Each graduation season American universities compete for high-profile speakers to give a final upbeat lecture to departing students. Politicians have been less in demand these days. Nearly a dozen big-name guests, such as former US Secretary of State Condoleezza Rice and IMF boss Christine Lagarde, have withdrawn because of campus protests this year.
Commencement addresses by guest speakers aren’t a tradition in China. Nevertheless they are becoming more fashionable, especially at business schools. The best (and worst) have started to go viral in social media. This year graduates from Tsinghua University’s management school even learned some new stuff about Jack Ma, including the revelation that he has never used Alibaba’s e-commerce service (apparently to prevent himself from being biased). Li Ka-shing also told students from Shantou University that he has been left “sleepless” because of the widening wealth gap in Hong Kong.
But for less prestigious Chinese colleges there is a more pressing concern than finding a billionaire to speak to the student body. They are more worried that a development model that has supported a decade-long expansion of university places could be coming to a grinding halt.
According to the education ministry there were 2,799 tertiary educational institutes at the end of last year. At the turn of the century that figure was much lower at 1,942. Since then the number of college students also surged dramatically: from 2.7 million in 1999 to 24.7 million. This coincided with a period when state firms stopped hiring a larger proportion of high school students because of major market reforms. The unprecedented expansion in higher education helped to absorb many of these young people. Enrolment rates rose from 10% of school leavers in 1998 to 34.5% last year.
Not all the local governments could cope with the explosion in education-related spending. Luckily they had a solution: selling real estate. Since 1999, more than 80 “university cities” have sprung up across the country. Most of these are new campuses are predominantly funded by the sale of nearby land to property developers.
Land values adjacent to the best universities have often performed strongly. The Haidian District in Beijing houses Peking University and Tsinghua University, for instance, with spillover benefits from the Zhongguancun technology hub, a breeding ground for leading firms such as Lenovo. Haidian has developed into the second largest local economy in the Chinese capital, trailling only the Chaoyang financial district.
The boom in university cities sets out to recreate this, albeit with a twist.
“It’s like zoning an industrial park and then inviting enterprises to move in and invest,” Southern Weekend explains. A local government begins by setting aside a piece of land for a university city, and lures one or more colleges to relocate there. The upfront investment is typically made by real estate developers, motivated by the future home sales they expect to derive on nearby plots of land. The idea is alluring for colleges, particularly those in weaker financial circumstances. But there’s a downside: it also means facilities can become scattered. The main campus of Lanzhou University, for example, is located in the middle of the city. But in 2001 most of its faculties were moved 47 kilometres away to a newly built location. Parts of the college may soon need to move again as the Lanzhou government is planning yet another university city concept, with Hong Kong-listed developer Country Garden pledging to invest Rmb20 billion ($3.2 billion) for a “Lanzhou New Town”. In order to relocate the university, Country Garden has set up scholarships and promised to bear the bulk of construction costs. There are even reports that the university could enjoy a cut of future home sales.
All of this works fine as long as the developer stays financially healthy. But many property firms are suffering from a credit crunch of their own. Country Garden has total debt 3.64 times its shareholder equity. Last month, it raised $250 million by selling five-year bonds to the family office of Hong Kong tycoon Lee Shau-kee, one of its major shareholders (see WiC238).
Some of the other college projects have turned into “ghost towns” after the money stopped flowing from their real estate backers, China Enterprise News reports. One of the most telling examples is Oriental University City, once promoted as “China’s Oxford”. As the first project of its kind, the Langfang city government first announced it in 1999. Situated in Hebei province between Beijing and Tianjin, the new town was planned for an area of about 3.3 million square metres. It has mushroomed to more than twice that (and a third phase has been suspended due to insufficient funding). During its early heyday Oriental University City attracted more than 25 colleges. But problems started when state lenders pulled loans to Oriental’s developers, which in turn failed to honour their contractual commitments. One contractor was severely injured by his own workers in 2003 when he was unable to pay their wages. Another committed suicide a year later on the doorstep of the Langfang city government. The glut of negative publicity put off other universities from setting up there. A Rmb2 billion investment from a foreign institution failed to stop the rot. China Enterprise News says only nine colleges now operate in Oriental.
Another key differences between China’s Oxford and its English equivalent: half of its space is occupied by golf courses and new property developments. “Amid a lacklustre academic atmosphere only two business activities now remain,” Southern Weekend has noted. “One is selling luxury homes. The other involves creditors campaigning to get their money back.”
The newspaper also says that some local governments and educational institutes are relying on tuition fees to service the debts incurred in building the university cities. This has led to lax enrolment standards. But a more serious threat to the well-being of the colleges is demographic change. About 9.39 million students took part in this year’s college entrance exams, up 3% from the 2013 figure. But that followed five years of declining numbers and the education ministry expects that student numbers will continue to contract until 2020. This suggests that China’s university city sector is going to struggle with a familiar problem: overcapacity.
Looking at the numbers of younger students only highlights the problem. There are declining numbers at primary schools. Xiong Bingqi, vice president of the 21st Century Education Research Institute, says demographic changes have already resulted in teacher redundancies and he is forecasting the number of young people aged 18 to 22 will decline by 38 million by 2020. “For university cities that sit on billions of bank loans and rely on tuition fees to service the interest repayments, a large scale financial crisis is looming,” Xiong warns. “Over the next 10 years a glut of tertiary educational institutes could go under. We need to start planning for this as soon as possible.”
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