China’s Economy and Its Impact on Higher Education

Many colleges and universities in the United States and around the world depend on the tuition revenue from Chinese students. While Chinese student mobility is unlikely to change in this year or next, when and if the Chinese economy constricts, it is likely that fewer families will have the financial resources to finance expensive higher education costs.

Moody’s Investors Service reports that China has underestimated by half a trillion dollars the exposure of state-owned banks’ loan portfolios to local governments. Despite five interest rate hikes since last October, inflation is now 6.4%. Second quarter gross

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domestic product grew at 9.5%, its slowest pace in nearly two years. China has lowered its 2012 economic growth target below 8% for the first time since 2005.

Rana Foroohar in the April 23rd issue of “Time,” speculates that China’s economic model is becoming suspect. If China does not find a new growth path, it faces social and economic instability. Beneath the surface there are many signs that the society is churning. There are numerous reports of village unrest and ethnic strife. Many Chinese people believe that a select few are benefitting from current economic policies and the benefits of China’s growth is not trickling down to them. Reports of corruption are widespread. Strikes have become increasingly frequent. Confidence in the government has declined recently by 10%, to 60%.

China’s growth model is based on exports and in a saturated global market in which American and European consumers are tapped out, the Chinese export machine may choke. Some economists maintain that China’s economy should shift away from exports and focus on domestic consumption and investing in road and railway projects. There are fewer new construction projects and demand for steel has flattened. The economic model that propelled China to become a major player on the world stage appears not to fit what is needed to continue China’s economic progress in the future.

Frederick Neumann, co-head of Asian economics for HSBC in Hong Kong, reports that a Chinese slowdown would have a ripple through trade chains and put a squeeze on U.S. exporters. China’s slowing growth is already starting to be felt across the United States. U.S. exports of electronics, agricultural products and metals have substantially decreased.

About 3% of the 6.5 million Chinese students who graduated in 2011 are still unemployed. The Chinese Ministry of Education has been directing universities to cancel majors in which fewer than half of the graduates find jobs. The Chinese government is encouraging universities to design new majors that focus on emerging industries like alternative energy. In the future the government will support the deeper integration of coursework and external projects.

China will face a transfer of power this year that is unprecedented. It has been a decade since China experienced a leadership change on this scale. About 70% of the senior leadership will be replaced in the fall. Vice-president XiJinping will take over from President Hu Jintao and Li Keqiang will replace the prime minister, Wen Jiabao. This change in power structure comes at the same time as the economy slows and the gap between the rich and the poor grows.

Social media outlets, “weibo,” the Chinese version of Twitter, have transformed public discourse and have galvanized disparate groups of the population. While the government has put controls on internet access it has not totally succeeded. Chinese students, especially those who have lived abroad with unrestricted access to all social media outlets, will find a way to gain the access they once took for granted.

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AUTHOR: MJ Dennis Consulting

Copyright MJ Dennis Consulting

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.