Unis’ Chinese ‘cash cows’

Australia’s universities are taking a multi-billion-dollar gamble with taxpayer money to pursue a high-risk, high-reward international growth strategy that may ultimately prove incompatible with their public service mission. Their revenues are booming as they enrol record numbers of international students, particularly from China. As long as the China boom continues, the universities’ gamble will look like a success. If and when the China bubble bursts, taxpayers may be forced to step in to clean up the mess.

The CIS Analysis Paper The China Student Boom and the Risks It Poses to Australian Universities published this week pulls together data from universities, state and Commonwealth agencies, foreign governments, international organisations, and press reports to present a full picture of the risks being taken by Australian universities in enrolling unprecedented numbers of Chinese students.

While the report was being researched, ABC’s Four Corners came out with its own investigation into international students, ‘Cash Cows’ (aired May 6, and now available online). The documentary uncovered weak international admissions standards at Central Queensland, Southern Cross and Murdoch, but our report shows that the potential exists for similar problems even at highly respected institutions like Sydney, Melbourne, ANU, UNSW, UTS, Adelaide, and Queensland.

Even more worrying, these seven universities have become so reliant on Chinese student money that it may pose a serious financial risk to the universities’ continuing operations. At these seven universities, Chinese students seem to account for more than 50% of all international students. All seven have higher proportions of international and Chinese students than any university in the entire United States. And they rely on Chinese student course fees for anywhere from 13% (Adelaide and ANU) to 22-23% (UNSW and Sydney) of their total revenues.

The University of Sydney alone seems to generate more than half a billion dollars in annual revenue from Chinese student course fees.

Chinese enrollments are particularly unstable because of macroeconomic factors like the slowing of China’s economy, the lack of full convertibility of the Chinese yuan, and fluctuations in the value of the yuan versus the Australian dollar.

Australian universities, and particularly the seven leading universities spotlighted in our report, should act now to mitigate the risk of a sudden revenue collapse by raising admissions standards and reducing international student enrollments. They should make, publish, and implement plans to reduce their reliance on international students (and Chinese students in particular) to manageable levels, with targets set both for the university as a whole and for individual programs.

Australia’s universities are taking massive financial risks in pursuit of international student revenues. As the world’s leading banks in 2008, they must be aware that they are ‘too big to fail’. As public and publicly-accountable institutions, they enjoy an implicit guarantee that if things go wrong, the government will come to the rescue. The government should step in now to ensure that the universities change course before it is too late.