China’s education market is vast and set for further expansion in upcoming years as Chinese families prepare their children to compete in an economy incredibly different from the one they grew up in. Already worth RMB 1.6 trillion (US$240 billion) in 2015, China’s education market is projected to nearly double to RMB 3 trillion (US$450 billion) by 2020. Education is the number one priority for parents desperate to help their Children get ahead in competitive, modern China.

The Chinese education market

The growth of China’s education industry is world leading. Investment cases grew from 190 in 2014 to 270 in 2015 – an increase of 42 percent – and the amount of mergers and acquisitions and IPOs rose by 165 percent and 76 percent, respectively.

In line with this growth there is a significant demand for foreign education services as highly competitive consumers value the experience and quality of overseas expertise. Much discussion revolves around attracting Chinese foreign students but domestic, Chinese educational investment is often side-lined, this is surprising as it presents incredibly lucrative investment opportunities.

A changing society

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Years of rapid economic expansion were previously based on the masses of low cost workers. Now with a growing middle class, higher disposable incomes and higher standards of living, China is making the transition to a more mature development model. The Chinese state are focusing more on creative innovation, domestic business, services and skilled labour with wealthier families investing in education to meet this demand and adapt to modern Chinese expectations.

China does struggle with an aging population due to the long term effects of the one child policy, however to counter this the laws have been changed, parents can now have two children without incurring any state fines. Out of the 1.37 billion citizens in China, 17 percent are between the age of 0 and 14, this equates to approximately 230 million requiring education. The parents of almost a quarter of a billion Children are on average significantly wealthier than 10-20 years ago, spending on education has therefore increased to become the most precious commodity in a fiercely competitive market.

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The one child policy also acted as an incentive for parents to invest heavily in their children’s education, the official party slogan was “one child but of better quality”. The culture of pooling together family resources for their children’s educational development remains prevalent.

 

Families prioritize education

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Surveys regularly show that Chinese families prioritize spending on education ahead of any other area, even above real estate and retirement savings. The McKinsey Global Institute projects the country to spend 12.5 percent of its overall consumption growth on education for those under 30 over the next 15 years. Chinese culture is now incredibly results driven so consumption growth in this area is based on improved labour and innovation fueled by the Chinese state.

In addition to these figures according to ICEF Monitor, almost half of a Chinese 20 year old’s per capita consumption is spent on education, to put this into perspective for an American this is less than a quarter. These expenditures are significant and set to continue to rise with the burgeoning Chinese middle class, particularly on the east coast of the country.

 

Foreign investors face challenges in China

Despite the keenness of Chinese consumers to spend on education, foreign investors face a number of challenges when entering the market:

–       The Chinese government are suspicious of foreign activity when it comes to education, they strictly control the curriculum and laws and regulations can change to the detriment of foreign investment.

–       Foreign participation is not allowed in compulsory education spanning ages 6-15, and most types of educational facilities require establishing a joint venture with a Chinese partner. This is a necessity but it can be costly and difficult to find a trustworthy partner.

–       The Chinese education system’s fixation on standardized examinations restrict what forms of education are in demand for students below the tertiary level. There is arguably less space for innovation.

Despite these limitations, there is still a significant demand for foreign education services as highly competitive consumers value the quality of overseas expertise, western institutes are highly respected and admired. With the right business strategy in China educational investment can be facilitated, state laws are also relaxing in recent years making collaboration increasingly easier.

 

Vocational Education is Growing

The Chinese state recently set aside 10 billion RMB for the growth of new vocational schools, local government are also strongly involved in this scheme. Vocational schools focus on applied skills such as IT training and practical trades. In 2014 29.3 million students were studying at vocational establishments, by 2020 the government aims to increase this to 38 million students.

The new state growth model requires skilled labour, therefore a trustworthy network of schools developing applied skills is key. There is a need to attract services in this area as historically Chinese vocational schools have been of a poorer quality with criticisms of less qualified teachers, this is now all set to change.

 

Early Childhood Education

education-chineseEarly childhood education is education for children below the age of three. Since 2009, China’s baby care industry has grown by 55 percent per year, this reflects the high level of spending Chinese families allocate to their young children. While the Chinese government is focusing on increasing enrollment in preschools and kindergartens, the education market for children too young for these institutions is growing, reflecting parents desire to improve their children’s prospects from a young age in the new competitive society.

Despite these opportunities China’s early childhood education sector suffers from a lack of quality regulation and business acumen. About 60 percent of early childhood education schools are registered as consulting companies or educational training centres, they are not connected to any government scheme which often results in poorer quality syllabuses and teaching standards, parents can also be mis-sold courses which are ruthlessly commercial at the expense of quality education. Only about 10 percent of teachers in early childhood education institutions have teaching genuine certificates. These issues demonstrate the need for more formalized and higher quality education in this sector.

 

Special Needs Education

Specialist needs education is largely absent in China. It is difficult for students with either physical or learning disabilities to find tailored, individual education that caters for their demands. There is a major gap in the market; 72 percent of children with disabilities enrol in school, compared to 99.6 percent of their able-bodied peers. Special needs students are often not provided for due to a lack of facilities and struggle to integrate into general schools.

Awareness of special needs in China is growing and parents can increasingly afford the costs associated with such specialized educational services. Again, with China being behind in this area, it needs to turn to western institutes for assistance.

To conclude the Chinese education market is developing and changing with new trends emerging in special needs and vocational education, University level education is greatly improved with parents will to spend significant sums on their childrens education in order to help them get ahead and meet the skilled labour demands of the Chinese state as they embrace a more mature development model.

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