Sino-foreign Education Gets a Boost with New Regulations

Most of the cooperative projects were undertaken in the eastern coastal provinces and in large cities where economic growth was rapid and where a more international outlook made better educational opportunities a must. By 2002, the locations included Shanghai, with 111 Sino-foreign educational projects, Beijing (with 108 projects), Shandong (78), Jiangsu (61), Liaoning (34), Zhejiang (33), Tianjin (31), Shanxi (29), Guangdong (27) and Hubei (23). Today, foreign educational service providers are mainly from developed countries and regions with advanced capabilities in science and technology and with advanced educational systems. The main partners come from the United States (154 projects in China), Australia (146), Canada (74), Japan (58), Hong Kong (56), Singapore (46), Britain (40), Taiwan (31), France (24), Germany (14) and South Korea (12).³

Mainly, China has encouraged educational cooperation with foreign institutions and organizations that can offer expertise in areas that are promoted as national development goals, and especially in scientific and technology-focused programmes. But the level and type of cooperative education projects have varied from kindergarten to tertiary education, from degree courses to non-degree courses and vocational training. The areas of education have covered a range of studies, including management, marketing, accounting, banking and finance, human resources, hospitality, computers, information technology, international trade and economics, foreign languages, literature and the arts. It is expected that Sino-foreign cooperative education will continue developing at a rapid pace in the coming years.

Legal Developments

Before 1995, there were no specific laws or regulations governing Sino-foreign cooperative education in China. Since 1995, the Tentative Provisions and related laws and regulations have governed Sino-foreign cooperative educational programmes. The Tentative Provisions will likely be repealed when the Cooperative Education Regulations come into effect on September 1 2003 as the Cooperative Education Regulations were issued by the State Council, which is an administrative body at a higher level than the State Education Commission, although the new regulations have not explicitly stated that the 1995 laws will be abolished.

Under the Cooperative Education Regulations, all existing cooperative institutions must apply for a licence to provide cooperative educational services. If an existing institution does not meet the requirements provided by the Cooperative Education Regulations, the rules provide for a two-year grace period. During that period, the institution must endeavour to meet the requirements; if it does not, it will not be permitted to continue providing cooperative educational services in China and will be required to dissolve.

General Principles of the New Regulations

The Cooperative Education Regulations apply to activities carried out by cooperative institutions set up by Chinese and foreign educational institutions, and in which the majority of the students are PRC citizens. Under the Tentative Provisions, any foreign organizations, individuals or international organizations could set up a cooperative institution with a Chinese educational institution to provide educational services. It is not clear whether only foreign educational organizations will be eligible to establish cooperative institutions. If that is the case, organizations other than educational institutions that wish to provide educational services in China may have to become educational institutions before applying to establish a cooperative institution.

The Cooperative Education Regulations also provide that all parties applying to set up a cooperative institution must have Chinese legal person status. Clearly, then, foreign individuals will no longer be able to set up a cooperative institution with a Chinese party. Nevertheless, according to China's WTO commitments, foreign individuals may be invited or engaged by Chinese education providers or cooperative institutions to provide educational services.

As prescribed in the new regulations, the activities of cooperative institutions must serve social or public interests and must form an integral part in the development of education in China generally. The Tentative Provisions stated what is implied in this point more clearly; the 1995 rules required that operation of cooperative institutions could not be undertaken on a for-profit basis. The new regulations are ambiguous on this crucial point, with the references to social and public interests implying that such educational institutions still cannot be profit-making ventures.

The Cooperative Education Regulations permit cooperative institutions to set up educational institutions at various levels and for all kinds of education, except compulsory education that is undertaken wholly by Chinese institutions.⁴ Cooperative institutions are further prohibited from providing military and police education, religious education or political education.

In other words, cooperative institutions may undertake pre-school education, secondary school education other than compulsory education in the state system, tertiary education and vocational and professional training. The Chinese government particularly encourages tertiary education and vocational education, and encourages Chinese educational institutions to cooperate with well-known foreign educational institutions.

Structure and Requirements

Institutional Structure

Under the Cooperative Education Regulations, a cooperative institution may take an incorporated form with the status of a legal person⁵ or an unincorporated form without the status of a legal person. However, only cooperative institutions that provide tertiary education may adopt the unincorporated structure.⁶ The requirement in the new law to have an incorporated form for non-tertiary educational institutions is stricter than that under the Tentative Provisions. However, from the government's point of view of quality control and improved administration, it makes sense to have such a requirement. Some projects at the lower levels of education that are run under a cooperative agreement without an incorporated entity have had teaching quality and management problems. As they are not registered with any authority, it is hard for the government to administer and supervise the quality of education. Tertiary education service providers on the other hand are under close supervision and regulation by the government education authority. The new Cooperative Education Regulations, as well as the Tentative Provisions, do not allow wholly foreign-owned educational institutions that intend to provide educational services to PRC citizens in China.

Capital Contributions

The Tentative Provisions did not expressly require capital contributions by the parties to a cooperative institution, nor do they describe the types of capital that may be contributed. The new Cooperative Education Regulations specify that the parties may contribute cash, in kind assets, land use rights, intellectual property and other assets to a cooperative institution. The ratio of intellectual property that may be contributed is capped, and while each party may contribute its capital according to the agreed ratio in compliance with the law, no more than one-third of a party's total contribution may be in the form of intellectual property, unless otherwise approved under certain circumstances. Nevertheless, the maximum ratio allowed for an intellectual property contribution is higher than that in Sino-foreign cooperative projects in other sectors. For example, in a manufacturing cooperative joint venture, each party may not contribute intellectual property of more than one-fifth of its total contribution.

This new contribution requirement and intellectual property contribution ratio will impact a number of foreign educational service providers. It is known that under the Tentative Provisions some foreign parties have mainly contributed their intellectual property to cooperative education projects. When the new regulations come into force, foreign parties to cooperative institutions must meet the contribution requirements by September 1 2005, or the institution will lose its operating licence.

Establishment

Establishment of a cooperative institution normally goes through two phases: preparation for establishment and formal establishment. However, if all the requirements and conditions are met, the parties may apply for formal establishment without going through the preparatory phase.⁷

When applying for the first phase of establishment, i.e., preparation for establishment, apart from providing the required application form, cooperative agreement, sources of assets and other relevant documents, the applicant should also provide an evidential certificate indicating that the start-up capital, which should not be less than 15% of the total amount of required capital contribution by the parties, has been paid. This requirement seems impractical and impossible to achieve, because no bank account can be opened to receive start-up funds before a cooperative institution is formed. As such, clarification is needed on this point. We look forward to the upcoming implementing rules that may provide a practical mechanism to resolve this discrepancy.

After receiving first phase approval, the applicant must apply for formal establishment within three years (one year longer than the corresponding period under the Tentative Provisions), otherwise the entire application procedure must be started from the beginning. Once the formal establishment application is approved, a Sino-foreign cooperative education licence is issued, and the registration procedure is completed, the cooperative institution may start enrolling students.

Management and Teaching Quality

An incorporated cooperative institution is required to establish a management council or a board of directors; and an unincorporated cooperative institution should establish a joint management committee (each will hereafter be referred to as a management body). The number of Chinese members of a management body must not be less than 50% (consistent with the requirements under the Tentative Provisions). However, the new Cooperative Education Regulations require that one-third of the members of the management body must have more than five years of educational and teaching experience.⁸ The main criteria for the appointment of the principal of a cooperative institution remains the same as under the Tentative Provisions, that is, the principal must be a PRC citizen who resides permanently in China. The principal must possess education and teaching experience and have achieved a corresponding level of professional qualification.

In order to strengthen the teaching quality of cooperative institutions, the Cooperative Education Regulations specify the qualifications required for foreign teachers and management personnel engaged by a cooperative institution. Both foreign teachers and management personnel must possess a bachelor's degree or higher and must also have professional qualifications.⁹ In addition, they must have two years or more of education and teaching experience.¹⁰ The foreign party to a cooperative institution is expected to select and send several of its own teachers to the cooperative institution.

It will be difficult for some foreign educational service providers to meet the qualification requirements set for foreign teachers and management personnel, and especially for some vocational and language instructors. Many teachers, for example, may have considerable experience gained from practicing or teaching in a particular area, which would be sufficient for teaching a relevant course in China, but they may not have the equivalent degrees as required by the new regulations.

The qualification requirements may also have a negative financial impact on educational service providers, as the costs for engaging foreign teachers and management personnel with higher degrees are much higher.

Enrolment Quota and Awarding of Degrees and Certificates

Where a cooperative institution provides formal tertiary education, it will be subject to the state tertiary enrolment quota system. A cooperative institution may grant various degrees and certificates as long as it complies with the relevant PRC laws. In China, there are separate regulations for granting degrees and the requisite procedures for obtaining accreditation. A cooperative institution must meet all requirements under these regulations if it intends to grant degrees and certificates. If a cooperative institution grants foreign education institution degrees and certificates, the institution is required to confer the same degrees and certificates as those conferred in the country where the foreign education institution is based, and they must be recognized by that country.

Whether such foreign degrees and certificates are recognized in China will depend on the international treaties to which China is party, or to China's relevant laws and policies.

Fees

No specific provisions regarding tuition and other fees were given in the Tentative Provisions. In order to strengthen administration of tuition and other fees, the new Cooperative Education Regulations provide some guidelines in this regard. A cooperative institution is subject to State pricing regulations and policies when determining the items and standards of fees to be charged. The items and standards of fees cannot be increased without approval by the relevant authority. The fees must be calculated and charged in renminbi (and not in any foreign currency). The fees received by the cooperative institution must be used mainly for teaching activities and for the improvement of the educational environment.

Rights over Assets

One of the major developments of the new law in comparison with the Tentative Provisions is the treatment of assets and the right to ownership of an institution's assets. The Tentative Provisions provide that a cooperative institution only has the right to manage and use the assets of the institution, but cannot sell, transfer or grant a security over any of the assets that are used directly for educational and teaching purposes. In contrast with the Tentative Provisions, the new Cooperative Education Regulations provide broader rights in dealing with the assets. During the term of a cooperative institution, the institution has a legal person's right of property over all assets of the institution. Pursuant to the definition under the PRC Civil Law General Principles,¹¹ the right of property is based on ownership of the property and includes the right to possess, use, obtain income from and manage the property. Accordingly, the institution will not only have the right to manage and use the assets, but also to sell, transfer or grant a security interest in any of the assets.

The regulations are, however, ambiguous as to whether an unincorporated cooperative institution will also enjoy such rights. If not, the kind of rights that an unincorporated cooperative institution may have over its assets remains unclear.

When a cooperative institution is liquidated, it must meet all of its financial obligations, including refund of tuition fees to students, payment of teachers' salaries, payment of social insurance funds and settlement of all other debts. The remaining assets should be dealt with in accordance with the relevant laws and regulations. It is not clear under the Cooperative Education Regulations whether the remaining assets can be distributed to the parties in proportion to their respective capital contributions, as is the case for normal cooperative joint ventures. Under the Tentative Provisions, after payment of all debts, the contributions made by the parties may be returned to them according to an agreement or to the prevailing market value of the assets. The remaining assets and any donated assets will be handed over to the Chinese government as state-owned assets.

Legal Liability

The new Cooperative Education Regulations impose legal and administrative liability and penalties on people whose conduct and activities contravene the law. If a cooperative institution's licence is cancelled, the chairman of the management body and the principal are prohibited from appointment to a similar position in any other cooperative institution for 10 years. If any party makes a false contribution or withdraws its contribution, it can be fined up to double the amount of the false contribution or withdrawal.

Conclusion

The new Cooperative Education Regulations provide more detailed and specific requirements than the Tentative Provisions issued in 1995, especially with respect to capital contributions, institutional structure and foreign personnel qualifications. The new regulations send a strong message to educational institutions inside and outside China that the Chinese government encourages high levels of Chinese foreign cooperative education in tertiary and vocational education. However, a number of issues are not addressed, and specific provisions in the legislation are ambiguous, subject to various interpretations, and pending clarification. We are awaiting the detailed implementing rules, which hopefully will be issued soon, to clarify the ambiguous provisions and resolve some impractical clauses in the new regulations.

Endnotes

1 See the Ministry of Education website at www.moe.gov.cn.

2 The State Education Commission was the state administrative authority in charge of education at that time. The current authority is the Ministry of Education (MOE).

3 From the MOE website.

4 In China, compulsory minimum education entails six years of primary school and three years of secondary school.

5 Article 37 of the PRC Civil Law General Principles defines a legal person as: one established in accordance with the law; one having acquired assets or funds; one possessing its own name, organizational structure and premises; and one being able to bear civil liabilities independently.

6 Article 11 of the Cooperative Education Regulations.

7 Article 13 of the Cooperative Education Regulations.

8 As per conversations with officials of the MOE, "more than five years" includes five years.

9 According to MOE officials.

10 Also according to MOE officials.

11 Article 71 of the Civil Law General Principles.