Education markets are complex. They comprise many different players such as public and private sector providers, publishers, policy makers, regulators and learners. This article mainly focuses on the private educational industry, trying to identify its main features and opportunities. Furthermore, this article goes through an analysis of the major trends affecting the overall education market in China.
Currently, the education market in China is highly fragmented. The private education industry is characterized by stable cash flows and generous profits, able to attract investments from both domestic and international investors. By 2003, the Law of Education Facilitated by Social Organization allowed private organizations and individuals to operate for-profit educational institutions. The private education industry, after a phase of very rapid growth is now in a phase of consolidated development. However, since the beginning of 2014, two major trends have emerged in China’s private education sector with the power to greatly transform the industry. The first consists of vocational education development, which according to the Premier Li Keqiang, has to follow the pace of the market in order to suit it. The second is the continuous growth of the online education sector since 2013. Investors strongly believe in an expansion of this field, especially if we consider that online educational services are characterized by a lack of boundaries and are subject to loose regulation. The experts expect that in the next years a wave of IPOs will take place in the online education industry: this is a clear sign of a market that is consistently maturing.
Following a framework, we will analyze the main segments that compose the education system in China one by one, concentrating on the aspects with the highest impact on the overall education market.
As a first step, it makes sense to start directly at early childhood education. Pre-school education, also known as Kindergarten, takes a relevant piece of the pie of the education market. The government’s approach with respect to the one-child policy has recently changed. In fact, China relaxed the one-child policy between 2013 and 2014, which could lead to a sharp increase in the number of Chinese children in the future. Since 2012 the Kindergarten market has registered average growth of 9%, a clear sign of expansion. Beyond that, it has to be stressed how a gradual shrinking of public pre-schools has been offset by the development of private structures mainly targeting wealthy families.
Going up the educational progression, besides the public institutions responsible for providing primary and secondary education, there is a relevant market for extracurricular tutoring. In 1977 the national entrance examination required to access to the university system was reintroduced. Thus, students are required to achieve high scores if they want to enter top-ranked universities. For this reason there is an industry ready to improve skills and prepare students for the examination. This market still has room to grow given the highly competitive environment that characterizes the entrance examination. The market’s value is estimated to be approximately RMB 200 billion. However, it is fragmented and many actors hold a small piece of the pie. Currently, the key driver of success seems to be the ability to differentiate provided services, in this way attempting to tailor personalized experiences. The enlargement of the Chinese middle class has also shown an interest in the schools’ brands.
One of the Chinese government’s priorities is the internationalization of the education system. International primary and secondary schools are developing rapidly. From 2002 to 2012, this market registered a CAGR of about 25%. The driving force behind such growth are rising middle class incomes combined with parents’ willingness to improve the quality of their children’s course of studies. International schools prepare students for further studies at foreign universities, satisfying Chinese parents’ need for a diversified education. The number of International schools is increasing even though high barriers to entry characterize the industry. The international schools are now in their growth phase. There is still room to grow, especially if we consider the huge territories will be accessed in the future.
Institutions providing foreign languages courses comprise another important aspect of the Chinese education system. These schools primarily teach English to students desiring to study abroad as well as those who remain the country. Among the main reasons for Chinese students to attend these courses is the motivation to improve language skills required for foreign university admission exams.
Broader Internet usage as a means of education would probably cause a turning point the in the Chinese education market. Undoubtedly, more than the aforementioned market segments, it would have an impact on all the actors in the education market, from the publishers to the policy makers, and so on. There are many advantages to online education. Among the most significant are the absence of geographic restrictions, the high degree of standardization, content reuse, and personalized learning. From the perspective of national regulation, a new set of decisions has been made. For example, the State Council decentralized approval for online training schools that use the Internet to provide long-distance advanced education. The new decision is expected to fuel competition in the distance degree-based education market. Moreover, The Ministry of Education has been moving forward with massive open online courses (MOOCs). The private perspective of online education is relevant, too. The massive amount of capital investors brought to this field indicates that we are in front of a market that, albeit just a small portion of the overall private market education now, could change the education environment dramatically in the future. The expected third wave of IPOs anticipated in the next few years reflects investor trust in this market. Despite these general but real arguments in favor of online education, it is important to stress the fact that companies operating in this industry will face difficult challenges. The quality of education obtained online is still a concern. Also, companies need to find a way to make these markets profitable.
Related to the interaction between education and technology, Mobile Learning (M-Learning) is now entering the education market aggressively. Mobile learning involves the use of mobile technology, either alone or in combination with other information and communication technology (ICT), to enable learning anytime, anywhere. Learning can unfold in a variety of ways: people can use mobile devices to access educational resources, connect with others, or create content both inside and outside classrooms. Over the years, the prevalence of mobile devices has also increased users’ attraction to online education contents. Mobile Learning products’ growth rate in China is at 15.4% and revenues will more than double to $2.3 billion in 2019, up from the $1.1 billion in 2014. China was the second-largest Mobile Learning buying country after the US in 2014. By 2017, China will overtake the US as the top buying country. In 2014, China accounted for 26% of all Mobile Learning revenues in Asia. By 2019, China will account for 31% of all Mobile Learning revenues in Asia. One of the major challenges in this field is the scarce willingness of Chinese people to pay for these kinds of services. Most of the time they are able to download or use apps for free.
As touched upon at the beginning of the article, among the major trends that are impacting the education market in China is the expansion of the vocational education market. Vocational education is provided at secondary and higher levels, and endows students with skills related to specific fields. It embeds several careers and industries for which it is possible to be trained. The vocational education market depends on both macro and micro factors. From a macro perspective, macro-economic trends and industrial polices influence the relevance of the vocational market. From a micro perspective, the current mismatching of offer and demand in the labor market is a crucial element fueling the vocational education market. In the last few years, many data have demonstrated that China is struggling to create successful transitions for students from academic institutions to the labor market. University graduates are increasing annually while the chances of finding open positions are decreasing. It is one of the major reasons authorities are pursuing the enlargement of the vocational education market. In particular, The State Council aims to innovate existing vocational education models and to guide regular undergraduate institutions to make a transition to colleges specializing in applied technologies. Currently, it appears that vocational education is often underfunded and in need of upgraded facilities. Furthermore, the Government is pressing for the creation of private vocational education institutions through preferential loans as well as favorable tax policies. According to this approach, the State Council has another priority: giving private vocational education a status equal to public institutions. Across the globe, a university degree usually confers a higher social status compared to any vocational education certificate. This shared belief is part of the Chinese mindset, and it will be challenging to change this assumption, thus presenting a big challenge.
From a general overview of this market, it’s understandable how vocational education is highly fragmented, and participant sizes and specialties vary greatly. Management and IT training are still the most relevant among the specialization fields, with an expected CAGR of 7% over the next three years. Recently, computer graphics and online marketing training have grown due to the broad expansion of Internet applications and a huge demand for skilled workers. Regarding manufacturing companies, China has made great strides towards sophistication and process improvements. An increase in skilled personnel able to work in these environments is necessary.
All these segments compose and influence the complex education market. Through this analysis we have noticed how China, as many other industrialized countries, is facing new crucial challenges for the creation of an effective educational system. In the future, the educational system should be capable of satisfying the world’s largest population, and should make possible the coexistence of both private and public sectors.