Education Sector Reforms in the Shanghai FTZ

Published on 2014-04-22

China's new Free Trade Zone in eastern Shanghai (the FTZ) allows foreign institutions to invest with greater ease in various industry sectors. Education is one of these sectors.

China's new Free Trade Zone in eastern Shanghai (the FTZ) allows foreign institutions to invest with greater ease in various industry sectors. Education is one of these sectors.

The new rule in the Shanghai FTZ, although only a local regulation as opposed to a national law, is the first one that specifically regulates Sino-foreign profit-making training institutions. It confirms that foreign investment is allowed in this area and clarifies the qualification and approval procedures.

Outside the FTZ, the scope of the regulatory regime only covers Sino-foreign education institutions, which are public undertakings and therefore not-for-profit. The relevant national regulationsi , referred to here as the National Sino-Foreign School Rules, do not apply to profit-making education institutions (usually referred to in laws as "operational education institutions" (经营性培训机构)).

The National Sino-Foreign School Rules themselves state that the State Council will eventually issue regulations applicable to profit-making institutions, which are to be registered with the Administration of Industry and Commerce (the "AIC"). However, no such separate regulations have been issued to date, a decade after the issuance of the National Sino-Foreign School Rules.

There have always been arguments within the Ministry of Education and outside it about whether foreign investment in education should be allowed to develop freely. Those who oppose profit-seeking foreign investment argue that education is sacred and should not be tainted by commercialism. And those who support investment ask why, without market incentives, anyone would provide the various skills (and the cash) that China's school system needs. To date, neither side has won outright, but the pro-investment team scored a goal with the FTZ.

While there are no nationwide regulations on Sino-foreign profit-making training institutions, in some locations (including Jiangsu, Hangzhou and Shanghai), local AICs have not waited for the national government and have already issued rules governing the registration of private profit-making training institutions. These rules arguably apply not only to domestic entities but also to those that have foreign investment. The practice varies from place to place: some provinces restrict the business scope of Sino-foreign institutions to vocational skills training and do not allow "cultural" education, while some provinces allow both forms. The qualification and approval/registration procedures also differ from one province to another.

This new rule in Shanghai FTZ, although also a local regulation, is the first one that specifically regulates Sino-foreign profit-making training institutions. It confirms that foreign investment is allowed in this area and clarifies the qualification and approval procedures.

Please click here to download the full article>>