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End Schools' Growing Debts
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Professional operation of the financial activities of universities is vital for their healthy development, says a signed article in China Economic Weekly. An excerpt follows:


Minister of Education Zhou Ji said recently that the financial problems of some universities were overstated but the ministry would seriously face the debt issue.


This shows that the authorities are paying attention to universities' operating debts. But there is no specific answer on how to solve the problem because of its complexity. It is barely possible to upgrade the capital management efficiency of universities before launching a new operating mechanism in line with market rules.


Public institutions of higher learning have depended on government input for a long time. Currently government funding of universities accounts for a quarter of the country's total education budget. The scale of higher learning has expanded nearly five times since 1999 while the budget increased by less than two times.


Borrowing from banks is the major channel for university and college finance. According to a report by the Chinese Academy of Social Sciences, public universities borrowed about 150 to 200 billion yuan (US$19.23 to US$25.64 billion) before 2005. These loans have put the institutions under huge financial pressure while helping them develop.


Universities face huge risks operating with heavy debts.


The mature financial operation of foreign universities consists of two parts. The fund providers establish the major investment orientation and supervise the operation throughout the process while professional investment firms are responsible for specific investment activities.


Under this system, some leading universities have made large profits. For example, Yale University has increased its wealth by an annual average of 17.4 percent in the past decade.


In contrast, Chinese universities are used to living in the cradle provided by government.


Only by operating the financial activities of universities according to market principles can their impulse for blind financing and chaotic expansion be curbed. The mechanism of competition should be introduced to stimulate market awareness in our institutions of higher learning.


(China Daily April 2, 2007)

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