China’s Education Sector: Key Trends and Opportunities for Foreign Companies

China has the largest number of international students in educational institutions globally, especially in the United States, the UK, Australia and Canada. Despite many students reconsidering their study abroad plans due to the health risks and travel restrictions brought about by the COVID-19 pandemic, as well as ensuing geopolitical tensions, demand for international education remains high. This appetite is unlikely to subside among China’s booming middle class. In fact, the pandemic has revealed several key trends for international education providers within the market:

Demand for study abroad opportunities among Chinese students remains resilient.

Despite mounting uncertainties, a QS report showed that over 90% of prospective Chinese international students still decided to pursue their higher education abroad. For those travelling to the United States, President-elect Biden’s victory also provides some hope for a more welcoming environment. Interest in studying elsewhere in Asia—including Japan and South Korea—is also increasing due to their relatively low cost and cultural similarities. Likewise, some students are seeking an international education closer to home by turning their attention to Sino-Foreign Cooperative Universities. NYU Shanghai, for example, saw a 14% increase in the number of applications from domestic Chinese students this year, even before the Ministry of Education (MOE) announced plans to expand programs for qualified students who cannot study abroad due to the pandemic.

Online education is now a critical and irreplaceable component of China’s education system.

The MOE has recognized the large-scale adoption of online learning solutions as a critical turning point for the education system. One month into the COVID-19 pandemic, the MOE facilitated 37 platforms which offer 24,000 free online courses for higher education. K-12 education companies are also launching more e-learning courses, while developing data tools to analyze student performance and help teachers track their progress. Schools in China are now well prepared for both online and offline learning in the event of sporadic COVID-19 outbreaks. The online education sector is expected to triple from RMB 203 billion (USD 30.9 billion) in 2019 to RMB 696 billion (USD 106 billion) in 2023.

Vocational education is likely to experience rapid growth, driven by strong government support.

As a mechanism for addressing unemployment pressures created during the pandemic, China plans to provide more than 35 million vocational skills training opportunities and increase enrollment in vocational colleges by 2 million over the next two years. Political interest in high-quality vocational education provision was already elevated before the pandemic to better equip the labor force to meet the demands of China’s changing economy. While learning from Western models, Chinese officials are also keen to cooperate with developing countries and international organizations to share new perspectives in vocational education and training.

Opportunities for Foreign Companies

Despite a shifting geopolitical landscape, China continues to demonstrate an openness toward foreign investment in the domestic education sector. This was seen most recently in the significantly narrowed negative list for foreign investment, which permits wholly foreign-owned enterprises to establish vocational training institutions in China without a domestic partner. While the current legal framework still prohibits foreign investment in compulsory education (K1-9), the education sector is showing several promising opportunities for foreign companies:

China’s online education market is booming.

China’s online education market has become one of the world’s most lucrative markets, driven by the rising demand for private and vocational education. These areas are not limited to study materials and learning resources, but also extend to EdTech capabilities such as virtual learning and online classrooms. Many domestic educational institutions are partnering with international education providers to build integrated learning services that connect offline and online learning. However, international education stakeholders should still be mindful of the emerging regulatory framework from the Chinese government. Due to its unique position across two sensitive sectors—education and the internet—online education providers are prone to high levels of scrutiny, especially when services are offered through mediums such as mobile apps and livestreaming platforms.

China’s domestic market for internationalized education is growing.

The pandemic has led the Chinese government to actively explore the internationalization of domestic higher education. In June 2020, the MOE highlighted the need to enhance Sino-foreign cooperation, reform approval policies for international involvement in educational institutions and attract high-quality international educational resources. China is therefore likely to see continued interest in increasing the number of Sino-foreign cooperative projects and institutions nationwide, which creates new opportunities for foreign institutions and businesses.

Pilot Free Trade Zones are leading the change.

Foreign investment is especially encouraged within FTZs in Hainan, Shenzhen and the Yangtze River Delta, where the internationalization of education is highlighted as a key priority. The development of Hainan’s Free Trade Port (FTP) is especially notable for proposals to encourage Sino-foreign cooperation in running schools and permitting foreign higher education institutions and vocational schools in science, engineering, agriculture and medicine to establish independent schools on the island. Building off these pilots, Hainan is likely to become the first region in China to open fully to foreign investment in the education sector. The government’s recent decision to establish three new FTZs in Beijing, Hunan and Anhui provinces may also create opportunities for foreign investment in the education sector.