A long way to go

03/31/2003
China Daily

The market for educational services in China is very much like where China stood 20 years ago in terms of market reform in ordinary industries. The government provided heavily-subsidized standard services, but more and more people were left out of the loop.

In the case of public schools, some are unable to get in, while others don't mind paying for what they perceive to be quality services.

"Everyone claims to be building a five-star hotel, and who knows, some of them may truly turn out to be five star down the road," said Zhou Donglai, an educator with Guangzhou University of Foreign Studies (GUFS), who compared the current boom in private schools with the surge in hotel building in the early years of China's economic reform.

Zhou told China Daily that many investors prefer to partner with a known school when they start a private school. They pay 20 to 30 per cent of their revenue for the "brand", and the existing school may provide staff, facilities and other services in addition to the name. Some local governments offer free land and all kinds of amenities to lure well-known schools to open campuses there. Currently Zhou is involved in starting an international business college, which will be owned by GUFS but privately operated. Annual tuition is set around 12,000 yuan.

"Besides quality, the most important factor for a private school to succeed is probably economies of scale. Since the initial investment is high, you'd have to have a large pool of students to break even or turn a profit. Quality education that nurtures students into Tsinghua or Harvard will be a god-send for publicity, but you'll still need time to achieve that," revealed Zhou.

For all the high risk, education can be very rewarding to its investors. Some of the schools have very fat profit margins. An elementary and secondary school in northern Guangzhou charges 60,000 yuan for initiation fee, which is usually called "sponsorship fee", and then an annual tuition of 25,000 yuan for each student.

But insiders disclose that its operating cost is about 12,000-16000 yuan per head. But the school adjusts its pricing scheme from year to year as it gains its student base and its cost structure changes.

Geely University is mostly known for its investor, Geely Group, that is making a splash in the automobile industry. Its plan to put up 50 million yuan in 1994 to set up a college came from its need to train its own workers.

The deal to do the training through an existing college came to naught in Hangzhou, Zhejiang Province. Its application to set up a school in another Zhejiang city was rebuffed when the local authority liked its idea so much that they decided to open their own school.

Geely University was finally opened in Beijing in 2000. The first year it enrolled 3,000-4,000 students; and the second year saw a big jump to 7,000-8,000.

Luo Xiaomin, the founder, sighed that the road to building a private school is full of bumps. "Only those who have done it really understand how hard it is. We are not protected, and we are not understood. Now we have been granted legal status, but it's still a far cry from getting there," asserted Luo.

So, how far are China's private schools from "being there"?

"I'd say 20 years," said Luo. And coincidentally, that's how long it took China's private businesses to get where they are now.