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Knowledge is Power:
Understanding the Education
Market in China
By Dezan Shira & Associates
Editor: Alexander Chipman Koty
China’s already immense education industry is
poised to further expand in the coming years as
Chinese parents prepare their children to compete
in an economy far different than the one they grew
up in. After decades of relentless growth facilitated
by an abundance of low cost workers, China is
transitioning to a more mature development
model reliant on services and skilled labor – and
increasingly affluent Chinese families are investing
in education to meet these needs. 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.
The growth of China’s education industry is striking.
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. All
told, investment catapulted from RMB 6.1 billion
($913.4 million) to RMB 15.9 billion (US$2.4 billion)
year-on-year.
Although China is experiencing a long-term
aging population, the size of its current youthful
population remains significant. Of China’s 1.37
billion citizens, 17 percent are between the age of
0 and 14 – approximately 233 million in need of
education. The parents of this nearly quarter billion
contingent of children are wealthier than previous
generations and prepared to pay a premium for
education. In addition to China’s longstanding
cultural emphasis on education, the country’s
one child policy gave parents strong incentives
to invest heavily in their children, as parents and
grandparents are often dependent on a single child
for support as they age. The relaxation of the one
child policy in recent years, however, may lead to an
increase in newborns at a timewhenmany Chinese
families are prosperous enough to comfortably raise
more than one child.
Surveys consistently show that Chinese families
prioritize spending on education ahead of any
other area, including real estate and retirement
savings. Spending habits support this statement, as
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, the most in the world aside
from Sweden. Further, according to ICEF Monitor,
almost half of a Chinese 20 year old’s per capita
consumption is spent on education, in contrast
to less than a quarter for an American. These
expenditures are significant and set to rise, as the
working age urban middle class is forecasted to
increase to over 50 percent in 2030 compared to
just four percent in 2010.
Despite the willingness of Chinese consumers
to spend on education, foreign investors face
several challenges entering the market. The
Chinese government is often suspicious of foreign
involvement in education, and holds strict control
over curricula. Foreign participation is prohibited
in compulsory education spanning ages 6-15,
and most types of educational facilities require
establishing a joint venture with a Chinese partner.