Market size and trends of the private fundamental education industry in China
Private education was first allowed in China by law in early 1980s to bridge the shortage of public resources. Private education has experienced rapid growth and become an important segment in the PRC education system. According to the Research, total revenue generated by the PRC private fundamental education industry increased from CNY 124.1 billion in 2012 to CNY 184.2 billion in2015, and is expected to increase to CNY 325.5 billion in 2020, representing a CAGR of approximately 14.1% and 12.1% respectively. This rapid growth was primarily driven by the parents’ and students’ rising preference for private schools, which resulted in the increased student enrolment in private schools, as well as increased tuition fees charged by private schools.
Comparison between private and public fundamental education in China
According to the Research, compared to public schools, private schools have the following advantages:
• Flexibility in enrolment plan: Private schools generally have more flexible enrolment plans and fewer limitations regarding students’ background, whereas public schools usually have specific requirements, such as students’ registered permanent residence.
• Curriculum diversification: Many public schools are reluctant to make adjustments and the diversification in public schools’ curriculums is limited due to the requirements of governmental departments. In contrast, private schools tend to have more diverse and broader curriculum offerings and a greater degree of flexibility in terms of the level of tuition they charge.
• Motivation for improvements: Private schools react more actively towards market needs and demand compared to public schools which are mainly driven by the government guidance. As a result, private schools are more motivated to continuously making improvements, which allows them to attract high quality students and charge higher tuition fees.
• Operation flexibility: Private schools in China generally have higher level of operation independence. With greater motivation to react to market dynamics and to improve, private schools also possess greater flexibility in operation that enables them to do so. They have their own employment system and stimulus measures, which broaden the source of teachers and encourage them to improve teaching quality.
• Tuition fee: Tuition and miscellaneous fees are generally higher in private schools than public schools. According to the Research, annual average tuition and miscellaneous fees in private high schools, middle schools and primary schools are estimated to be CNY 7,719, CNY 3,289 and CNY 2,567, respectively in 2015. In China, primary schools and middle schools are compulsory education, and public schools do not charge tuition fees for compulsory education, while only a limited amount of miscellaneous fees will be collected.
Drivers of private fundamental education in China
The development of private primary and secondary education in China is driven primarily by the following factors:
• Increase in income level and higher attention to children’s education of Chinese households: Children’s education is generally the priority for most parents. There is also an increasing number of Chinese parents who would like their children to receive differentiated and well-rounded education which are usually provided by premium private schools. With the increase in disposable income of urban households in China, tuition fees charged by premium private schools have become more affordable, which is expected to support the growth of the industry.
• Government support: Since the 1980s, the PRC government, both at the central and local level, has launched a series of policies to encourage the development of private education institutions. For example, PRC government expenditure on private education increased at a CAGR of 14.8% from 2012 to 2015. The PRC government also encourages private investment in the education sector. For example, the Decision on Amending the Law for Promoting Private Education of the PRC, which was put into effect on 1September 2017, provides additional supportive measures to private schools. Additionally, the 12th Five-Year Plan for National Economic and Social Development issued by the National People’s Congress in 2011 encouraged private capital to run education and ensured that private schools enjoy equal legal status as public ones. In some regions, local government has taken many favorable policies to attract well-branded private schools to establish local branch, such as free land or financial support for campus building.
• Increase in private investment: With the continuous development of the PRC education sector and support from the PRC government, the sector has attracted increasing attention from private investors and significant investments have been made by them in the form of private investment, initial public offering, etc. We expect that this trend will continue and become an important funding channel for the industry.