China’s Higher Education Bubble

The number of university graduates in China has exploded.

In 1997, 400,000 students graduated from four-year university programs. Today, Chinese schools produce more than 3 million per year. But employment rates at graduation have plunged. And remote suburbs of Beijing and Shanghai teem with underemployed graduates, crammed four to a room in substandard housing and eking out an existence, often financially supported by their parents, as sidewalk vendors.

The country faces a higher education bubble fueled by state investment.

In the late 1990s, the authorities launched a crash expansion of higher education as a short-term stimulus package to overcome the effects of the 1997 Asian Financial Crisis and as a longer-term economic development tool. With the spigot of state funding opened wide, universities expanded dramatically. Leafy campuses sprouted in the outlying districts of major cities. Academic hiring surged. And in just two years—between 1998 and 2000—the entering freshman class doubled from 1 to 2 million.

But rapid expansion has had disastrous effects. Degree devaluation is one result. When relatively rare in the 1990s, college degrees sufficed to get good jobs. Now a common commodity, they no longer do. Quality has also suffered. Backed by massive funding, the mania to expand has spurred blind competition in Chinese schools to rack up ever-increasing numbers of published articles and professors with elite degrees. A culture of junk research and academic corruption has resulted. Actual education of students has become a secondary (or tertiary) concern. Chinese employers complain that schools are producing a flood of newly minted graduates with a deep sense of entitlement, but a lack of actual skills.

In response, Chinese authorities are taking stopgap measures. Officials have increased enrollment in domestic master’s programs to absorb a flood of unemployed college graduates. But expanded levels of graduate education have merely disguised and delayed youth unemployment, resulting in media stories such as “Graduate with Master’s Degree in Law Seeks Position as Cafeteria Worker.”

Such failings are increasingly leading Chinese students to seek education elsewhere. Many are choosing to forgo the national college entrance examination in favor of directly enrolling in universities or even high schools abroad. Faced with severe budget pressures, many American schools have dramatically increased recruitment of Chinese students paying full tuition. The results are mixed. Some American schools are innovating and developing valuable programs with tangible benefits. But others have devolved into diploma mills (and quite possibly bubbles in themselves) for foreign students, with weak educational quality and limited employment prospects in either the United States or abroad.

Serious reform requires deep change. Blindly supporting the production of more and more advanced degrees in China for their own sake just doesn’t make sense.

For China, this means re-evaluating state development priorities in place since the late 1990s. These have prioritized university education at the expense of all else. But ironically, unemployment rates for 21-25 year olds in the country are four times lower for elementary school graduates than for university students—precisely because huge demand exists for skilled technical positions that many university graduates are unable (or unwilling) to fill. Rebalancing state priorities to emphasize a diversity of higher education models—postgraduate, university, college and vocational—might help better address looming problems of youth unemployment. Nor are such policies new. They resemble those China pursued in the 1950s or 1980s and in use in Germany today, but abandoned in the frantic rush of the past 15 years to throw up universities with ever more impressive academic credentials.

Late 20th century state policies were intended to increase popular access to higher education. But the road to hell is paved with good intentions. Absent meaningful reform, these policies will produce failed expectations and deep underemployment for the next generation of Chinese, with severe implications for social and political stability.