Brace for the Chinese international student bust

Chinese international students are by far the biggest contributor to Australia’s education export industry.

As at June 2019, there were 204,000 Chinese students enrolled in Australian educational institutions, comprising 29% of total international student enrolments.

The number of Chinese international students studying in Australia is also roughly double second placed India (104,000) and quadruple Nepal (52,000), as illustrated in the next chart:

In terms of financial dependence, Australia’s reliance on Chinese international students is even greater, accounting for 40% of Australia’s $35 billion international student market in 2018, according to the Department of Education.

Late last month, the Centre for Independent Studies (CIS) sounded the alarm on this dependence, warning that a sharp pullback in Chinese student numbers could severely damage the finances of Australia’s tertiary institutions:

International comparisons reveal the excessiveness of this China exposure. All seven [major universities] have higher proportions of international and Chinese students than any university in the entire United States. Indeed, all seven appear to be more dependent on feepaying Chinese students than just about any other universities in the English-speaking world.

Australia’s universities do not seem to understand the high levels of financial risk inherent in their overreliance on the Chinese market…

Approximately 10% of all students now attending an Australian university hail from China…

Chinese enrolments are particularly unstable because of macroeconomic risk factors such as the slowing of China’s economy, the lack of full convertibility of the Chinese yuan, and fluctuations in the value of the yuan versus the Australian dollar. Of the nine potential risk factors identified in this report that could adversely affect Chinese student numbers, macroeconomic risks are by far the most serious (from a financial perspective) because they could lead to a sudden and severe fall in Chinese enrolments.

On Monday, Alan Kohler joined the procession warning that the US-China trade war could lead to a sharp fall in Chinese international students, which would smash Australia’s universities:

…the most significant threat is not to resources exports, which China needs, but to Australian education, which it doesn’t…

There are currently more than 150,000 Chinese students in Australia… They could easily be accommodated in China’s burgeoning universities.

One vice-chancellor told me last week that for his university the yield (profit margin) from domestic students was 22 per cent, whereas for international students he gets to keep 62 per cent to spend on infrastructure…

If Chinese students stopped coming because of Australia’s alliance with the United States, there would be no fallback and the effect on university funding would be devastating.

…all [vice chancellors] are worried. They remember too clearly the 50 per cent drop in Indian students in 2009 caused by a small but high-profile spate of attacks on them as well as a change to visa policy.

Kohler is right. Unlike commodities, Australia has no genuine comparative advantage in education, other than offering residency, and China’s students could easily be accommodated either domestically or within other developed nations.

As shown by the first chart above, Chinese student enrolments are already slowing, whereas official student visa data from the Department of Home Affairs recording a 3.3% fall in visa applications from China in the second half of 2018:

And China just choked capital flows to international students, via Nikkei:

As China allows the yuan to depreciate to a level not seen in 11 years, financial authorities have rolled out measures to stem capital outflows from the mainland.

The new rules include stricter oversight of banks in times of capital flight and restrictions on real estate developers’ access to foreign currency bonds. If the financial system is judged to be on the brink on instability, the State Administration of Foreign Exchange, or SAFE, will declare the situation “abnormal.”

Under that assessment level, banks will be evaluated on the amount of yuan wired offshore and the volume of foreign currency sold. If the levels stray too far from the national average, the bank’s grade will diminish. Such lenders will then face limits on banking activities.

China is tolerating the softer yuan to ease the impact on domestic exporters during the prolonged U.S. trade war. But the government looks to avoid a repeat of 2015, when currency traders dumped the yuan after authorities lowered the reference rate.

…SAFE has also ordered lenders to request extra documentation before signing off on offshore remittances. If a parent wishes to pay school expenses for a student studying abroad, an acceptance letter must be presented. To transfer money for other reasons, documents such as a work permit must be furnished.

…”Wiring money overseas is not allowed for the purposes of purchasing real estate or insurance products,” said a representative at a second-tier Chinese bank.

With more such controls ahead as the yuan falls.

Whether it comes by geopolitical fiat, or by the insurmountable laws of economics, Australia’s tertiary institutions must ready themselves for the inevitable crash in Chinese international student enrolments.

Unconventional Economist
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  1. Interested to know what it would take for Australia to have a comparative advantage in education beyond visas. A Cambridge doesn’t rely on a local population. Instead it drew/draws best minds from across the old Empire. What if, instead of wasting money on all the usual stuff, we ran some universities based on excellence for a change? At the same time, impose limits on ratio of senior admin to academics to students. Make institutions that are the envy of the world. I am serious.

    In addition to residency we could have some other non educational advantages. With a falling aus dollar, safe neighborhoods and cheap accommodation (oh wait I see the problem). Rural university towns, perhaps, like Cambridge.

    • Well I think that there would be quite a few excellent academics in the us, uk, Europe, Japan South Korea who will be looking at their leaders, economies and local security and thinking to themselves, Aus or NZ look not too bad a place to live at the moment. They might also think, if only the Aus government and industry were interested in research and development. What would it take to have the high tech, IT and medical companies setting up shop in Australia, given that China is no longer fun? What if we could offer the world’s best brains, a relatively stable democratic predictable government, a favourable tax/infrastructure etc environment? I had a dream. Perhaps Singapore is already on to it.

      • You honestly think our government is stable, democratic or predictable? Predictable in that they will blow this economy to smithereens with terrible policy?

      • @Trots: highly talented individuals from OS who have options look at Australia and say ‘nice place to holiday, but far too expensive to live’. This is repeated over and over in IT and other fields. Ask any international recruiter. Academia would be worse since wages are comparatively low, and it won’t be feasible to offer a few greatly higher wages since the whole domestic sector will cry foul.

        Add to that the fact that talented individuals are well equipped to look past the glossy tourism promos and dig down to see what life is really like. Pretty soon they come to the conclusion that we’re OK, but not that great.

        Even if they don’t do a full due diligence, the persisting TLDR story of ‘Straya overseas is
        – dangerous animals everywhere
        – nasty Gov’t that dumps refugees on remote Pacific hellholes and hasn’t done much for its First Nation People’

        We’re a great option if you want to migrate from India / Sri Lanka / Nepal / Iran / Pakistan etc etc. Elsewhere, not so much.

    • Rich Aussies would pay for a degree that has no group assignments. You know, like in 1995, when degree course contained no group assignments and the economy still functioned.

      I wonder what Bond Uni is up to.

      • Companies would also pay extra for someone with no group assignments.

        As an employer it sucks not knowing if the person you’re employing did any work themselves during their course. You can test them during the interview, but group assignments ad to the risk.

        • You can hire Aussies who did well in year 12.

          A couple of my mates got hired by accounting firms straight after finishing year 12.

          Maybe you can also contact a uni professor to give you the email addresses of the 10 smartest students in the course – with their permission obviously.

    • +1
      Dont really understand the logic of “no advantage other than citizenship”. But that is a huge advantage and the most defining one. So why would we think they stop coming?
      Especially when China is becoming angrier…
      I can imagine indians not coming anymore because higher unemployment and they arent running from a communist govt. But i would see the chinese intake continue or at least try to get higher for a while before ccp shuts the exits real tight.
      Even so arent there ways to get creative here? I can imagine the banks offering student loans for when the student gets here knowing full well that the student will be working here and eventually gain citizenship.

  2. once unemployment hits 10% and popular and previously almost non-existent leisure services like house maids, dog walkers, UBER and food delivery go bust, number of foreign students will crash by more than 50%

    • I’m curious if the unexpected then happens. Resident kids get jobs and spend in the local economy, not sending remittance overseas.

      • Remittance volumes seems to be the missing variable in so much ‘immigration’ and ‘international education’ is a boon for Australia.

  3. “One vice-chancellor told me last week that for his university the yield (profit margin) from domestic students was 22 per cent, whereas for international students he gets to keep 62 per cent to spend on infrastructure…”

    We are on the precipice of a dystopian future when a Vice Chancellor considers humans of any nationality being educated a means to yield. Did not mention that part of the ‘yield’ was the steep rate of increase in their own remuneration.

    • I work in university sector, the majority of VCs and other top execs are just corporate parasites out for profits. The rhetoric is all teaching this and research excellence that but the almightly $$$ underpins it all.

      Reusa would be proud of them.

    • Well, what’s education for then? Certainly not to get an skilled population is imbibed with the concept of free thought and speech.

    • One wonders what the connections are between construction firms and universities. Since the foreign student boom began, our local universities have been engaged in construction projects non stop.

  4. I trust it will be like the housing bust, where dwellings got more unaffordable.

    I suspect the foreign student bust will see foreign students more numerous. Though perhaps growing at a slowe rate. A bit of relaxing of the boom, as it were.

    • No, it is pro cyclical. Just look at what has happened to international students in NT as the economy and jobs tanked. International student numbers have tanked too.

  5. So we might be looking at fewer international students but freshly built up universities in a couple of years time, busily rethinking their commitment to academic standards and research. Sounds perfect.

  6. reusachtigeMEMBER

    I’m noticing a lot more hot, and I mean really hot, South American chicks around. Talking to some during relations many seem to be from Columbia. This has always been a dream of mine and I can’t believe it’s becoming a reality. They may not be the brightest of races down there but jee they know how to party and that is way more important for integration.

    Whoever has changed tact and started marketing our greatness to South America deserves a seat in parliament, or a higher seat if they’re already there.

  7. I recently gave a uni lecture. I asked the course convener how many foreign students were in the class, and she said about 80%.

    80 fcuking percent. What a disgrace.

      • Actually yes, and it was a surprise. I had a few good questions too.

        My past experience has been that foreign students tend to sit there slack jawed and uncomprehending or fiddle with their phones.

        Usually the questions are about working and permanent residency.

  8. It’s time to diversify.. how about attracting the Saudi Arabian students 😂

    I saw plenty of Saudi students in the apartment complex I was living in the US midwest, driving around in their American muscle cars.

    Come on, if the US can tolerate them after 9/11, so can we. Another advantage is that it will make Dutton and the local chapter of the Proud boys very uncomfortable 🤣

    • I had a partner who was a senior uni bureaucrat. She hated the Arabs because they treated her with contempt…often refused to deal with her and accept her decisions and always wanted to speak to the man in charge. Unfortunately for them her boss was a woman, as was her boss.

      • Unfortunately my Sister & my Mrs have had that same experience more times than they could ever count including being threatened & spat at. There’s a real issue, that no one want’s to address of course…….

    • Mav, I thought on the weekend you were very clear that we shouldn’t be ‘racist’ and generalise?

      So it’s okay to generalise about Arabs but not those from the subcontinent. But positive generalisations are okay! Got it!

  9. The influx of Chinese overseas students won’t end, they’re arriving here so as to demographically replace us so as to influence the electoral process, they’re doing the same thing in NZ and CAN.

    • It will be a tight race between them and the muslims. The chinese have a head start, but don’t discount the muslims! They can catch up quick.

  10. As I said 2 months ago on here, Chinese students from mainland will be just another tool used by the ccp. I was ridiculed on here with punters saying that the Aus gvt won’t let it happen and uni’s are building and investing so much in that growth area….hahahah… hows that turning out now! Wake up Aus!