By: Jeffrey Zhu | Jerry Liu | Ya Wei Chen
In December 2015, China's National People's Congress promulgated amendments to the Education Law and the Higher Education Law, which shows that China's education supervision and administration reform blueprints proposed under the Draft Amendments Package to Education Laws (2013) are being implemented. And the two aforesaid promulgated amendments will come into effect as of June 1, 2016.
Based on the aforesaid promulgated amendments, together with the 2nd review draft of the Non-state Education Promotion Law and the draft amendments to the Teacher Law formulated yet promulgated, we can foresee the following major supervision and administration changes:
1. Confirming the profit-making nature of the non-state schools for the first time
The amended Education Law and Higher Education Law no longer prohibit per se the establishment of schools and other educational institutions for lucrative purposes, merely requiring that profit-making schools must not be solely or partly established and operated with fiscal funds or donated assets. Although the review draft of the Non-state Education Promotion Law proposes that non-state profit-making schools will no longer enjoy governmental support, such as governmental subsidies and governmental fund awards, or the provisions and preferential treatments for the use and construction of public welfare sites for the new school establishments or school expansions, it reserves some explicit favorable measures to non-state profit-makingschools, which include without limitation:
(i) it deleted the provision stating "the investors of non-state schools may obtain reasonable returns", which subjects the investors' returns to the decisions of the school’s decision-making body, and replaced the same to state that profit-making schools may distribute profits to investors upon settlement of debts in accordance with the relevant provisions of the Company Law; (ii) for schools that make adjustments within three (3) years in accordance with the amendments, investors may apply for the one-time reasonable compensation from the balance of the school-running funds, the percentage of which are determined based on such factors as the investor's original contribution, school-running achievements, and reasonable returns; (iii) fee charging items and standards will be determined by schools independently and adjusted by the market rather than formulated by local governments; and (iv) non-state profit-making schools still enjoy the same preferential tax treatments, supporting measures stipulated by the people's government at the county level or above with respect to purchase service, student loans, scholarships and stipends, lease or transfer of unused state property, as enjoyed by the state schools.
2. Approval authority for non-degree-awarding higher educational institutions delegated to provincial level
The newly-amended Higher Education Law stipulates that the establishment, termination and major changes of higher educational institutions that do not provide education at undergraduate level or above do not need examination and approval by the state-level Ministry of Education. After such delegation, higher educational schools providing community college level education are examined and approved by the governments at the provincial level, and later filed with the Ministry of Education, while others shall be examined and approved by the administrative departments for education at the provincial level.
3. Strengthening the supervision and administration of school affairs
For the first time, the newly-amended Education Law grants relevant administrative departments other than education authorities power to impose administrative penalties or punishments on illegal school-running activities, and further clarifies the administrative punishment measures for illegal enrollment and illegal issuance of academic degree certificates. Furthermore, the draft amendment to the Teacher Law raises the threshold of teacher's qualification, i.e., qualified teachers must pass the Examination of National Teachers' Qualification and possess educational background corresponding to the school they work for; but it does not add any requirements with respect to experience or educational background on the competence for headmasters.
Current legislative reform trend also results in new questions and leaves some questions and problems unanswered:
1. Whether commercial training institutions should be classified as profit-making schools under the Non-state Education Promotion Law and be supervised and administered with the standards applicable for schools?
The 2nd review draft of the Non-state Education Promotion Law deleted the original Article 66 that stipulated that measures for administration of non-state profit-making training institutions registered with the administrative department for industry and commerce shall be separately formulated by the State Council, but failed to adjust the applicable scope of the Non-state Education Promotion Law (Article 2), or the definition of non-state schools (Article 65).
If the purpose of the above change is to regulate the training institutions with the same standards applicable to profit-making schools under measures to be published subsequently, then training institutions, same with other non-state educational institutions, will be subject to various restrictions imposed by the education authority in accordance with the Non-state Education Promotion Law. Therefore, the original route via establishing a corporate enterprise by registering with the corporate registration authority will be subject to the pre-approval and issuance of a school operation license, and the implementation of many local legislations (such as Regulations of Shanghai Municipality on Promotion of Life-long Education, Interim Measures of Shanghai Municipality for the Administration of Profit-making Non-state Training Institutions and Interim Measures for the Administration of Sino-foreign Cooperative Profit-making Training Institutions in the China (Shanghai) Pilot Free Trade Zone), may in conflict with the principle of "Lex superior derogate legiinferiori" (i.e., the higher-level laws trump lower-level laws).
If this change doesn't purport to supervise and administer training institutions with standards applicable to profit-making schools, then from the perspective of legal hierarchy, the only law regulating the (vocational) training institutions will be the Vocational Education Law promulgated in 1996, and it only includes very general applicable terms. Before the amendments to the Vocational Education Law and the promulgation of the Life-long Education Law yield substantive results, the supervision and administration of the training institutions will be totally delegated to the provincial level authorities with respect to both legislation and enforcement.
2. Will this legislative reform in the educational sector benefit foreign investors investing into China's educational sector?
The newly-amended Education Law classifies Sino-foreign cooperation in running schools, international education services, and promotion education internationalization as school-running forms encouraged by the state, without however including any other provisions specifically addressing changes to the supervision and administration model of foreign investment into the educational sector.
The currently effective Regulations on Sino-Foreign Cooperative Operation of Educational Institutions and Notice of the General Office of the Ministry of Education on Strengthening the Standardized Administration of Activities of Running Foreign-related Schools (Department of Foreign Affairs, Ministry of Education No. [2012] 2) explicitly stipulate that running foreign-related schools is a public welfare undertaking, not a profit making operation, and all such schools shall charge students strictly pursuant to the items prescribed by the state and the standards approved by the provincial level people's governments where the schools are located. Before the issuance of detailed implementing rules, it is still too early to make a final judgment whether the newly-added ''non-state profit-making school" under this reform will encourage foreign investment into in China's educational sector.
Furthermore, the current legislative reform failed to address the following dilemmas foreign investors are facing in China's educational sector:
Regarding investment forms: non-degree professional skill training institutions are the only foreign investment form classified as ''encouraged" under the Catalogue for the Guidance of Foreign Investment Industries, and can be established solely by foreign educational institutions, other organizations or individualsas explicitly allowed under the Special Management Measures for the Market Entry of Foreign Investment in the Pilot Free Trade Zone (Negative List). However due to lack of further legislation, the only school-running form such training institutions can take is Sino-foreign cooperative operation. Although Guangdong Pilot Free Trade Zone, at the end of 2015, has drafted and submitted for review the administrative measures for the establishment of such training institutions solely by foreign investors, such measures are applicable to investors from Hong Kong and Macau only.
Regarding the investment scope: the Catalogue for the Guidance of Foreign Investment Industries (2015 edition) adopts a more restrictive attitude to foreign investments into the educational sector. For example, the Catalogue moved higher educational institutions from the "encouraged" category to the "restricted" category, the academic vocational training institutions with a school system from "encouraged" category to "permitted" category, and additionally required Chinese investors must be on the dominant positionin all educational institutions under the restricted category. Foreign investors' control has been considerably weakened, especially for the educational institutions under the restricted category.
Regarding investment qualification: currently, there are no clear determination criteria on the introduction of high-quality foreign educational resources, which is subject to discretion of the approval authorities.
According to China's legislative plan, before year 2010, China will amend the Vocational Education Law and the Regulationson Academic Degrees, and formulate the School Law, Educational Examinational Law, Preschool Education Law, Life long Education Law and the Family Education. How China's legislation in the educational sector will roll out, and whether the above residual issues can be resolved, remain to be seen.
