Accepting China's welcome to its higher education sectors

As demand for higher education swells in China, U.S. institutions are increasingly being welcomed. They can find participation financially rewarding and mission satisfying. Higher ed in ChinaThey will also find that while education is still highly regulated, China is loosening some restrictions and encouraging foreign investment in order to improve overall education standards, expand offerings and train more students to meet rising employment requirements. A U.S. higher education is of great value to Chinese students, and study in the United States is especially prized. If living abroad is not possible, the next best thing is getting a U.S. education in China. With this new demographic of eager students in a fast-growing market, an enormous opportunity awaits those institutions willing to work through the regulatory and business hurdles associated with establishing a presence in China. U.S. institutions can participate in two education sectors The two major education sectors in China are academic education, and vocational education and training (VET). Academic education institutions are akin to U.S. colleges and universities, which are the most likely to invest in this sector because of the similarities in focus and structure. The VET sector comprises technical schools; this would be a natural fit for specialized U.S. institutions that offer focused skills development, such as computer training or English as a second language. Both sectors are governed by the Catalogue for the Guidance of Foreign Investment Industries,1 which places heavier restrictions on academic education than the VET sector.

Academic education: A mirror of U.S. colleges and universities Foreign investors in academic education are restricted from establishing a wholly foreign-owned enterprise (WFOE). This means that U.S. higher education institutions must find an institution within China as a partner whose brand and administrative resources can be leveraged in recruitment and delivery. Typically, the Chinese partner provides teaching venues and facilities, administrative approval and registration, recruitment and promotion. The U.S. institution provides curriculum design and faculty.

In general, the U.S. institution has three investment alternatives:

  • Faculty placement

The U.S. institution cooperates with its Chinese partner to establish faculty in the Chinese university. Faculty are not part of an independent legal entity and are subject to the Chinese university’s administrative requirements, making this a simpler arrangement than the other two alternatives.
  • Joint venture

The U.S. institution collaborates with its Chinese partner in creating a cooperative joint venture. Because it is an independent legal entity, a joint venture is subject to more stringent application criteria and rigorous approval procedures. But more comprehensive majors and academic programs/courses can be offered.
  • Cooperative program

The U.S. institution provides its Chinese partner with limited curriculum and faculty that can be temporarily established for designated courses. For the U.S. institution, this alternative may be preferable because the approval procedures are relatively simple and allow greater flexibility in daily operation.

VETs: Much like U.S. technical schools Foreign investment in VETs is unprecedentedly hot. Because the Chinese government is unable to meet increasing demand for technical job skills in such growing fields as IT and English, it has adopted measures encouraging foreign participation in this sector. The Catalogue for the Guidance of Foreign Investment Industries places VET in an “Encouraged Industries” category, meaning that a foreign investor can create a WFOE to perform VET activities and not be obliged to find and depend upon a Chinese partner. Through the WFOE, a U.S. institution can organize social activities for recruitment, networking and choices in delivery, operating as independently as in the United States. The choice can be made to offer education in China, the United States or online.

Sometimes there are local practices that investors need to follow and adopt in order to facilitate approval. For example, the wording of scope of activities on the business license is key, and working through it with local advisers and the relevant Chinese authorities can help get it approved.

Gain an informed market entry perspective Your institution should seriously consider establishing a representative office or a service WFOE to explore opportunities or support existing operations.

  • A representative office

This is an arm of the U.S. institution established to provide liaison and auxiliary services, which include studying the feasibility of investing in education in China, conducting market research, and acting as a liaison between U.S. institutions and Chinese parties. Setup and ongoing compliance requirements are simple, and no capital commitment is required.

  • A service WFOE

This is a legal entity that allows activities — primarily consulting services — outside of a representative office’s limitations. A service WFOE has wide applicability; i.e., it can be established to identify opportunities with more than one Chinese partner. Because it is permitted to delve into complicated matters, a service WFOE is a good choice for evaluating faculty placement or a cooperative program, both of which present complications in not being independent legal entities. Compared to a representative office, setup and compliance requirements are somewhat more complex.

Market entry research and marketing support can be performed through either of these two channels as you begin or continue your business — and mission — investment in China.                                                    

Because China is vastly different from the United States in rules and regulations, business environment, culture, local practices, and multitudes of nuances, U.S. institutions will be most successful when they obtain Chinese professional advice as they explore investing in the Chinese higher education sector.
See Tax considerations when operating internationally for details about potential tax obligations. 1 Ministry of Commerce. Catalogue for the Guidance of Foreign Investment Industries (Amended in 2015), March 10, 2015.

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The State of Higher Education 2016