China’s Universities and the Debt Problem

It’s not just public colleges in the United States that are having trouble with funding. It looks even the much-praised higher education system of the People’s Republic in China may be in financial trouble.

According to an article by Gary Pansey and Veronica Wang in the Epoch Times:

A staggering debt load has now become the most pressing problem for Chinese universities and could bring them to the brink of bankruptcy. Of the 10 trillion yuan (US$1.5 trillion) debt owed by various levels of Chinese authorities, the nation’s 1,164 universities are on the hook for 3 percent.

The Chinese Audit Commission recently disclosed that higher education collectively owes US$40 billion, mostly to banks. The National Radio Network reported on July 3 that, as of the end of 2009, Shaanxi province’s 40 universities had a total debt of over US$1.5 billion.

This debt didn’t used to be a problem. But in June, in response to inflation concerns, China’s central bank increased bank reserve ratios. China’s largest banks now have to hold 21.5 percent of all money they take in.

This new requirement means banks are exerting pressure on universities to pay off their debts. The article reports that many schools are using tuition to pay for this new demand.

Apparently a former Chinese minister said four years ago that “the debt owed by Chinese universities is the result of corruption.” Higher education administrators apparently take money out of the system for their own purposes. Interesting, but this doesn’t really solve the problem. If the banks demand that universities pay off debts faster, the universities have to do so, no matter where the debt came from.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer