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Local Colleges May Drown in Debt
Summary:As student numbers decline, many of China’s local colleges and universities are struggling to pay interest on some 260 billion yuan debts. Local governments are encouraging them to sell off land to avert bankruptcy, but some analysts say that students ought to prepare for the worst.

By Kang Yi (康怡)

News, page 4,

Issue No. 535, Sept 5, 2011

Translated by Zhu Na    

Original article: [Chinese]  

 Earlier this year, the finance ministry and the education ministry together issued a report on dealing with debts at local universities and colleges, which the National Audit Office estimates totaled 263.5 billion yuan at the end of 2010

The ministries’ report said that the universities themselves should bear responsibility for repaying loans that were used to fund their operation and construction, but that they should be helped by local and central government.

University leaders applying for financial support from the central government have been disappointed.

“We always thought that university debts should be paid by the nation,” said one university official in Heilongjiang Province.

“These university debts arose because of a lack of national investment at the time that universities were expanding,” he said.

Instead of putting up cash to repay universities’ debts, the central government is providing funds selectively, rewarding those universities that have developed a strategy for financing.

“If most of the debts are going to fall on the government, then there needs to be a transparent procedure to identify how the borrowed funds were used,” said Xiong Binqi of the 21st Century Education Research Institute, adding that the government might otherwise be held liable for the reckless expansion of certain universities.


Many of the loans now being taken out by local universities are used to repay older creditors.

“Banks have started to change their attitudes about universities, since the media drew attention to their debts a few years ago” said Xiong.

Local universities have borrowed from a range of sources, aside from financial institutions.

In Shandong, for example, the province’s 85 public universities had a total debt of 28.4 billion yuan at the end of 2009. They had raised a total of ten billion yuan from non-banking sources.

“Heilongjiang University of Technology owes construction companies,” said one university official, explaining that others also borrowed from the World Bank and foreign banks to build teaching facilities.

The Role of Governments

There’s no doubt that local governments will have to help local universities repay the banks.

An officer from the finance department of the Ningxia autonomous region said that his colleagues fear that Ministry of Finance will take back education subsidies unless the region’s universities reduce their debts.

Elsewhere, academics question universities’ ability to repay the debts.

“Given that local universities’ student numbers are declining, the main source of funds to repay debts - tuition fees - will also contract, and the pressure of debt repayment will grow,” said Li Baoyuan, a professor at Beijing Normal University.

If Heilongjiang University’s financial situation is anything like local universities’, then the problem is even more serious than Li suggests.

“In our university, tuition fees can only cover interest payments, we can’t even think about repaying principle,” one official from the university said.

Hunan Province’s universities are in an even worse fix, according to an Audit Office assessment that shows 45 of them have net revenue less than the interest on their debts.

In Henan, auditors also found that five universities, with total debt of 2.8 billion yuan, that weren’t generating enough cash to repay the interest on their loans.

Aside from tuition fees, there’s not much hope from other possible sources of revenue, such as accommodation fees.

“Some universities run student hostel projects under the Build-Operate-Transfer model, which means that there is no way for them to collect students’ accommodation fees for at least 10 years,” said a Heilongjiang University official.

So how are universities going to cope with their debts?

Currently they’re pinning their hopes on land sales. That has been the strategy in Jiangsu and Zhejiang.

Hubei required its local universities to sell off their idle or underused land by the end of 2012 and use the proceeds to pay down debts.

The Heilongjiang University official says that requirements like Hubei’s will make little difference to total debt levels since few universities have unneeded land that they can sell off.     

Xiong, the researcher on education, said that although land sales might temporarily alleviate universities’ debts, more fundamental changes are needed or else we could see bankruptcies.

As a precaution, he says we need a system enabling students to transfer their studies to other universities if their college goes bankrupt.


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