THE IMPACT OF CHINA’S WEAKENING ECONOMY
ON AUSTRALIA’S INTERNATIONAL EDUCATION SECTOR
Presentation to Optus Advisory Board
11 March 2009
Professor Dean Forbes
Deputy Vice-Chancellor (International)
Flinders University
If this was 1999, not 2009, you would probably be puzzled by the title of my talk. Why, with the world experiencing its worst economic crisis since the Great Depression, would anyone be interested in hearing about international education?
In 2009 things are different. Australia’s education exports reached $15.5 billion in 2008, and have increased at 15.7% pa for the last decade (ABS 2009). Education exports occur across the sector, from schools to vocational education and training to English language colleges. Universities, though, are the driver of the sector accounting for around 60% of the export income.
Coal and iron ore were Australia’s top-ranked exports in 2008. With the decline in commodities prices there is an outside chance that education will top iron ore in 2009.
China is the principal market for Australian education. In 2007 it accounted for 22.5% of our education exports, up from 3.2% a decade earlier. India (13.3%) was the second most important market, followed by South Korea, Malaysia and Hong Kong.
Just out of interest, the main cities where the students coming to Australian universities lodged their visa applications were Shanghai, Beijing, Guangzhou, Hangzhou, Nanjing and Wuhan.
There were 9,459 Chinese students studying in South Australia in 2008, and this represented 34.1% of our 28,000 international students. Just under 4,000 were studying in universities. SA has a 7.5% share of the overall Chinese students in Australia. On top of that there are Chinese students studying programs delivered by South Australian universities in China, but I will leave them out of the equation for the moment.
International students contributed $741 million in export income in 2008. This makes them the state’s fourth major export after wine, copper and motor vehicles. It also supports about 3,600 jobs. I have no accurate figure for the dollar value of Chinese students in South Australia but it is reasonable to assume it is about a third of the overall spending of students, so it was probably around $250 million in 2008.
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Let me now turn to the impact of the global financial crisis (the GFC) on international education, and on the universities in particular.
Over the last few months a range of opinions have been expressed. The conventional wisdom is that family spending on international education in the major Asian markets is a long-term investment. It is not discretionary spending.
The evidence cited is the consistent growth in international university students over the last 15 years. The Asian economic crisis in 1997-98 had very little impact on numbers of students. Therefore, it is assumed, nor will the current crisis. At least one brave soul in an unguarded moment said international education was recession-proof.
Nevertheless, whatever happens in China is important. Many Australian economic commentators in the second half of last year said that China’s growth is strong, the government has a firm grip on things, it is cashed up and it can respond speedily to any problems. Australia would be cushioned because of continuing Chinese demand for minerals.
I have been a regular visitor to China for nearly 25 years, and involved in international education for the last 10 years. I am worried that there has been too much complacency both about the severity of the impact of the GFC on China and the resilience of spending on international education.
China’s exports and imports were both well down in the last quarter of 2008. Among the reasons for the former was what I call the ‘wal-mart effect’ of reduced consumer spending in the US. Imports were affected by the government’s attempt to deflate China’s construction bubble, of which China’s universities were enthusiastic participants (see Eslake 2009).
The first semester in Australian universities has just commenced. The consensus around the country thus far has been business as usual. Universities are expecting modest growth in commencing students, including from China. So too are the private higher education providers.
Flinders University’s applications from international students commencing this semester were up 22% and China applications up 15%. Enrolments for both groups were about the same as last year (5/3/09). The figures will take another week or two to settle down.
However, there has been an increase in the number of Flinders commencing students requesting a refund as they no longer can afford to come to Adelaide. Other students are requesting they be able to pay their fees by instalment because of financial pressures. Student advisors are anticipating an increase in this in the next few months. The situation is exacerbated by a tightening Adelaide labour market. Students are less able to supplement the funds they receive from home.
It would appear that the resilience in investment in international education that has characterised the last decade or two is still evident. So far, so good.
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Before going further, lets look at what the universities have in mind for international education in the long-term. As a group we work together on our market analyses and forecasts. The most recent revision of demand and supply forecasts was completed in 2007 (Banks, Olsen and Pearce 2007).
That study forecasts annual growth in demand for international higher education over the next 20 years of about 2.7% pa. Demand for places in Australia is forecast to grow at around 2.9% pa. To be precise, the forecasts are for increases of 4.3% pa growth to 2010, then dropping because most Australian universities will be at capacity in terms of international students.
This means that Australia will only fractionally improve its global market share of around 6.5% of international higher education places.
The South Australian Strategic Plan (SASP) has set a target of doubling the state’s share of Australia’s international students to 9% by 2014. When the SASP was completed in 2003 this meant 40,000 students. However, strong national growth has increased the target to 62,000 students by 2014, much more than double the 28,000 international students we had last year. The new target requires grow rates in excess of 15% pa. This is over five times faster growth than the forecast growth rates for universities that I mentioned above. If this rate was to be achieved South Australia’s education exports would be worth over $2 billion in 2014.
Chinese student demand for university places in Australia is expected to grow at 3.9% pa. Not surprisingly, South Australia’s International Education Plan 2008-2014 identifies China as first of four key target markets, the others being India, South Korea and Vietnam. Chinese students, by implication, are going to have to grow by at least 15% pa if the SASP targets are to be met.
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The question is, what is likely to happen next? The GFC is sure to have some kind of impact on the decisions by Chinese students about overseas university education.
In part it will depend on how well the Chinese government is able to manage the current situation through its $US585 billion fiscal stimulation package, and the other measures it proposes. The Government is confident it can restore growth of 8% in 2010.
Nevertheless, reports of rapidly escalating unemployment, and business closures, will surely dampen overseas education demand.
Moreover, China has an import-substitution strategy for universities. It’s building its own ‘world class universities’, such as the 985 Group, which it intends will become attractive to ever-growing numbers of international fee-paying students, and reduce the demand from high-performing Chinese students for an overseas education.
Currency fluctuations are important in the current environment. On the positive side, the significant appreciation of the Chinese Yuan, which traded at around 6.5 Yuan to the Australian dollar last year, now trades at around 4.5 Yuan, reducing the costs for current and prospective students by almost a third. A similar situation exists in a number of Australia’s main markets. An Indian student needed 42 Rupees to buy an Australian dollar in August, whereas now it costs 32. Significant depreciation of the Australian dollar has occurred against the Singaporean Dollar, the Malaysian Ringgit, the Japanese Yen, and other currencies. This trend has assisted growth this semester.
Activity by competitors will also have an impact on Australia. Our major competitors are in the USA and the UK. Both economies have been harder hit by the GFC than Australia. In the US a number of higher education organisations have written to the incoming administration and Congress arguing a stimulus package was needed for higher education (AEI 2009).
However the US dollar has weakened a little against the Yuan, but actually strengthened against the Rupee over the last few months. The British Pound has weakened against both the Yuan and the Rupee, but far less than the Australian dollar. Singapore is our major regional competitor and has had some success with its international education strategy. It has shown some weakness against the Yuan, but strengthened against the Rupee. In all, our major competitors have not benefited as much as we have from currency shifts. The question is, how will the Australian dollar shift against these particular currencies over the next year or two?
Predictions about semester two enrolments and 2010 enrolments are cautious. Australian Education International in Beijing anticipates a downturn next year, based on their observations of current trends in the China market. It looks increasingly likely.
What can be done to reduce the impact on universities and hence on South Australia?
Some of what needs to be done has already been done. Universities have strategies to manage risk through the diversification of sources of income: by student country of origin; by type of student (Flinders, for example, has had a strong focus on government scholarship students); by mode of delivery (on-shore teaching, on-line courses, and transnational education); and by the diversity of courses attractive to international students.
Universities also have policies enabling students to pay fees by instalments, and can offer fee waivers and scholarships to reduce costs for students if the circumstances are justified.
Finally, cities and communities also need to be aware of the factors that shape our international students perceptions and hence underpin international education. Student satisfaction depends not just on their study program and the campus environment, but also on their living experiences in Adelaide. And this can sour very quickly. Together with Education Adelaide the universities make an effort to build understanding of the benefits of international education in the community and hence buttress community support.
Yet South Australia has a small economy. The current crisis is likely to limit the opportunities for students to get work placements while they study, part-time employment, and for those planning to immigrate, jobs and careers.
Building and sustaining Adelaide as an international education city of choice is going to require extra effort during the current financial crisis. However we also need to simultaneously work on enhancing our appeal to future students, and hence improve our competitive position in the new global economy that is going to emerge over the next few years, and within which, China is going to have a critical role.
REFERENCES
Australian Bureau of Statistics 2009 International Goods and Services, December 2008 trade data.
AEI North America 2009 The Financial Crisis and the US Higher Education System, Australian Education International, Washington DC.
Banks, Melissa, Alan Olsen and David Pearce 2007 Global Student Mobility: An Australian Perspective Five Years On, IDP, Sydney.
Education Adelaide 2008 South Australia’s International Education Plan 2008-2014
Eslake, Saul 2009 “Economic overview” in Economic and Political Overview 2009, Committee for Economic Development of Australia, Melbourne, pp 6-29.
Government of South Australia 2007 South Australia’s Strategic Plan 2007, Adelaide
Reserve Bank of Australia 2008 “Australia’s exports of education services” Bulletin, June 2008, pp12-17.