China’s private education industry is going through a phase of consolidation, with mergers and acquisitions creating vast networks of educational institutions. Combined with a growing specialization of jobs, the education market in China is projected to perform very well over the next decade or so.
The consolidation phase
In 2012, about 5.3 million students were estimated to be enrolled in private higher education. The numbers jumped to 6.3 million in 2016 and are projected to touch 8 million by 2021. Frost & Sullivan reports revenues from the Chinese higher education industry to have grown from US$10 billion in 2012 to US$13.9 billion in 2016. And by 2021, the revenues are expected to touch US$20.2 billion.
In short, China is the world’s biggest education market for higher studies, especially private education. This has inevitably generated huge interest from investors who seek to benefit from the potential growth in the industry. And the Chinese private higher education industry, which has so far remained fragmented, is expected to consolidate over the coming several years because of high entry barriers set by the government.
Normally, universities around the world acquire land and buildings on a lease. This minimizes capital expenditure. But in China, the government mandates higher education institutions to completely own the land and building they will be operating on. Only then will the government issue the necessary licenses. This obviously presents a serious problem from a business perspective since a large investment will be required to set up an educational institution. As a consequence, it will take a long time for an investor to start profiting from the venture because of the process of buying land, constructing buildings, and gaining permits and licenses.
To avoid wasting time, investors are focusing on acquisitions. According to Deloitte, the total amount of acquisitions and mergers in the Chinese education industry rose by 165 percent between 2014 and 2015. One of the biggest education groups in the country, China Education Group, was listed at Hong Kong in December 2017, raising US$420 million through its IPO. The group has acquired two schools since raising the funds — Zhengzhou school, which is the largest vocational school in China, and Xi’an School, which is the country’s largest technical college. Combined, both schools cater to about 44,000 students.
The future of China’s education market
About 40 percent of China’s workforce is still employed in the agricultural sector. To put it into perspective, only 2 percent of the U.S. workforce is involved in agriculture. As China turns into a mature economy and farming becomes more efficient, many youngsters will inevitably look for employment in other sectors. Specialization of jobs will increase at a rapid pace as people will seek to master one task in which they can build up their career.
“Adam Smith had it right that wealth grows the more that work is divided among specialized individuals. This specialization, which is largely the result of training and education, will continue in China for at least the next decade. Education companies sitting at the intersection of this re-skilling and changing demographics will see outsized returns for their shareholders,” according to Forbes.
As consolidation in private education continues, courses and teaching methodologies across the country will become standardized and efficient. Combined with the fact that a huge section of the workforce will shift from agriculture to more skilled jobs, China’s private education sector will definitely be entering one of its best growth periods yet.