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Opinion / Commentary
Solving debt problem
(China Daily)
Updated: 2007-09-18 07:26
The introduction of a market mechanism is vital to improving the
financial operations of higher-learning institutions, says an article in
Oriental Morning Post. The following is an excerpt:
Education Minister Zhou Ji listed the reasons for the debts of
higher-learning institutions and showed the government's determination
and confidence in solving the problem at a news conference recently. He
said the basic solution is to increase government input and the schools
have to improve their financial management systems.
China's higher education has developed in leaps and bounds in the past
decade. In 1998 there were 1.08 million students enrolled in colleges.
There were 5.4 million last year.
Higher learning institutions have had to invest heavily for the
expansion. The total bank loans of these institutions now stands at 200
billion yuan ($26.32 billion). One college has a debt of 5 billion yuan.
Bank loans are the main funds supporting colleges and universities.
The major reason that banks are willing to lend is because these
institutions have government credit support. It is a pity, however, such
support has often been abused. This is similar to the situation when
State-owned enterprises incurred losses resulting in State-owned banks
being ridden by bad debts.
Therefore, if the financing system of public universities and colleges is
not rectified, the State will have to pay the bills eventually. Special
national bonds are suggested by some officials as a solution to the
problem.
The possibility that public finance will have to come to the rescue again
stimulates commercial banks to grant loans randomly. The debt crisis of
higher learning institutions has already entered such a vicious circle.
Thus the solution should be to do away with the government's credit
guarantee and let the universities look for finance in the marketplace.
Foreign universities normally set up foundations and recruit
professionals to manage their financial operations.
There are also successful examples of domestic private schools, like the
New Oriental. Its successful financing through overseas listing shows the
advantages of a market operation.
(China Daily 09/18/2007 page10)
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