drive from the nearest mall, but its superintendent, Kenneth Smith has been on a week long roadshow to China to persuade parents to pay $27,000 to enrol their kids.

“We’re going full bore,” he told the Times. His mission: to raise student numbers, which have dropped dramatically since a local paper mill went bankrupt in 2003. But what can Stearn High deliver Chinese students and their parents. “If we can get them into college here, they will have achieved their major goal,” says Smith.

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