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2 SUN WUKONG Bankruptcy
fears for China's universities By Wu Zhong, China Editor
HONG KONG -
After the annual sessions of the National People's
Congress (NPC) and the Chinese People's Political
Consultative Conference (CPPCC) in the first half
of March, the issue of over-borrowing from banks
by public universities has once again been brought
to public attention, raising concerns over whether
many Chinese schools will go under, with their
bank loans becoming bad debts.
The problem
of over-borrowing by universities was first
exposed
early
last year. After auditing books of several public
universities, the no-nonsense state auditor Li
Jinhua warned against financial risks created by
over-borrowing from banks.
According to
the Chinese Academy of Social Sciences' blue paper
on social development in 2006, the outstanding
loans owed by Chinese public universities stood at
150 billion to 200 billion yuan (about US$19.3
billion to $25.8 billion at the current exchange
rate) in 2005.
But even this figure could
be well underestimated. "In fact, the debts owed
by public universities are far larger than that,"
said Shao Hong during the just-ended NPC and CPPCC
sessions. Shao is a member of the CPPCC Standing
Committee and vice chairman of the Jiu San
(September 3) Society - one of China's tiny
non-communist parties.
Shao, former vice
president of Nanchang University, described total
debts of Chinese public universities at 400
billion yuan as "a conservative estimate". He said
that in addition to bank loans, many schools also
owe money to construction companies and other
institutions.
Official figures show that
since 1999, public universities across the country
have invested more than 500 billion yuan in
infrastructure construction. Many insiders agree
with Shao that at least 80% of the funds came from
loans.
Zhu Yongxin, vice mayor of Suzhou
and also a member of the CPPCC Standing Committee,
estimated that total borrowings could reach 500
billion yuan. In financial accounting, a number of
universities are on the verge of bankruptcy. In
practice, their operations are running into
difficulties.
According to the influential
Caijing magazine, the problem of universities'
over-borrowing was one of the hot topics in panel
discussions during the NPC and CPPCC annual
sessions. Deputies have filed more than a dozen
motions addressing the issue.
"Huge debts
have become an important factor restricting the
development of higher educational institutions.
Some schools are on the verge of bankruptcy. If
the problem is not handled properly there will be
far-reaching consequences for China's higher
education," Zhu Yongxin said.
In the final
analysis, the over-borrowing problem stems from
over-expansion of higher education since the late
1990s.
During the five decades between
1949 and 1999, Chinese universities were regarded
as government-related organizations that operated
on government funding and strictly followed the
principle of "making expenditure within the limits
of revenues". As such they were never allowed to
borrow from banks.
However, in the
mid-1990s, especially after the Asian financial
crisis in 1997, the Chinese government adopted an
expansionary fiscal policy to boost investments
and domestic consumption and sustain the
high-speed growth of the country's economy. It was
under this policy that higher education was set to
be expanded into a major sector of consumption.
Li Lanqing, then executive vice premier
overseeing education, recalled after his
retirement that the decision was made for several
reasons. In addition to popularizing higher
education, it would meet social demand so
expenditure in education would increase to help
boost domestic consumption. Furthermore, with more
students enrolled, the pressure on unemployment
would be eased. (But it turned out that the
expansion of student enrollment only postponed the
problem of unemployment, as it has become
increasingly difficult for university graduates to
find jobs.)
In June 1999, the State
Council announced its decision greatly to expand
student admission to higher educational
institutions. However, while the central
government set the policy to expand higher
education, it was unable to increase its financial
input proportionately. Instead, it encouraged the
schools to be run commercially like enterprises,
allowing them to borrow from banks for expansion.
Local government immediately saw this as a
golden opportunity to boost local infrastructure
construction. So the year 1999 witnessed massive
borrowings from banks by public universities. Most
of these loans have been spent on expanding
campuses, building more classrooms or office
buildings, dormitories and other facilities.
Many regions even competed to build huge
new "university cities". For instance, Guangzhou
invested 12 billion yuan to build its "university
city" on 43 square kilometers of land. Langfang,
a
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