China’s vocational education reform reveals investment opportunities

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Although China is strengthening regulations on academic tutoring for school-aged students, it simultaneously encourages private investment in vocational education. China believes that upgrading the skills of its workforce is critical to the country’s continued economic growth. Foreign investment is explicitly welcome in the vocational education sector.

On October 12, 2021, the Communist Party Central Committee and the State Council issued the Guidelines for promoting the high-quality development of modern vocational education (hereafter, thereafter “Guidelines”). The document sets clear targets, including that by 2025, the number of enrollments in vocational colleges should not be less than 10 percent of the total number of enrollments in higher education institutions; and by 2035, vocational education in China is expected to be among the best in the world.

Moreover, unlike its recent brutal crackdown on for-profit tutoring in basic education, China has been constantly pushing for the accelerated development of its vocational education system for many years.

The objectives underlying these actions are not contradictory.

Policy makers want to reduce student workload and ensure equity in education, in addition to increasing the supply of skilled workers to meet the demands of an economy in transition to a high-tech industry and technology driven growth. This could signal long-term changes in the education landscape in China.

Thus, while foreign players are prohibited from investing in segments of compulsory education in China (grades 1 through 9, six years in primary schools and three years in colleges) or in the religious education, vocational education (including vocational education and vocational training) is an area which explicitly welcomes foreign investment.

As a rule, foreign investment in preschool education, ordinary high school, higher education institutions and vocational education institutions should be carried out in cooperation with and under the guidance of a Chinese entity. This should be read differently from the investment environment in China’s vocational education industry. Recent measures taken by the Chinese government include policies to ease market access to vocational education segments for foreign investors.

The importance of vocational education for the future of China

China has been pushing for the expansion of its vocational education system for many years.

The latest efforts include revising the Vocational Education Act, announcing a three-year action plan, and providing grants to companies that set up schools. apprenticeship programs.

These policy actions are aimed at improving the skills of the Chinese workforce and the benefits are clear. If rural and low-income Chinese workers are well educated and trained to meet the needs of high-end manufacturing sectors (such as microchip manufacturing, new energy, modern agriculture, industrial robots, etc.), they propel and sustain the ambitious economy of the economy growth targets. Otherwise, underqualified workers could slow the capacity for growth and create critical skills gaps in the talent market.

Currently, China faces a structural imbalance in its labor market with an oversupply of university graduates but a shortage of highly skilled factory workers. The imbalance has intensified since the COVID-19 pandemic, with more factory workers seeking more flexible service jobs (like food delivery and courier services), resulting in less factory workers.

The development of vocational education can help China cope with the pressures of unemployment and the imbalance of the labor market. It can also indirectly stimulate “rural rejuvenation” and “common prosperity” campaigns and ultimately prevent the country from falling into the middle income trap.

What are the obstacles to the development of vocational education in China

At present, Chinese children can go to secondary vocational school after completing nine-year compulsory education (grade 1 to 9) or go to higher vocational college after completing high school (grade 10-12).

Vocational training course in China-01

Often overlooked, vocational high school students make up about 40 percent of China’s school-age population – more than 16 million children at last count, according to Sixth tone. However, the quality of secondary vocational education in China is low, and schools have disproportionately high dropout rates. Many children end up in jobs that are irrelevant to their major. Most, having graduated or dropped out of school, entered mainstream factories or service sectors.

Regarding tertiary vocational education, in 2020, China had nearly 1,500 registered higher education institutions (including universities and higher vocational colleges), but among them, only 21 were vocational colleges. , according to Caixin.

In the 2020 government activity report, China outlined its plan to provide more than 35 million vocational training opportunities and increase vocational college enrollment by two million over the next two years. And it intends to subsidize 75 million vocational training places in the coming years until 2025.

However, in addition to the poor quality of vocational education and the small number of higher vocational education institutions, another concern is that vocational education is widely viewed by the Chinese as a “second choice” for a degree. university. Most parents don’t want their children to attend vocational school unless there are no options.

Today, policy makers are trying to raise the status and social recognition of vocational education. The latest draft version of the Vocational Education Act states that “vocational education is as important as regular education”.

China’s measures to improve vocational education

In the Guidelines As well as other relevant policy documents, we noted the following reform measures adopted or to be adopted by the government:

  • Introduce the “vocational college entrance examination” (China already has the famous national university entrance examination, or “Gaokao”, for high school students to be admitted to universities and colleges. colleges.) The “vocational university entrance examination”, however, is expected to be open to vocational school graduates, workers and the unemployed. And it will assess a mix of cultural knowledge and professional skills.
  • Encourage listed companies and leading companies in the sector to organize vocational training programs and participate in the development of educational programs and materials for vocational training institutions.
  • Encourage vocational schools to set up courses that meet market demand. Priority should be given to training talent for emerging industries, including advanced manufacturing, renewable energy, modern agriculture and artificial intelligence (AI).
  • Encourage professional institutions to intensify cooperation with enterprises to serve technological upgrading and product research in medium, small and micro enterprises.
  • Encourage undergraduate schools to develop “undergraduate vocational training”.
  • Primary and secondary school students should receive vocational education training courses to cultivate their awareness of career planning.
  • Improve the quality of teachers, innovate teaching models and promote cooperation abroad.
  • Cooperate with other countries and international organizations to share new perspectives in vocational education and training.

Are foreign investors allowed to invest in Chinese vocational education?

The vocational education sector is gradually opening up to foreign investors. The 2020 negative lists for foreign investments allow wholly foreign companies to establish vocational training institutions in Chinese free zones (FTAs) without a national partner.

In addition, the Council of State recently announced that it would adjust the Regulations on Sino-Foreign Cooperative Education for Beijing to boost the capital’s service sector. Beijing will formulate specific management measures encourage foreign investment in for-profit adult education and training institutions and for-profit vocational training institutions.

In fact, foreign investors are encouraged to invest in non-university vocational training institutions nationwide, according to the Catalog of industries to encourage foreign investment. In total, 12 provinces – Shanxi, Liaoning, Anhui, Henan, Hubei, Hunan, Guangxi, Hainan, Chongqing, Shannxi, Gansu and Ningxia – explicitly welcome foreign capital in vocational schools (including technical schools) in their catalogs of respective local investment.

China’s vocational education sector presents promising opportunities for foreign investors. Investment bank Morgan Stanley predicts that government support and market demand will see the skills training market grow at a compound annual growth rate (CAGR) of seven percent over the decade 2020-2030, as reported it CNBC.

The parent company of China Briefing, Dezan Shira & Associates, helped foreign investors successfully enter the education market in Asia – from market research, investment management and business model structuring during the pre-investment phase to compliance management statutory requirements and maintaining best practices once operational. For more information and assistance on entering the market, please do not hesitate to contact us at [email protected].


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China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the company for assistance in China at [email protected]shira.com.

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