Education in China is currently in a boom phase, with Chinese universities investing large amounts into the promotion of courses, research and development
Education in China is currently in a boom phase, with Chinese
universities investing large amounts into the promotion of courses,
research and development. Australian educational institutions can
benefit from this scramble for knowledge and access to
international technologies through their involvement in cooperative
education ventures with Chinese institutions. But they need to
understand the regulatory regime that surrounds Chinese education
or it can be difficult to gain the necessary approvals.
This article identifies the major regulatory requirements for delivering cooperative educational services in China, and the benefits and disadvantages of potential structures.
Chinese law categorises foreign investment in Chinese industries
and services as either Permitted, Restricted or
Prohibited. Education services fall within the
Restricted class of services, meaning that any foreign
involvement in the delivery of education in China must meet certain
criteria and that a licence is required from the relevant Chinese
Two primary pieces of legislation govern the provision of formal higher education in China by Australian institutions:
- Regulations on the Sino-Foreign Cooperation in the Running of Schools 2003 (Regulations), which set out broad principles for the establishment of Chinese-foreign cooperative educational ventures (Programs).
- Implementing Measures of the Regulations on the Sino-Foreign Cooperation in the Running of Schools 2005 (Measures), which provide greater detail of obligations and procedures for application, operation and cessation of Programs.
The Chinese Ministry of Education (MOE) enforces the
Regulations and Measures and issues MOE notices on the
interpretation of the legislation.
An MOE Notice in April 2007 identified areas of concern for current Programs, and indicated an intention to increase the MOE's vigilance over Programs. The key areas related to quality control, resources, reinvestment by foreign parties into the Chinese education system and welfare, method of student admissions, availability of visas for continued study overseas, levels of fees charged and the authentication of diplomas.
This heightens the need for Australian institutions to seek advice on the structuring, documentation and operation of cooperative ventures to avoid penalties or even bans from the Chinese market.
Core principles for Programs
The fundamental requirements for the foreign delivery of Programs in China are:
- a foreign institution is not permitted to deliver educational courses in China without the involvement of a Chinese partner (partner being a party to a contractual agreement, rather than a partner in the fiduciary sense)
- all Programs must be non-profit making
- all Programs must be licensed through the MOE or the Labour Department (as applicable)
- the Chinese party must be qualified to teach the relevant program and certified by the MOE to offer the relevant award.
A licensing or credit recognition arrangement may not involve any delivery by the foreign institution, instead relying on the Chinese party to licence materials and teach the course. Many institutions use this approach to avoid the need to seek formal consent for delivery from the MOE but there are drawbacks to employing these methods of delivery.
In choosing a Chinese partner, it is essential to consider what
courses will be offered to Chinese students, and what level of
award will be issued on completion.
To deliver a Program in China, both the Australian institution and the Chinese partner must be suitably qualified (in their home countries) to both teach the relevant course and offer the necessary award. Chinese educational institutions are only permitted to offer courses (alone or otherwise) if they hold an MOE certification in relation to that course and award.
For example, if a Chinese institution is only certified to offer basic technical courses, it will not be permitted to align with an Australian institution for the delivery of a Masters in Engineering. Similarly, a technical college offering sewing courses will not be permitted to offer courses in Law with an Australian institution (regardless of the Australian institution's qualifications).
The majority of Programs (other than low level training courses) will require MOE approval before advertising and acceptance of enrolments. State (national) MOE approval is required for any degree Program, and provincial MOE approval is required for diploma Programs. Low level vocational training Programs require approval by the Labour Department.
There are three primary structures that can be used for Australian education delivery in China. Each has advantages and disadvantages, and the establishment costs of each structure tend to be proportionate to the level of control which the foreign party holds over the Program.
Licensing / Credit Recognition Arrangement
This structure requires minimal investment by the Australian
institution but it also provides a minimum level of control.
An Australian institution can license its curriculum materials to a Chinese party, subject to intellectual property protections, permitting the Chinese partner to deliver the course in China for a licence fee. As the Australian institution is not involved in the delivery of the Program, this falls outside the scope of the Regulations and Measures and does not require a separate permit from the MOE (although the Chinese institution will still require MOE approval for its operations). In this scenario, the award offered to students is granted by the Chinese institution only.
A licensing arrangement can be extended to offer credit recognition for advanced entry to a further course at the Australian institution but does not envisage partial delivery in both China and Australia. The MOE is increasingly concerned with preventing part delivery across borders that may stop Chinese students from completing their courses if they fail to gain an Australian visa or cannot afford to complete the course at the international campus.
Although this structure can be an ideal method of testing the market for minimal capital expenditure, it also exposes Australian institutions to potential infringements of intellectual property rights (such as plagiarism or unauthorised distribution of materials) and does not allow the Australian institution to create brand awareness in China. The lack of presence on the ground in China can result in materials being used inappropriately and a lack of control over the quality of teaching, which can be of concern if graduate students are offered priority places in Australia following their completion of the course. There are also reputational issues for the Australian institution.
A cooperative project structure (Project) offers greater
protection and control over the Program than a licensing agreement
but it also requires greater investment. A Project is subject to
the Regulations so MOE approval is required before advertising or
A Project structure envisages a Program established under a cooperative education agreement (CEA) as a sub-program to the Chinese partner's existing curriculum. A Project must be operated and managed by the Chinese partner, who is responsible for obtaining and maintaining all approvals and licences. There are also obligations placed on the foreign institution.
An Australian institution is permitted to offer management assistance by having representatives on the joint administrative authority (JAA) or board of the Project. However, Australian interests must be less than 50% of the JAA. The Australian party has no access to or control over the bank account of the Project and fees collected must be kept in a separate sub-account by the Chinese party.
Students completing a Program operated by a Project are usually awarded with a twin-badged award. This creates greater brand awareness in China for an Australian institution than under a licensing arrangement. Students who commence a program through a Project must be able to complete the full Program in China, however a credit recognition arrangement for further study can be adopted once the Program is completed.
A foreign institution is required to provide foreign lecturers to a Project. Previously, a condensed lecture series by a foreign lecturer was considered sufficient to meet this obligation, however this was raised as a key concern in the recent MOE Notice. It is anticipated that foreign staff will now be required to spend more time on location at the Project in order to satisfy the regulatory requirements.
A formal application process, stipulated under the Regulations, can take several months to complete and can only be submitted to the MOE in March and September.
One of the primary disadvantages of a Project structure is that Australian institutions can only charge fees to reimburse their costs in delivering the Project. Previously, fees charged for the Project's use of the Australian institution's intellectual property and other intangibles were not heavily scrutinised by the MOE, allowing some leeway on profits. Now the MOE has indicated its intention to focus on this aspect of CEAs, this may lead to further constraints on fees.
As the Project structure relies on Chinese management, an Australian institution should negotiate audit rights as part of the CEA. Foreign parties must rely on contractual audit rights and its relationship with the Chinese partner in order to maintain the Program's integrity. Nevertheless, the foreign party's presence in China also allows better oversight of operations and management.
A cooperative school structure (School) operates in a similar
manner to a Project, except that the Australian institution can
have 50% control of the JAA. The disadvantage of a School is that
the Australian institution must make cash and in-kind contributions
to the School which are not easily recoverable.
Contrary to a Project, a School operates as a separate entity to the existing Chinese institution, and is subject to independent JAA management and operational obligations. A School can be incorporated or unincorporated, with the incorporation process being considerably involved and time consuming. Generally, well recognised Australian institutions can seek an exemption from the requirement to incorporate based on their reputation.
In order to gain approval to open a School, the Australian institution must contribute at least 15% of the establishment capital required, and can contribute intellectual property rights up to a maximum value of 33% of the total required contribution. A School requires its own bank account (which each party has 50% control over through JAA membership), and teaching staff must be provided by both partner institutions. All assets of a School are jointly owned by the parties.
An advantage to a School structure is that the Measures allow the parties to seek reasonable returns from the venture. Although the non-profit obligation remains in place, this opens the door for greater reimbursement of costs than other potential structures.
Disadvantages of a School are that 25% of its earnings (after 'reasonable returns' are distributed) must be reinvested into students facilities; the School is subject to an annual Chinese audit; a labour union must be established for staff, and all approval and regulatory obligations are placed equally on both parties.
The School structure is preferable for Australian institutions seeking maximum control over their branding and intellectual property in China. It also allows for the School to be named with reference to both institutions. However, the requirements to incorporate and contribute capital to the School may be significant issues for many market entrants.
Watch this space
As the Measures and Regulations continue to be clarified by the
MOE, and as foreign ventures in China come under increasing
scrutiny for their compliance, the benchmarks for cooperative
educational ventures can be expected to continue to adjust.
Penalties for non-compliance can range from fines, cancellation of licences, reimbursement of all collected fees, bans or even criminal sanctions, so is vital that Australian parties seek advice on the appropriate structure for their institution so as to avoid wasting time and money establishing ventures that may be rejected at the approval stage or even cancelled by the MOE once operations have begun.
The potential for growth and international income streams exist in China but cooperative ventures should proceed with caution, taking into consideration all the relevant issues, in order to avoid future problems.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.