China’s secret plan to overcome its university debt problem

It has been a known issue for more than a decade: Chinese universities’ insurmountable debts. And as the topic managed to attract public attention again just recently, a closer look into the matter deemed appropriate. Departments of statistics, both federal and local, would not go so far as to hard-wire figures leaving it up to Internet publications, such as the Guangzhou Daily, to reveal that debts accumulated by Chinese universities amounted to nearly 500 billion Renminbi (RMB), or roughly 73 billion U.S. dollars, in 2006.

The figure itself does not make China’s education sector leaders, employees and students think aloud about the way out of this situation. Many of them raise their voice, however, as evidence trickles in of loans too easily being granted for revamping academic infrastructures and merging institutes into mega-bodies, often under the assumption of ever increasing school enrolment.

Without attributing a rank or debt amount to any of the universities shown below, those are the ones repeatedly named as the top ten Chinese universities unable to pay their lenders off:

• Guangdong University of Technology: Debt as a result of a plan to become the largest university of Guangdong province; the payback period for loans needed to finance the ambitious plan was assumed to be 30-50 years in the school’s financial budget, with the bank’s maximum lending period being as short at 15 years; the school tried to compensate this by inflating their tuition fees, but this practice was halted by the Federal Ministry of Education in 2004.
• Guangzhou University: Debt as a result of an amalgamation of several regional universities and colleges in the year 2000.
• Jiangsu University: Debt as a result of an amalgamation of several regional universities and colleges in the year 2001.
• Jilin University: Debt as a result of an amalgamation of several regional universities in 2004 financed through loans from ICBC and Agricultural Bank.
• Nanchang University: Debt as result of an amalgamation of two regional universities; projected revenues through tuition fees did not materialise.
• Nanjing University of Chinese Medicine: Debts as a result of a massive infrastructure expansion project financed through bank loans; the combined government allocation and tuition fees only allow for interest payments, not for paying off the actual loan.
• Nanjing University of Finance and Economics: Debt as a result of a massive infrastructure expansion of several institutes and research centers.
• South China University of Technology
• Sun Yat-sen University
• Zhengzhou University: Debt as result of an amalgamation of several regional universities in 2007 financed through loans.

Universities listed above account for only a small percentage of the total amount higher education institutions owe to Chinese government departments and banks, leaving a long tail of borrowers unnamed.

Amalgamating or enlarging organisations does not lead to debt entanglement per se, and one would hope to see a thorough analysis followed by a strategic plan to overcome the situation. Research suggests that China’s education sector leadership does have some ideas and suggestions, but not a plan as yet. The Party Secretary of Sun Yat-sen University takes it with a good sense of humor and tries to push the ball back to the lenders saying that by imposing nearly no interest on loans, the government even “encouraged universities to spend tomorrow’s money”. For those cooperating or planning to cooperate with Chinese universities, it might be important to learn more about key reasons of China’s academic debt position.

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