Chinese realities

Finding the middle road

Is the regulatory environment in China just too difficult when pursuing an opportunity to establish a school with a local partner ? Not necessarily, according to Mark Schaub. 

A person who can only say no is useless; a person who can only say yes cannot be trusted

Contradictory advice

Many people advising on education in China seemingly fall into two camps –

1) China is very, very difficult. Regulations are very strict. Really it is all very, very difficult; or

2) In China there are no problems.

As the reader may guess, the truth falls somewhere in between these two extremes. Strictly following the published regulations without a feeling for the actual practice may mean you will miss opportunities,  demand concessions from partners that are simply not possible or fail to take additional safeguards from a strategic perspective as they are not spelled out. However when exploring the possibility of working with a partner in China to establish a new school,  international education institutes do have legitimate concerns as to impact on reputation when considering and  potential liability and many others – simply “having a go” is just not a strategy.

Practicalities

Therefore, it is important to obtain practical advice; identify and quantify risks and take measures to both minimize such risks, but also limit any potential fall out. In this regard, it is also worth noting that “crackdowns” by Chinese authorities are normally against a backdrop of illicit behavior – they typically have a very targeted approach. It is also important to note that legislation in China tends to lag behind the practice. Accordingly, slavish following of regulation without regard to practical implementation may result in missing issues your project may potentially face.

So what realities should an international partner be aware of as they are considering an opportunity? Here are five key areas.

1. The place for foreign involvement

For understandable historical reasons as well as modern scams by bad players, the PRC authorities are keen to ensure education is both tightly controlled and well regulated.

Subsequently, foreign entities will be embraced (or at least tolerated) where their activities are aligned with government policy (i.e. improving education levels) or where it is helping to meet a perceived need in China (e.g. for vocational training). For this reason, legitimate international education entities are cautiously welcomed, provided they comply with PRC regulations or at least do not push the envelope too far.  Therefore, it is crucial to consider whether your (intended) activities are compliant with Chinese laws or, if you are operating in a gray area, whether the level of risk is acceptable.

2. The importance of the official perspective

The Chinese authorities have tended in recent years to tighten controls over ‘alternative messaging’ to official policy – particularly in respect of the young. The Chinese authorities have placed more controls over the operation of educational institutions including involvement by Communist party members in leading positions. In addition, they have also applied much greater scrutiny to vetting of curriculum. To underscore this, one only need review the guidance which the Implementation Regulations for the Law of the People’s Republic of China on Promoting Privately-run Schools (amendment draft for approval, not effective yet) provides: 

“Private schools shall uphold the leadership of the Communist Party of China, adhere to the direction of socialist education, adhere to the public welfare of education, and implement the fundamental tasks of the people of China. The grassroots organizations of the Communist Party of China in private schools implement the party’s principles and policies, play a political core role, and participate in major school decisions and implement supervision in accordance with the law, these Regulations, and relevant state regulations.”

Accordingly, the role of the party in education should not be underestimated, and needs to be respected.

3. Attitudes to international schools

The PRC authorities are relatively relaxed in relation to international schools which target non-Chinese passport holders. Originally, such schools sprung up in the 1990s to meet the education needs of expatriate families that accompanied the foreign investment boom in China. However, as time went by the expatriate market has stagnated or even fallen whereas the primary interest of international education entities is to target the far larger and far more lucrative Chinese market.

In reality, many of the new international schools will have many more Chinese-born students who happen to hold a foreign passport rather than students from expats from the USA or Europe who are living in China. In short, it is likely that there are relatively few opportunities to target international students and that most international educational entities looking at the China market will be much more interested in targeting domestic opportunities.

4. The state monopoly of compulsory education

The PRC government clearly wishes to ensure it has a monopoly on educating its young citizenry. In an amendment to the somewhat ironically entitled Law Promoting Privately Run Schools the Chinese authorities prohibited privately run (i.e. for-profit) schools from participating in compulsory schooling (Grades 1 to 9). Further, in an amendment draft (not yet effective) of its implementation regulations, it seems very clear that China is determined that no foreign capital or control or management will be allowed in this sector. Accordingly, it is best for international entities to be aware of the legal issues that may arise from such opportunities when they occur.

5. Private Profit and Private Non-Profit

Nevertheless, while taking a strong line to exclude for-profit schools (including Chinese invested ones) from compulsory education in Grades 1-9. the Chinese authorities do appear to be encouraging for-profit private schools (including foreign invested ones) in the education sector for certain age groups, including pre-nursery, G10-12 and higher education.

Going forward

China is and remains a tremendous opportunity for Western educators. China is neither as difficult as the naysayers say nor paved with gold as the boosters would have you believe. International companies and UK based schools are well counselled to proceed pragmatically with an eye not only to opportunity but also to risk. China is dynamic – so what was legal, tolerated or successful 5 years ago may no longer be so. The government is clearly regulating education more strictly and therefore it is important to consider how (if at all) this will impact your project. In most cases change can be easily dealt with if you are well prepared. It is key to obtain good advice when operating in China, but at the end of the day you cannot outsource judgement. If you have serious concerns you are probably right!

 

Mark Schaub

Co-China veteran and lawyer Mark Schaub is and international partner and global co-head of Consumer Practice at King & Wood Mallesons. He has advised on foreign investment projects in all major sectors in China with a cumulative value exceeding USD 20 billion. He is familiar with China issues faced by companies and education institutions of all sizes. He speaks English, German, and Mandarin. King and Wood Mallesons offer a variety of legal services to UK schools in the process of finding and working with an educational partner in China.

 

International Partner, King & Wood Mallesons

London/Shanghai

T +44 2075501564

mark.schaub@eu.kwm.com