Reliance on Chinese students puts universities in financial danger, warns regulator

Although students from China are still the largest cohort of overseas students in England, new entrants figures slowed down last year in a sign of faltering recruitment

The Office for Students (OfS) has warned “some providers in particular” that their reliance on Chinese students puts them in financial danger.

Today’s warning came as the regulator for universities in England released an annual statement on the financial sustainability of 247 registered higher education providers (HEPs).

The relationship between UK universities and China has been subject to greater scrutiny in recent years, in part because of the impact of the coronavirus pandemic on travel and the attendant fears of a recruitment crisis, and in response to worsening Sino-British relations.

Protests in Hong Kong, the UK’s barring of Huawei, and its allegations of Chinese treatment of the Uighur ethnic group have driven a wedge between the two nations, which – only a decade ago – were said to have entered a “golden age” of cooperation. Universities were often at the forefront of this diplomatic mission, with a 2015 report from the CBI highlighting HE as a lynchpin of the burgeoning relationship.

Data from the Higher Education Statistics Agency (Hesa) show that students from China make up the largest group of those studying in the UK from overseas. In 2020-21, 119,270 Chinese students were studying in England, accounting for 30.4% of all non-EU international students, down from 34.6% the year before. This percentage drop was down to a 50% increase in Indian students taking up places, treble the number in 2018-19 – they now account for 18.4% of all overseas students in England.

In England last year, the number of postgraduate and undergraduate students from China was virtually unchanged from 2019-20, with Ucas data from 2021 showing the number of first-year undergraduate entrants plateaued, having more than doubled between 2016 and 2020. In England, UCL, Manchester, Sheffield, King’s College and Leeds recruited the most students from China.

A 2020 report by Onward, a conservative think tank, warned that some universities appeared reliant on the fee income of Chinese students. The report claimed this recruitment had reduced places for UK-domiciled students in high-tariff universities and called for the introduction of recruitment caps.

In 2022, former universities minister Jo Johnson recommended the OfS intervene as he alleged that the finances of several “prestigious” universities would be “below the waterline” if Chinese student recruitment were to dip suddenly.

High-tariff universities expect fees from non-EU students to increase by more than 40% in the next three years, with low-tariff providers forecasting increases of 70%.

The findings of the OfS financial report

The OfS says HE providers in England expect income to grow from £37.31 billion in 2020-21 to £45.72bn in 2024-25.

The providers expect a slight reduction in borrowing in cash terms and as a percentage of income, from £14.10bn last year to £13.78bn by 2024/25. Higher-tariff providers, on average, have higher rates of borrowing than their low-tariff peers, with an average 10-percentage-point gap

Outside of pension liabilities, the OfS reported that providers in England generated a surplus of £1.74 billion in 2020-21. Although providers forecast a fall this year, they expect revenues to increase to £1.67bn by 2024-25. All universities expect capital expenditure to drop in the next three years, with average falls projected between 4-10%.

Inflationary pressures are a “significant” financial challenge, the OfS said, as are increasing pension costs and “changes to government funding policy”. The Bank of England expects inflation to reach double digits later this year. Inflation endangers university balance sheets for two reasons: increased costs of raw materials and services and declining appetite among some young people to pursue HE. At present, HEPs expect “course fees and education contracts” to generate more than £26bn by 2024-25, up from £20bn in 2020-21.

The University and College Union has undertaken several bouts of strike action in the last 12 months over pay, conditions and pensions. Responding to the OfS figures, UCU general secretary Jo Grady said: “This research shows that universities have not only weathered the impact of covid but have a sustainable future longer term. This is entirely down to the hard work and dedication of staff who went above and beyond to keep universities running during the pandemic. But it is beyond scandalous that whilst the sector predicts record levels of income staff are forced to endure falling pay, insecure employment and devastating cuts to pensions worth hundreds of thousands of pounds. Vice-chancellors must stop pleading poverty and take this opportunity to invest in their workforce.”


Read more: UK universities and China: new Hepi publication explores a complex relationship

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