Universities face budget cut and clawback of past funds

Hong Kong’s highly regarded public universities are putting on a brave front in the face of a 2% cut in their overall funding for the next three years announced in the city’s budget address by Hong Kong’s Financial Secretary Paul Chan as the city faces a large deficit.

However, given the strong financial headwinds buffeting the city, unexpectedly, universities will also have to hand back a proportion of their accumulated reserves.

The Hong Kong government had been preparing universities in recent weeks for budget cuts of between 2% to 4% over the next three years, with university funding fixed in three-year cycles – saying universities would have to dip into their substantial reserves to cover the expected drop in income.

Chan said the Hong Kong government will cut funding to public universities in the coming three years by 2% to HK$68.1 billion (US$8.76 billion) but stressed this was still higher than the HK$63.2 billion (US$8.13 billion) granted to universities in the past three-year funding round.

In a statement on 26 February, Tim Liu, chairman of Hong Kong’s universities funding body, the University Grants Committee (UGC), said the cut “reflected the magnitude of efficiency savings applied government-wide” and the progressive 2% reduction each year would cumulatively achieve total savings of about HK$2.8 billion (US$360 million) over the three-year period.

Chan argued in recent weeks that public spending on education had become “huge” and universities could make use of their reserves and expand their sources of income.

Clawback from reserves

Universities had seen a ‘moderate’ budget cut of 2-3% a year over the next three years as something they could cope with by dipping into reserves.

However, in a shock announcement not flagged in advance, the UGC said that public universities would have to return HK$4 billion (US$514.7 million) in total from their reserves “to the government on a one-off basis in the 2025-26 financial year”. The UGC said it will discuss with universities the amount each will pay.

It noted that as of 30 June 2024, the aggregate balance of reserves of all universities totalled HK$11.1 billion. “The HK$4 billion to be returned to the government accounts for more than one-third of such reserve funds,” the UGC stated.

Hong Kong’s universities, which have always been well-funded by international standards, see this as unprecedented, effectively ‘a back-dated cut’ to university budgets already allocated, according to one academic at Chinese University of Hong Kong (CUHK).

The University of Hong Kong (HKU) recorded the largest financial reserves among the city’s eight public higher education institutions at HK$41.5 billion (US$5.3 billion) in the last academic year, a 12 per cent increase compared with 2022-23 and around 30% of the total reserves of the eight publicly funded universities.

This is followed by CUHK with HK$35.5 worth of reserves and Hong Kong University of Science and Technology (HKUST) with reserves almost HK$20 billion, according to the UGC, which attributes the rise in reserves to improvements in investment performance – including rises in interest rates, increases in government subventions, and tuition fees.

An academic at HKU, speaking on condition of anonymity, said the clawback was “punishing universities for their prudent housekeeping”.

He said: “On the one hand, the (Hong Kong) administration says universities should dip into their reserves to top up shortfalls; on the other hand, they are substantially reducing these reserves by taking back some of the money.

“Even if it is a ‘one-off’ as the UGC says, it can be something they will resort to again in the future. These are not just surplus funds but allow universities to be dynamic, funding new and long-term projects. There will be very little incentive in the future for universities to hold large amounts in reserves for major future projects.”

Universities’ reaction

Universities put on a brave face in reaction to the 2% cut announced today, which some pointed out “compared well” with the 7% cut in the overall budget for the city.

Professor Xiang Zhang, vice-chancellor of the University of Hong Kong (HKU), said in a statement he “understands and acknowledges the government is diligently addressing global economic uncertainty. The university, as a crucial part of Hong Kong society, is prepared to face these financial challenges in stride with the local community.”

“HKU’s vision is to become a world-leading university. Given the current economic climate, HKU will persist in managing the finances prudently and strategically, further bolstering the university’s international standing amidst challenging times,” remarked Zhang, who added that he “anticipates the government’s review of university funding policies when the economy gradually recovers”.

Zhang did not comment on the clawback of reserves but had previously stressed the university’s reserves had “designated purposes”.

Billions of dollars of the reserves were earmarked for constructing more than 10 buildings at the HKU campus, while funds were also earmarked for professorships, Zhang said before the budget announcement. He has also said that Hong Kong had accumulated its reserves over many decades.

Professor Denis Lo, vice-chancellor of CUHK said: “CUHK understands the pressures currently facing public finances. The university will carefully study the potential impacts of the budget measures on its operations and hopes to minimise any effects on teaching, research, and other areas.”

HKUST vice-chancellor Nancy Ip said in a statement: “The university will work closely with the government to navigate these challenging times by strategically reprioritising resources, boosting revenue streams, and implementing cost-saving measures, while remaining steadfast to uphold its teaching and research capabilities amidst intense global competition.”

“By fostering cross-regional and cross-institutional research collaborations, we aim to secure additional research funding both within and beyond Hong Kong and enhance revenue from knowledge transfer activities,” she added.

Lingnan University associate Vice-President Professor Lau Chi Pang, who is also a member of the Hong Kong legislature, told local radio that universities had been preparing for the funding reduction and could absorb it without scaling down teaching or administrative staff.

“This 2%, if it’s only a triennium cut, I would say that the university community can absorb that,” he said.

However, he said that the clawback of reserves was “not good news”. Lingnan’s reserves at just HK$3 billion are the smallest of the eight public universities.

He noted that the city’s universities were expanding and competing globally, which required substantial funding.

The government had already acknowledged this by ruling out an increase in fees for international and mainland Chinese students, saying it would make the region uncompetitive as an international education hub, he said.

“Of course, we don't welcome any cut because universities are expanding our scope, and we are competing with other world-class universities in the rankings, and we are helping our country (China) to build up an even stronger higher education community,” Lau said.

In his budget speech, Chan announced HK$1 billion to establish a Hong Kong artificial intelligence research institute “to guide and support AI innovation research and industry applications in the city”.

This is in line with Beijing’s focus on the research and commercialisation of AI in China.

A third medical school for Hong Kong

Chan also said resources would be set aside to support universities to develop a new medical school “on a matching basis”.

However, the budget cuts just announced may shift the timetable of such a large project, with some academics already suggesting an expansion of existing medical schools at HKU and CUHK, rather than a completely new one, would be more appropriate.

Interested universities in Hong Kong have already been invited by a government task group on the new medical school to submit their proposals, some of them in collaboration with universities in the United Kingdom and United States. Chan said these will be assessed by the Hong Kong government this year.

HKUST’s Ip said: “HKUST is encouraged by the government’s commitment to put aside resources to support universities in the development of the new medical school on a matching basis.”

She added: “HKUST is actively preparing a comprehensive proposal for establishing the third medical school in Hong Kong. It includes a diversified funding plan, along with viable financial management, to ensure the long-term and sustainable development of the medical school.”

Hong Kong government backing for a new medical school, however, “doesn’t mean that we have enough money to do so,” Joshua Ka-ho Mok, provost and vice-president (academic and research) at the Hang Seng University of Hong Kong, a private institution, told University World News last month.

He suggested a public-private funding approach for a third medical school.

Apart from HKUST, Hong Kong’s Baptist University, which already has a department of traditional Chinese medicine, is also preparing a bid, as is Hong Kong Polytechnic University, which currently has programmes in nursing, physiotherapy, and other allied disciplines.

Mok said bidding for the third medical school was a prestige issue, as a big medical school would boost a university internationally through world-class research.

“University presidents see having a medical school not only to attract additional funding but more importantly, publication-wise to boost (their) international ranking,” he noted.