There is clearly a demand for English-based and Western-style education in China. An ever increasing number of expatriates choosing to live with their families in China and wealthy Chinese seeking to prepare their children to attend elite universities abroad have combined to create clear demand for suitable schools. Our firm often receives requests to assist individuals and organizations seeking to establish private schools to meet this demand. In this four part series, I will be explaining what goes into starting such a school in China.
In most of these cases, the foreign party seeking to establish a school has been encouraged to do so by local governments and/or property developers. Local governments want a “famous brand” school to give face to their ambitious development initiatives. Property developers want a prestigious school to add value to their new developments, bringing in the deep-pocketed Chinese buyers so valuable in an over-supplied residential market. With strong local support that most foreign investors can only dream about, it would seem that establishing a private school in China should be a piece of cake.
Starting a private school in China is actually very difficult even under the best circumstances and time and again, our clients and the local Chinese side misunderstand the laws involved in such businesses.
The first misunderstanding is often made by the foreign party (our client), who is either not aware or does not fully understand that foreign investment in education in China is restricted — as per both MOFCOM’s list and Ministry of Education’s guidelines. In many Western societies, establishing a school is seen as a noble effort, a service to the greater community. In China, education is viewed by China’s citizens to be the responsibility of the government. The Chinese government though views at least some aspects of Western education as a threat to the educational content it wants its citizens to receive.
The second, similar misunderstanding involves the local Chinese party who is encouraging the Western party to establish a new private school. Because establishing certain types of private schools are rare for large swaths of China – especially those under foreign control – most local and provincial Education Bureaus have no procedures or clear understanding of how to go about setting up such a school. On more than one occasion, our China lawyers have had to teach local Education Bureaus about the laws their own Ministry of Education has published.
These core misunderstandings often result in a costly comedy of errors on both parties and it is not uncommon for the Western party to come to us after having squandered a not-so-insignificant amount of money and having frayed once strong relationships.
When it comes to establishing an alternative to Chinese public schools, the Ministry of Education has published clear guidelines, allowing for three types of schools:
- School for the Children of Foreign Workers 外籍人员子女学校
- Sino-Foreign Cooperative School 中外合作办学
- Private School 民办学校
It is important for both the foreign and the local party to know the relevant regulations early in the process. The first step to determining what regulations are relevant is to determine the type of school each party is actually intending to establi This is most easily accomplished by understanding each type of school the Ministry of Education allows and then reviewing the guidelines for that particular type of school.
Schools for Children of Foreign Workers. In 1995, the Ministry of Education (MoE) published Interim Measures for the Schools for the Children of Foreign Workers (中华人民共和国国家教育委员会关于开办外籍人员子女学校的暂行管理办法). There are currently over 120 schools of this type in China, with the majority of them in Beijing and Shanghai. Though some foreigners send their children to Chinese local public schools (one of our Beijing lawyers does that), most do not. The Chinese government long ago recognized that good schools for foreigners is good for foreign investment into China (FDI). In Schools for the Children of Foreign Workers, foreign students typically receive an education very similar to what they would receive in their home country. Most of these schools contain “International School” in their name,
The MoE made an allowance for this type of school to be completely under foreign control. MoE review of the curriculum at these schools is not required, and both its governing board and legal representative can be foreigners. These schools, however, cannot be religious in nature and no Chinese students are allowed to attend them. Once property developers understand the “no Chinese student” restriction, they often are not as interested in establishing this type of school. Why would their wealthy Chinese customers want to buy a high-end apartment only to have to watch foreign children go every day to a top school that their own children are forbidden to attend?
The following is a brief overview of issues to consider when establishing a School for the Children of Foreign Workers:
- The school must be only for early childhood, primary and secondary education. Post-secondary (university level, technical training school, etc.) education is not permitted.
- The school must have a China legal entity sponsor its establishment. This entity can be a Wholly Foreign Owned Entity (WFOE) or a Joint Venture (JV) whose purpose is to start and operate a school. Our China lawyers have established numerous WFOEs for this purpose, and it should be noted that the requirements on WFOE type, business scope and name substantially differ from standard WFOEs. More than once, lengthy negotiation was required between the local SAIC and Education Bureau to secure approval for a WFOE with the Chinese characters for education (教育) in its WFOE name.
- Local Education Bureaus differ in the amount of registered capital required, but it is often a minimum of USD$1,000,000.
- The sponsoring company appoints the first school director and governing board. This fact is often critical in determining whether to go into this sort of venture as a WFOE or a JV.
- Once established, a School for the Children of Foreign Workers is an independent legal entity, owned by itself (as non-profits are) and governed by its board. All money received by the school must be used by the school, and therefore cannot be remitted as profit to investors, of which there are none. It follows, then, that there are no investment shares possible in this type of school, a fact that often also scares off would be powerful Chinese investors or government officials looking to cash in on their influence and connections.
- As mentioned earlier, only non-PRC students are allowed to attend these schools. Note that the regulation carefully uses the term commonly used for non-PRC citizens,外籍人, rather than the term for “foreigner,” 外国人. The effect of this is that students from Taiwan, Macau and Hong Kong families can also attend a School for the Children of Foreign Workers.
- From 1995 – 2012, all School for the Children of Foreign Workers applications had to be approved by the National Ministry of Education in Beijing. From 2013 onward, each provincial Education Bureau has had approval authority for these types of schools, which, due to a lack of clear procedures existing at the provincial level, has only further complicated application efforts.
In my next post, I will look at the remaining two options for establishing an international school in China.