CHINA: Alarm over high university debts

Universities in China continue to languish under huge debts as a result of runaway university expansion in the last decade. Despite government moves a few years ago to write off the worst debts Liu Liyun, a senior official with the National Audit Office (NAO), said this week that more than 1,100 of the country's universities had racked up a total debt of CNY263 billion (US$40.7 billion) by the end of 2010.

Liu, a deputy director of the NAO research institute, said on China National Radio on 3 July that many universities had to borrow more money every year to pay back their old debts, which was hampering university development.

Unserviceable debt has become a common problem due to massive expansion in universities since 1999 requiring new buildings, state-of-the-art facilities and expensive laboratories on an unprecedented scale.

The number of higher education institutions more than doubled from around 1,022 in 1998 to 2,263 in 2008, and the number of students exploded from eight million to more than 20 million.

Much of the expansion debt could not be funded from the public purse, with universities turning to banks for loans. In 2006, at the peak of expansion, university debt to banks reached a record CNY500 billion, twice the current level. Many of them had to be bailed out by local municipalities and state governments.

"Colleges and universities have no other choice but to repay the old loans with new loans," said Lin Li* in recent research on university debt published by the Chinese Academy of Social Sciences, CASS.

"In China tuition fees and miscellaneous charges are the major sources of income for colleges and universities. State appropriations are used to cover the salaries for university employees. There is no surplus to repay loans."

Lin Li suggested: "It is currently impossible for the Chinese government to support the largest public education system in the world with the currently limited capacity of its higher education institutions. Bank loans enable public higher education institutions to appear financially strong but in reality [they] are operating under unrealistic budgets and increasingly little expenditures."

In some cases, bank loans account for over 95% of the financing, according to research by Qin Je of the Henan University of Finance and Economics, referring to expansion in Henan which led to CNY18 billion of debt in the province by 2010. Most of it is in short-term loans whose tight repayment timetable "is not conducive to stable development of colleges and universities," Qin said in a recent research paper.

In a 2008 paper for CASS, Lin Li was already predicting that the demand for loans by colleges and universities would continue to increase rather than decrease over the next decade.

Last year the deputy governor of Hubei province Guo Shenglian suggested that some universities could be forced to shut as early as 2015, unable to service debts.

But Qiang Zha, an associate professor in the faculty of education at York University in Toronto and a research fellow at Shanghai's Fudan University, said that in 2006-07 and again in 2009 "the government stepped in to wipe out the debt - for example Jiangsu provincial government invested CNY2 billion to help universities out of debt.

"If universities had been forced to close there would be a huge societal impact, but because of the government, none of them closed," Qiang, a former advisor to the Anhui provincial government, told University World News.

While the debts still exist, the air of crisis hanging over universities had dissipated, he added. However, universities had not changed their profligate ways.

"Even after the government stepped in some people [in the universities] complained that they were not able to expand. They are still keen to increase enrolment and recruit more students to pay their debts."

One of the consequences of the university debt crisis has been expansion of softer subjects such as the social sciences and humanities, which cost less to teach and need little investment, Qiang said.

Many universities had previously been expanding expensive technology and engineering departments. "They can say now 'we are moving towards becoming comprehensive universities'. It is possible that they may be overdoing this and may end up with problems of [having] too many humanities graduates," Qiang said.

The local governments of Xinjiang, Guangdong, Fujian and Hebei have helped universities and colleges pay back both capital and interest, with Guandong, Zhejiang, Henan and Anhui provinces - among the worst affected - providing subsidies for loan interest owed by universities, according to official reports.

But a report by national auditors in May this year revealed that local governments were themselves in debt to the tune of US$1.66 trillion, with most in no position to pay back their debts.

Lin Li said repaying loans with income from selling university land was a common practice, with upsurges in land sales in provinces with the most universities in debt. These included Jiangsu, Henan, Liaoning, Zhejiang and Jiangxi. Old campuses in town centres were often sold off to build larger campuses on city outskirts, but such practices had caused a public outcry in many cities.

"Since most of the land encompassing China's colleges and universities was originally allocated for educational purposes by the government free of charge, the public was incensed that the universities were making a profit," she said, adding: "There is still public doubt about the legitimacy of the practice."

Stricter policies put in place by the Ministry of Land and Resources have attempted to dissuade universities from selling land to repay loans, although there are many loopholes in the system, sources said.

Worse, a drop in the number of applications to many universities, particularly in north-western provinces and other less developed regions, means that recouping debts by increasing enrolments might not be possible in future.

"With the end of the baby boom we will see fewer students aged between 18 and 22 years entering college," Gu Hailiang, President of Wuhan University, said in remarks carried by China Youth Daily recently.

Even major cities like Shanghai, where university places are sought-after and higher tuition fees can be charged, are seeing a drop in the number of young people taking the national university entrance examinations, according to reports from Shanghai.

The Shanghai Daily reported that CNY600 million had been borrowed a decade ago by Shanghai International Studies University to build a new campus in the Songjiang university town in the city suburbs. This left it with a interest bill of CNY35 million a year, Wu Youfu, the university's Communist Party secretary, was quoted as saying.

With annual tuition of CNY5,000 per student, its annual tuition income of around CNY30 million did not cover the interest, Wu said.

"Many universities especially those with new suburban campuses, borrowed at least CNY1 billion for campus construction but have no ability to pay back the loan at all," Chen Dakang, former dean of the Chinese language and literature department of East China Normal University in Shanghai, was quoted as saying.

Academic sources in Shanghai said universities were expanding courses such as business administration that are popular with students, in a bid to attract more fees.

* Lin Li was at the Research Centre for Higher Education Development at Xiamen University when she conducted this research.