China - Management and finance of higher education

A WORLD BANK COUNTRY STUDY PU55912 CHINA Management and Finance of Higher Education  A WORLD BANK COUNTRY STUDY CHINA Management and Finance of Higher Education The World Bank Washington, D.C., U.SA.  The World Bank 1818 H Street, N.W. Washingtorn D.C. 20433, USA All rights reserved Manufactured in the United States of America First printing November 1986 Second printing July 1987 World Bank Country Studies are reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published inforrmally with the least possible delay for the use of governments and the academnic, business and financiaL and development communities. Thus, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. 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The continuing research program is described in The World Bank Rarch Program: Abstracts of Cwrent Studies, which is issued annually. The latest edition of each of these is available free of charge from the Publications Sales Unit, Department F, The World Bank, 1818 H Street, N.W., Wash- ington, D.C. 20433, USA, or from Publications, The World Bank, 66 avenue d'I1na, 75116 Paris, France. Library of Congress Cataloging-in-Publication Data China : management and finance of higher education. (A World Bank country study) Bibliography: p. 1. Universities and colleges--China--Finance. 2. Universities and colleges--China--Administration. I. International Bank for Reconstruction and Development. II. Series. LB2342.2.C6C44 1986 379.1'214'0951 86-23423 ISBN 0-8213-0842-4  ...Education must serve socialist construction, which, in turn, depends on education.... ...The Coamunist Party of China Central Committee holds that, in order radically to change the current situation, it is first necessary to carry out systematic reform of the educational system.... ...While reforming the administrative system and strengthening overall educational management, it is necessary to simplify administration and delegate authority by granting lower levels and aoademic institutions more decision-making powers.... ...In promoting education, it is imperative to increase investment. For some time to come, the increase of educational appropriations by both central and local government must be greater than the increase of regular financial revenue... However, we must also realize that government investment in education is, after all, restricted by the level of its economic development... The solution to the problem requires us, through carrying out reforms, to harness more effectively...various social quarters to work with one heart and one mind in seeking more ways and means. (From the Decision on Reform of the Educational System, May 29, 1985)  CURRENCY EQUIVALENT The Chinese currency is called Renminbi (RMB). It is denominated in Yuan (Y) Exchange Rates used in this report are as follows: 1980 $1.00 = Y 1.50 1981 $1.00 = Y 1.71 1982 $1.00 = Y 1.88 1983 $1.00 = Y 2.00 1984 $1.00 = Y 2.00 1985 $1.00 = Y 2.80 1986 $1.00 = Y 3.20 FISCAL YEAR January 1 - December 31 ACADEMIC YEAR September 1 - August 31 ABBREVIATIONS AND ACRONYMS CRTVU - Central Radio and Television University CDP - Cross Domeitic Product CNP - Cross National Product CVIAO - Cross Value of Industrial and Agricultural Output SEdC - State Education Commission SPC - State Planning Commission  CHINA MANAGEMENT AND FINANCE OF HIGHER EDUCATION Table of Contents Pase No. SUMMARY AND RECOMMENDATIONS .......................... viii I* BACGRUNK GoR O U ND.....*** . 1 Recent Developments 1...... 1 Issues in Management and Financen.a...e...........e..... e.o 6 II. EXPANSION OF HIGHER EDUCATIONoT..... 8 Intoutionu....n 8 Enrollment Expansiono..o...o . .. . ..o9o..n ... **o*9*... .o 8 Alternative Delivery Systems for Higher Education..ation... 10 Global Estimates of Demand and Supply of High Level M a n p o w eroooosooooooooo.*oo,,,,o,,,,,o*o,,,,*oooe,ooomoooo 17 III. ANALYSIS OF RECURRENT COSTS OF UNIVERSITY INSTITUTIONS....... 29 Introductionoo*oo,.*,oooo..oooooo,,.,oooo.*.**o*..ooooe..*. 29 Structure of Recurrent Expenditure....oo.oo.........oe.... 29 Existence of Scale Economies......o.....o.o..o..o.e....o 33 Simulations of Average Recurrent Costsst.........69....... 37 Implications for Management and Financeoo a n ce.o..o...... 37 IV. ANALYSIS OF CAPITAL INVESTMENT AND PHYSICAL PLANT MANAGEMENT 47 Introductionooo,ooo,o.*,,,*,*oo,,*oo 47 Facilities Planning and Designe sg......o....s....o.e...... 48 Facilities Planing...,,.. 48 Facilities DesiRn * 54 Facilities Construction............o.......o..o..o.... 55 Facilities Management..... ... .. ........ .... . o.oo... 56 Facilities Utilization 56 Equipment Management 57 Maintenance Management.e....e.......o.o..e..eo..o e..o... 58 Facilities Organizationg......... 60 Conclusionesoooooo.o,...*O,oooe***o 61 V. FISCAL MANAGEMENT OF UNIVERSITIES........................... 63 Introduction.o.o.000***00,,,,,,,*,,,Ooe.o.eooesoooes9ooooes 63 Revenue Sources and Classification.o.if.ic.ati..0... .0*0 64 Expenditures and Expenditure Classification.......o...o.... 67 Manuals for Accounting and Reporting of Fiscal Data........ 74 Audits of Accounts ................... ......... .. 74 Organization for Decision-Making.......... ... .. .. .... 75 Staff Training and Development.....................I....... 79 Role of Central Agencies..o..o.......*... o.....o.e..o. ee... 80 Conlsonc...... 81  Pa8e No. VI. COSTS AND FINANCING OF HIGHER EDUCATION ...........s*..*........ 83 Introduction oo oo e .*.oeo* o.o.....................e...oo.............. 83 Prospects to the Year 2000.....................o.... ......... 84 ANNEXES A. Adult Higher Education................................................ 90 B. Cost Categories and Functions................................ 94 C. Analysis of Recurrent Expenditure in Educational Institutions: Questionnaire. .oo. .o. .o ................o ............ .....o 101 D. Estimation Procedures for Average Recurrent Cost Functions... 107 E. Analysis of SEdC Space Standards.............................. 117 F. Utilization Surveys.......................................... 119 G. Deferred Maintenance Costs..o...... ... . .0 123 TABLES IN TEXT 2.1 Education Profile by Age, 1982.....e.....e.............e...... 10 2.2 Enrollment in Higher Education by Type of Institution........ 11 2.3 Projected Enrollment of Conventional Universities, 1983-90... 13 2.4 Projected Demand for University Graduates in the Year 2000... 21 2.5 Projected Supply of University Graduates in the Year 2000.... 22 2.6 Projections of Demand for Technicians and Engineers in the Year 2000 ........... ..................... .............. 25 2.7 Projections of Demand for Professional and Technical Personnel in Economics and Finance in the Year 2000..... 27 3.1 China: Structure of Recurrent Costs by Kind of Institution.. 31 3.2 China: Structure of Recurrent Costs by Affiliation.......... 32 3.3 Average Cost Functionso.....................o.................. 36 3.4 Simulation of Unit Cost Behavior - Effect of Student Teacher Ratio and Enrollment.o....................o..... 38 3.5 Private Expenditure per Student per Year on Fees, Textbooks and Materials os e o * * 9 oo ... oo&ooooo9w...................oo........... 43 3.6 Public Education Subsidy as Percent of GNP per Capita and Educational Attainment of the Population, China and Major World Regions, Circa 1980......................... 44 4.1 China: Space Standards - Average Recommended for Science and Engineering Undergraduates .........o-............ 49 4.2 China: Space Standards Comparison, Science and Engineering Studentso....................................oee 53 5.1 Sources of Revenues for Operations........................... 66 5.2 Expenditures by Object...... .... ......... 69 5.3 Direct Expenditures by Program............................... 70 5.4 Total Expenditures by Major Programsoo.........o.o.o.ooo.o.oo 72 6.1 Estimates of Public Expenditure on Higher Education by the Year 2000.............................. 87 6.2 Unit Recurrent Cost of Higher Education in Conventional Universities as a Share of GNP Per Capita............... 89  FIGUIES IN TEXT 2.L Higher Education Enrollment in China and Other Selected Nations........................................ 9 3.1 Plot of Unit Recurrent Cost Versus Enrollment................ 34 5.1 University Organization Chart: Small Scale Institution...... 77 5.2 University Organization Chart: Large Scale Institution ...... 78 TABLES IN ANNEXES B.l China: List of All Variables................................ 97 B.2 China: Basic Statistics of Variables: Questionnaires ....... 99 B.3 China: Basic Statistics of Variables: Pooled Sample ........ 100 D.1 China: Estimated Average Cost Curves: Questionnaires ....... 111 D.2 China: Estimated Average Cost Curves: Pooled Sample ........ 114 F.l Classroom Utilization: Comprehensive University Classrooms.. 119 F.2 Classroom Utilization: Comprehensive University Laboratories ..... ................................................... 120 F.3 Classroom Utilization: Teachers College Classrooms.......... 121 F.4 Classroom Utilization: University of Technology Classrooms.. 122 FIGURES IN ANNEXES C..l Deferred Maintenance Costs .................................. 123 RF,FERENCES*o*oo.****..o**O*O.o >124 This report was prepared on the basis of a mission that visited China in June/July 1985. The mission consisted of Messrs R. Drysdale (Mission Chief), W. Middleton and W. Pierpont (Consultants). Ms. Ann Orr and Ms. Ivy Leung provided assistance in Washington. The work of the mission was aided signifi- cantly by close consultation and support by staff of the State Education Commission, Beijing. The mission expresses its thanks in particular to Madam Qin Tianyi Division Chief, SEdC Bureau of Planning and Finance for helpful support. A draft of the mission's report was submitted to the Chinese Government in January 1986 and discussed with the government in March 1986; this version of the report has been revised in light of government comments.  SUMMARY AND RECOMMENDATIONS SUMMARY 1. This report looks at some of the key issues for China in the manage- ment and finance of higher education over the next 15 years and at options for addressing them in the light of recent education reform proposals in China and of international experience. It covers a range of topics including: a review of Government's plan for long-term expansion of higher education posed as three alternative targets for enrollment growth; broad estimates of possible demand for and supply of high-level manpower in function of different pros- pects for economic growth and structural change in the Chinese economy to the year 2000; an analysis of the recurrent cost structure of conventional univer- sities including the distribution of costs by category of expenditure, the relationship between unit costs and size of enrollment, and policies on student subsidies and cost-sharing; an assessment of current practises in the planning, design, utilization, maintenance and management of university facil- ities; an evaluation of university systems of accounts for revenue and expend- iture and of management organization; and, finally, an analysis of the financial feasibility of plans for developing higher education to the year 2000 under different assumptions with respect to internal efficiency and cost- sharing for university institutions. This section reviews the findings and where appropriate formulates recommendations on each of the above points. 2. Expansion of Higher Education. A chief goal of education policy in China is to achieve a significant expansion of higher education by the end of the century. This goal is based on two considerations: the proposal to increase aggregate enrollments in higher education to levels comparable to those of the middle-income countries and the recognition that the technical competence of the labor force must be raised if China is to achieve the economic status of a middle-income country by the end of the century and ultimately emerge as a modern industrial state. Turning to the strengthening of higher education within the program of Four Modernizations has been a justifiable choice. In the three decades since liberation China has addressed many major problems in the supply and distribution of primary and secondary education, and with notable success by comparison with countries of similar levels of income particularly in urban areas. By contrast the number of people with post-secondary qualifications, only 0.5% of the adult population, is very small. The goal for enrollment expansion in higher education has been examined by the Government of China and the World Bank in terms of three different plans based on different enrollment targets: low, an enrollment ratio of 10% by 2000 (or an average annual rate of increase of 10.4% from 1983); medium, an enrollment ratio of 12.5% (an average annual increase of 11.8Z); and high, an enrollment ratio of 15% by 2000 (an average annual rate of increase of 12.9%). In order to reach the medium enrollment target of 12.5Z rate of enrollment in 2000, the system of higher education would need to grow by about a factor of five between 1983 and 2000 (paras. 2.01-2.03). 3. A strategy in pursuit of this goal would necessarily follow three parallel tracks: (a) a sharp increase in enrollment in existing universities; (b) establishment of new universities; and (c) expansion of nonconventional approaches to higher education such as polytechnics, television universities, - viii -  correspondence, special and evening programs, and universities for workers, lpeasants and cadres. Based on current growth rates, the mission projects that regular higher education, including both conventional universities and lpolytechnics, and the television university system representing an innovative approach to higher education in China, will grow slightly faster than adult higher education overall. With 48% of total enrollment nonconventional higher education in China already holds a higher share of enrollment than in any oDther country. Despite the higher cost, emphasis by the Covernment on regular higher education, and the television university system, is explained by the priority for expanding full-time programs for future secondary graduates versus continuing education for adults. It also indicates recognition of the generally higher quality of education in the regular stream that has, along with television universities, received major new investments since 1979. Also about one quarter of those enrolled in adult higher education will enter correspondence, evening and special programs offered by conventional universities and polytechnics. In this way, these institutions will make more intensive use of their resources by increasing their role in specialized programs for mature students (paras. 2.04-2.17). 4. Enrollment growth must also be shaped to economic considerations including the demand for high-level manpower. At issue is whether rapid development of higher education will meet the broad human resource demands of rapid growth and substantial structural change in the economy. A related question is whether there will be an imbalance in supply and demand of graduates in key specializations. Planning of both the level and composition of expenditures on higher education in China is linked to manpower fore- casting. However, projecting manpower requirements has proved problematic in numerous countries. Forecasts based on estimates of requirements provided by employers or on complex planning models have not been particularly success- ful. The difficulties of manpower forecasting in China are mitigated somewhat by the diversity of post-secondary education - encompassing both the regular stream and adult higher education -- offering several routes to any given educational qualification. But the considerable diversity of higher education in China is offset to some extent by excessively specialized fields of study numbering in total several hundred. This narrow definition of field of study has been recognized by Chinese educational leaders as an obstacle to upgrading academic programs to the standard required and new, broader curricula are being introduced in major fields of study. This development also eases somewhat the task of projecting demand for manpower as future graduates will possess wider qualifications (paras. 2.18-2.23). 5. Despite the limitations inherent in any forecast, demand and supply projections that are revised periodically may provide insight into movements toward or away from balance. As a tool for planning, the direction of these movements is perhaps more important than the degree of imbalance shown by any single estimation. In illustration of a broad approach to projecting demand for high-level manpower, this report analyzes the three scenarios for expansion of higher education in relation to three alternative projections of economic growth and structural change in the Chinese economy using a multi- sectoral model. The three economic scenarios were developed in the recent World Bank report on the Chinese economy, China: Long-Term Issues and Options, Report No. 5206-CHA, World Bank 1985. One projection attains the Government's  target of quadrupling the gross value of industrial and agricultural output (GVIAO) between 1980 and 2000. Another projection maintains most of the assumptions made in the first case, but takes a less optimistic view of the future efficiency of China's economy and consequently projects lower growth. A third projection represents an alternative way of attaining the same growth rate of per capita national income as in the first case by giving greater weight to the services sector, specifically to commerce and miscellaneous business and personal services (paras. 2.25-2.26). 6. This comparison of enrollment projections with alternative scenarios of economic growth allows for several broad conclusions. The medium scenario for enrollment growth would provide more than sufficient graduates in the year 2000 under both the standard scenario to quadruple GVIAO and the lower econ- omic growth scenario. It may not satisfy aggregate demand for graduates under the scenario of high growth rate of per capita national income with signifi- cant shift into the services sectors that are relatively more graduate- intensive in the use of labor. The high target for enrollment expansion would provide adequate numbers of high-level manpower in all three applications of the economic model. The low projections of growth in enrollment would generate adequate supply only in the low scenario of economic growth. Given the wide confidence intervals that must apply to projections of this kind, one should avoid too rigid an interpretation of these results. It may suffice to affirm that the medium enrollment target is reasonable in view of historic enrollment growth rates in China and elsewhere, and possible future demand for high-level manpower -- so long as China is content with a skill level of its labor force in the year 2000, as measured by educational attainment, that will be comparable to that of other East Asia economies such as South Korea and the Philippines in 1960 and 1970 (paras. 2.27-2.28). 7. Even at the low level of disaggregation of fields of study used in this analysis, however, there are differences among specializations in the adequacy of future output to meet demand in the year 2000. At present in China there is wide evidence of current or impending shortages in certain major fields of study. Information accumulated from enterprise surveys, interviews with municipal, provincial and national authorities, and informa- tion provided by SEdC and the Ministry of Labor and Personnel confirm that annual requests for qualified high-level manpower can be satisfied only in part. Shortages are particularly acute in scientific, technical and engineer- ing fields, in management, including personnel trained in economics, finance, law and general administration, in health-related occupations and in education. The report reviews in a broad framework prospects for requirements of high-level personnel in engineering fields and in economics and finance as defined by the Chinese system of occupational classification, two areas that have recently received World Bank assistance. The projected supply of graduate technicians and engineers should satisfy demand under all three scenarios of economic growth and even allow for an upgrading of the educational level of engineering and technical personnel. There will be more of a problem of supply of professional and technical personnel in economics and finance -- occupations that include management, administrative and support personnel in the public service (including education), in state and collective enterprises, and in personal services -- where even the high scenario of enrollment growth would only meet the demand of a more service sector-oriented economy with  minimal upgrading of the currently very low educational qualifications of this group. This finding underscores the conclusion that in many specializations China will continue to depend on adult higher education (part-time studies and non-conventional delivery systems) as a substitute for regular full-time studies in the year 2000 (paras. 2.30-2.37). 8. Recurrent Costs. The analysis of recurrent costs in the operation of conventional universities in China focusses on two main areas of interest: the structure of recurrent expenditure by level and category of expenditure; and the effect of size of enrollment on unit recurrent cost, taking into consideration the kind of institution and changes in the student teacher ratio. Several conclusions are noted. On average personnel-related expenditure accounts for slightly more than one-third of recurrent expenditure. Although this level is well below the norm elsewhere -- in other countries personnel costs in higher education commonly run between 60% to 70% of recurrent costs -- policies that affect the deployment of teaching staff (about 60% of total personnel costs), such as an increase in the student teacher ratio, could still significantly reduce unit recurrent costs. By the same token, plans to improve remuneration of university (and education sector) personnnel, announced by the Government in mid-1985, would increase operating expenses but may be balanced by policies to increase the student teacher ratio (paras. 3.03-3.11). 9. The student teacher ratio in Chinese universities is low by comparison with other countries. The ratio for universities that provided data for this report is 3.7 to 1. The average for universities in East Asia and the Pacific, excluding China, is about 12 to 1. It is about 10 to I in Sub-Saharan Africa, 12 to 1 in the United Kingdom, 15 to 1 in the United States, and 25 to 1 in France. These conditions in Chinese universities derive from several historical factors that have now begun to change. For example, new hiring of faculty members is restricted; programs for upgrading faculty are in place; new policies for retirement are in effect; and planned teaching loads are increasing to a range of 15 to 18 hours per week. The State Education Commission (SEdC) aims to reach an average student teacher ratio in regular higher education of 8 to 1 by 1990 (paras. 3.12-3.13). 10. Another significant component of recurrent cost in universities in China is the cost of operating student residences, as well as assistance to students, such as fellowships, subsidies and food allowances, to underwrite some share of out-of-pocket expenses of attending university. These two items account on average for about 20X of recurrent expenditure. For those insti- tutions operated by provincial governments (such as normal universities and comprehensive provincial universities), these two items add to 23% of total recurrent expenditure, largely because of higher subsidies for students in teacher education courses. These standards will be difficult, and perhaps inadvisable, to maintain over the long run in managing the expansion of higher education in China. Recurrent expenditure related to student boarding com- bined with various kinds of student subsidies increase recurrent costs and limit proportionately the capacity to provide more student places or to increase public expenditure on lower levels of education (para. 3.14).  11. Student residences are considered necessary by most university personnel, given average housing standards and the relative lack of alter- native arrangements for students. But alternatives have proved possible in the case of polytechnics that provide no residential accommodations, and a few universities have already recognized that excess demand of qualified appli- cants could be satisfied by allowing students, as many as 10% in some cases, to make their own housing arrangements. In order to protect the interests of qualifed students from poorer families in any policy to limit university- supplied residential accommodations, available space could be allocated on the basis of need, as estimated by household income, coummuting distance and so on. At the same time, there are sound reasons to formulate new policies with respect to subsidies and grants to students. The promised reforms in pay policy will likely increase the material benefits that accrue to university graduates during their employment. Polytechnics, the television universities, and specialized courses of regular universities presently charge fees to students. And Government announced in May 1985 the intention to reduce student grants and subsidies, to charge fees for sponsored students and those admitted outside the state plan and to provide more scholarships to students based on merit (para. 3.15). 12. The social effects in China of an increase in the proportion of non- residential day-students and of greater sharing of costs by students (or their families and employers) are not entirely clear. A thorough-going analysis would require reliable data on distribution of income and on distribution of household expenditure by level of education attained, say, by the head of the household. It would also require estimates of future changes in income distribution as a result of changes in pay policy. To the degree that the experience of other countries is instructive, however, it deserves notice that public subsidies to education are quite often distributed inequitably. The relatively few individuals who are able to attain higher education receive very large unit subsidies compared to those who attain lower levels of education, and this, in the light of evidence that higher income groups are over-represented among those who attain higher levels of education. An important question concerns the equity effects of reducing subsidies or raising charges for higher education. In the absence of countervailing measures, it is possible that some poorer students would be forced to terminate their higher education programs; others will be discouraged from applying for university admission. It is generally recognized that such adverse effects could be mitigated through the increased provision of selective scholarships, as a source of financial aid especially for qualifed students from poor families, or through the eventual institution of educational loans (paras. 3.16-3.19). 13. In addition to questions of personnel costs and of student subsi- dies, the analysis of recurrent expenditure examined unit recurrent costs as a function of the size of institutions. It concludes that, even though the level of savings varies by the kind of university, there are substantial sav- ings in unit recurrent expenditure in universities larger than the average size of 4,000 to 5,000 in China. Unit recurrent cost appears to decline or remain approximately constant after a much higher level of enrollment is reached, in the range, say, of 8,000 to 10,000. This may suggest that an enrollment level of approximately 8,000 to 10,000 could be the range of least  average unit recurrent cost beyond which the development of another institu- tiont could take place without much loss of efficiency. If, on considering capital expenditure on land, physical plant and equipment, particularly in the caset of new institutions, an even larger size is recomended, there would be no significant loss in efficiency in terms of higher unit recurrent costs by exceeding the 8,000 to 10,000 threshold. The implications of this finding are quite clear. The planning of universities should give priority to expanding existing institutions or only building new ones with enrollments considerably larger than is currently the norm in China. Where smaller institutions operate in close proximity, say, in large cities, planning for future expan- sion should include the possibility of consolidating existing institutions under a single administration (paras. 3.20-3.21). 14. Capital Investment and Physical Plant Management of Universities. Efficient management of higher education concerns not only measures to reduce recurrent costs, but also to improve the productivity of capital investment in physical plant and equipment. The financial requirements for upgrading exist- ing and building new facilities and for acquiring new equipment will compete with outlays for other pressing tasks such as faculty training, provision of educational materials, or development of library collections. These claims on available resources will force hard choices in allocating university budgets. They will also challenge higher education officials to re-examine some long-standing practices with respect to the planning and management of university facilities in a search for possible savings (paras. 4.01-4.03). 15. Planning of space requirements for universities in China has long depended on a system of per student space allocation. The report shows that comparison of these space standards for classrooms and teaching laboratories with space standards under World Bank projects in other developing countries, or in a set of comparator developed countries, suggests that the Chinese space standards could be reduced. The report estimates that, under the proposed shift to a credit system and an increase of about 25% in utilization of classrooms and laboratories, the per student space standard for classrooms and laboratories could be reduced significantly. This reduction could lower per student expenditure on facilities alone by about 20% (paras. 4.04-4.15). 16. The report also points out that, in the reformed environment for the development of higher education in China, the rigid application of per student space standards for facilities planning will prove inefficient. For larger and more diverse institutions, emphasis in design work should shift to a more micro-level approach of deriving accommodation requirements from analyses of specific educational and research needs. Design of university facilities should also incorporate certain improvements. These include among other things: more study hall or library reading room space to free classrooms for use in actual instruction rather than as areas for student study; more flexible, multi-purpose laboratories; and enhancement of comfort standards such as lighting, noise reduction, and so on (para. 4.16). 17. Beginning in the second half of 1984, the SEdC Construction Bureau initiated competitive bidding for construction projects, under which both local construction units and those from other areas would submit bids for projects. A prequalification procedure has been used to ensure that  construction units have adequate resources and experience. So far experience with competitive bidding for a few major projects in Tianjin and Shanghai has been salutary. Savings have been estimated at 10 and construction was realized on schedule. In other areas this approach has proved unfeasible because of the ongoing boom in construction and the present scarcity of materials and skilled labor. The quality of construction work varies greatly with some university projects receiving work below acceptable standards. One measure to help avoid this result is intensive supervision of construction by qualified university personnel (para. 4.17). 18. New design features as well as willingness to utilize space on a more continuing basis throughout the day would allow for increased space util- ization. The achievement of higher levels of space utilization would undoub- tedly require, however, centralizing responsibility for class scheduling and for classroom and most laboratory utilization in one academic office of the university. The use of computers could also simplify the scheduling and assignment process that may become more complex under a credit hour system as now proposed in many universities (paras. 4.18-4.26). 19. Management of teaching and research equipment has recently drawn the attention of SEdC, and new procedures have been established to improve equip- ment management, including maintenance. Insistence on the application of these procedures and on further strengthening of the systems at each univer- sity by measures such as establishment of testing and analysis centers, improved access to equipment for users from different university departments, and computer time sharing should be on the agenda of the SEdC Production and Supply Bureau (para. 4.27). 20. Maintenance and repair programs of many universities suffer from lack of budget and weak maintenance planning and procedures. Experience in other countries demonstrates that deferral of maintenance increases overall maintenance and repair costs exponentially. A survey of a few institutions by the mission indicated that the unfunded backlog of maintenance and repair as a proportion of plant replacement value was several orders of magnitude greater than is considered adequate in other countries. Moreover, in many cases main- tenance management is weak with respect to preventive maintenance; regular inspection of facilities; the use of time and cost standards; and maintenance work planning. The SEdC Bureau of Construction could take a lead in monitor- ing facilities maintenance and repair programs and in developing standardized maintenance management procedures (paras. 4.28-4.31). 21. The report also finds that improvements in facilities planning and management require institutional changes, in both central agencies and universities, as well as opportunities for staff training and development. Within central agencies these changes incLude: strengthening the capacity of the SEdC Construction Bureau to develop revised space standards and more flexible design approaches for educational facilities; intensifying the work of the Laboratory Management Division of the Production and Supply Bureau of SEdC in development and dissemination of guidelines for teaching, research and administrative equipment utilization and maintenance; and establishing a new division, possibly within the SEdC Bureau of Construction, to monitor perfor- mance of and to provide assistance in developing systems for facilities main- tenance and repair (para. 4.32).  22. Institutional changes in support of improved physical plant manage- ment within the universities include: consolidating all aspects of physical plant design, construction, operation and maintenance vithin divisions report- ing to one senior administrative officer; increasing budgetary support and strengthening of management for facilities maintenance; and centralization of classroom and most laboratory scheduling and assignment in one officer report- ing to a senior academic officer (para. 4.33). 23. Programs for training physical plant staff are needed to raise the standards and quality of physical plant management. The SEdC could assume a lead in this important function. Programs would include study visits abroad and to leading institutions in China for government officers and university personnel; development of training materials; and organization of workshops and seminars on a regional or national basis in China. In other countries this function may be served by a professional association, specialized com- mittees of university officers or agencies within a ministry of education or a miinistry of higher education. In China there is a present need for some analogous body to assume leadership in development and diffusion of innova- tions in higher education management. One possible solution would be the creation of a Higher Education Management Institute under the aegis of the SEdC or in cooperation with a leading academic institution with faculty competence in the area of higher education management (para. 4.33). 24. The report has identified one further, and possibly sensitive area, for long-term reform in university physical plant design and operations. It concerns the model of a self-reliant university common in China. In this style of operation, universities provide not only residences for students and necessary housing for faculty and staff, but also a range of other support facilities, and services. These include: primary and secondary schools for children of employees; substantial clinical and hospital facilities, and medical services; printing presses; stores; workshops; factories for equipment and other hardware production; and so on. The development of these auxiliary functions was a logical and necessary response to the economic environment of the 1950s and later. In particular, supply of faculty housing and related amenities by a university are an integral part of existing arrangements for compensation and benefits in China. However, in the reformed economic envir- onment of the 1980s and beyond the continued self-provision of the full range of these facilities and services is questionable. They, of course, represent a significant share of total capital and recurrent expenditure. But the relatively small-scale provision by universities themselves, especially in view of possible supply of them by larger economic and social units, raises questions about the cost-effectiveness of current arrangements. Over the longer run, and once the supply of these services for university personnel and operations is assured by units external to each university, SEdC should examine carefully the justification for maintenance of these activities on many campuses and for their inclusion in plans for new universities (paras. 4.06 and 5.20-5.21). 25. University Fiscal Management. With the expected expansion of higher education to the year 2000, it is desirable to modernize university fiscal management procedures. The report has also identified several areas for change in university budgetary and expenditure procedures (paras. 5.01-5.02).  26. The financing of higher education has already diversified with major contributions by enterprises and non-educational agencies to university operations. Other sources of revenue -- student contributions, donations, as well as income from consulting and research contracts -- are increasing. In view of these developments, the report documents the need to improve account- ing procedures for classification and monitoring of revenue. By the same token, improved university management requires more detailed accounting of expenditures. The current system records expenditure only under a system of classification by object. This is a necessary and important procedure. But its value is strictly limited in that the object classification does not allow for cost-accounting of different university functions -- academic programs; research activities; support services (as discussed in para. 24). Universi- ties are about to receive greater autonomy in management of financial opera- tions. This desirable change should be supported by development of improved accounting systems that incorporate a functional classification of revenue and expenditure in support of management of different programs and components of a university. The report presents and describes simple examples of such a sys- tem of accounts. In support of the transition to a programmatic or functional accounting in universities, several steps must be taken. New manuals for accounts and reports would have to be prepared, probably under the leadership of the Finance Division of the Finance and Planning Bureau of SEdC, and in coordination with the Department of Accounting Affairs Administration of the Ministry of Finance (paras. 5.03-5.25). 27. A system for university audits would also need to be established. This system would include internal university auditing to assist managers by way of a detailed review of implementation and effectiveness of the accounting and reporting system and of university financial operations. Audit reports for external purposes would assist SEdC, technical ministries and bureaus by providing a review of the application of uniform accounting and reporting procedures and of the accuracy, timeliness and usefulness of data provided by the university financial reporting system. The design and introduction of such audit programs would require inclusion of auditing procedures in a manual of accounts and reports (paras. 5.26-5.27). 28. University Organization. Another aspect of improved management of universities is the creation of more formal organizational structures. Prior to the current period of rapid development of Chinese universities, the organizational structures in place were simple, relatively informal and generally adequate. With the growth of universities and the more recent Decision on Educational Reform (May 1985), which will result in greater complexity and responsibility of universities, changes in internal organization are called for. This would require creating more clearly defined levels of responsibility and authority below the office of the president. Such a structure would be compatible with a budget and accounts system reflecting functional costs, would encourage the development of budgets from the lowest level up through each higher level of management, and would permit delegation of authority for university decision making, while maintaining accountability of operating units (paras. 5.28-5.29).  29. Many options exist as organizational models for university manage- mnrt. The report develops two generic types commonly used by universities in North America, Western Europe, Japan and many developing countries. The first demicribes an organization chart for a small but growing university; the second is more appropriate for a larger, more diversified institution. These two types are quite general and their application in specific cases would depend on a variety of local factors: number and kind of academic programs; size of graduate schools; range of research or consulting activities, and so on. The central feature of these types, however, is clarification of lines of authority and accountability for management of all aspects of university operations (paras. 5.30-5.35). 30. As with those responsible for management of physical plant, so for personnel responsible for financial operations, a substantial effort to improve knowledge and skills is required. Successful introduction of new sys- tems and procedures requires that staff members in charge are given opportu- nity to take short courses, attend workshops, or join study tours for training in specific areas of management. Training of this kind for university finance personnel and other administrators could be organized by the Finance Division of the Bureau of Finance and Planning of SEdC, or a new Higher Education Management Institute that could assume responsibility for organizing, train- ing, preparing training materials on these topics, and establishing relation- ships with corresponding agencies in other countries. The report also sug- gests that, as new systems are introduced in selected universities, these institutions could serve as models for others (paras. 5.36-5.40). 31. Costs and Financing of Higher Education. In the concluding section, the report reviews the level and trend of spending on higher education and attempts to assess, in broad terms, the financial feasibility of ongoing and planned expansion of higher education. The principal finding is that the medium growth target for higher education -- to an enrollment ratio of 12.5X by 2000 -- is basically feasible subject to two strong assumptions: first, that Government's plan to quadruple GVIAO by 2000 is realized, and, second, that there are significant improvements in internal efficiency and greater cost-sharing in higher education in an effort to reduce unit costs of public expenditure on higher education. The first assumption is beyond the scope of this study, but its realization has been judged as realistic in view of cur- renit performance and reform in the Chinese economy. The second assumption is cenitral to this report. The conclusion reached here is that, in the absence of gains in internal efficiency and greater cost-sharing in higher education, there is a clear risk that the projected public costs of higher education could absorb too large a share of total public resources for education. Under such circumstances, much needed programs for improvement in the coverage and quality of basic education, in upgrading teacher education, and in the vocational and technical thrust of upper secondary education may not be financed (paras. 6.01-6.04). 32. The report reaches this conclusion by two steps. First, by use of the three projections of the multi-sectoral model of the Chinese economy, public spending shares on education overall are projected for the year 2000. Second, public unit cost of higher education in the year 2000 is projected according to three different packages of policies on internal efficiency and  on distribution of financing of higher education. These are used to generate public expenditure on higher education in the year 2000. These results are compared with the overall levels of spending on education projected from the economic growth model. In the case of the medium target for enrollment expan- sion, the report includes analysis of the implications for public expenditure on higher education and on all education. Comparison of these results is also made with those obtained for the low and high enrollment targets (para. 6.05). 33. The three different packages of policies on internal efficiency and distribution of financing to be achieved by the year 2000 are defined as fol- lows. In the first package, salaries and related personnel costs are assumed to increase in line with the Government's goal for GDP per capita. But there are no departures from current practice in the internal allocation of resour- ces to education or in cost-sharing arrangements. In this case, the student teacher ratio, student residential accommodation and other student subsidies, and unit capital costs are all held to standirds of 1983. In the second pack- age, the same adjustment is made in personnel-related costs as in the first case. But there is added: a policy to double the student teacher ratio; to increase teachers' remuneration by 50X; and a savings in unit capital costs of 202 by means of adjustments in design standards and improved levels of space utilization. In the third package, all of the above changes are incorporated, but adjustments in cost-sharing are added. These include: a decision to enroll up to 302 of full-time students in conventional universities as day students; management of tuition fees and other charges, balanced by scholar- ships, so that net income reaches 10 of unit recurrent cost in conventional universities and 20X in the polytechnics; and correspondence, special and evening programs are operated so that 502 of recurrent cost is recovered from sponsoring work units. The directions of these policy changes are consistent with statements of SEdC and the recent Decision on Educational Reform. The actual percentages chosen in this simulation are, of course, only judgments by the mission of what may be reasonable (paras. 6.06-6.08). 34. The results of these calculations in the case of the medium plan for enrollment growth are instructive. The 1983 share of public expenditure on education as a share of GNP is about 2.22. The estimated level of public expenditure on higher education in 1983 is about 25Z of total public expend- iture on education. In the year 2000, the level of public expenditure on education as a share of GNP is projected in the economic growth model to increase to between 3.0Z and 3.4Z in the three projections of the multi- sectoral model, an increase in relative terms of between 362 and 642, though still lower than the East Asia and Pacific average of about 4.0X in 1980. Although these projected increments in public expenditure on education are already substantial, to the extent that comparative data for other countries are relevant for China, somewhat higher shares for public educational expenditure may still be possible. In the absence of such additional increases, if there is no improvement in internal efficiency or gain in cost- sharing, under the medium enrollment scenario, the share of public expenditure on education devoted to higher education would rise sharply. It would reach between 33Z and 492 depending on the economic growth scenario, much higher than the 1983 share of 251. The 1980 average for East Asia and Pacific is 18.5Z; among industrialized countries about 19.12. If the second package of reforms of internal efficiency is introduced, under the medium enrollment  scenario by the year 2000 the share of the public educational expenditure on higher education would still rise above 25% to between 27Z and 42% depending on the economic scenario. If reforms in internal efficiency and in cost-sharing are both introduced, the share of public educational expenditure on higher education would be 23% in the case of a quadrupling of GVIAO, 35% in the low economic growth scenario, and 24% in the projection of growth in the economy that includes a greater shift into services. Under circumstances of quadrupling GVIAO or of equivalent growth in per capita national income with greater weight to the service sectors, combined with gains in internal efficiency and cost-sharing, the share of public expenditure on higher education would be just below the current level and closer to the averages in the region or among the industrialized countries. The greatest volume of additional public resources would then be available for other programs of educational investment (paras. 6.09-6.12). :35. The report does not consider in detail the financial impact of the Low (10% enrollment rate) or high (15% enrollment rate) scenarios for enroll- ment growth. The implications of these alternatives are, however, relatively clear by reference to the medium target for enrollment growth. The high enrollment growth scenario would require an increase of about 25% in public expenditure on higher education in 2000 above the level projected for the medium target. The report concludes that this level would be beyond the lEinancing capacity of Government under any of thefthree scenarios of economic growth or packages of reform in internal efficiency and cost-sharing. In contrast, the low enrollment target would require about 20% less public resources than the medium plan. If implemented in tandem with reforms in iinternal efficiency and cost-sharing as identified in the report, the low *enrollment target would reverse the trend since 1979 of a rising share of public educational resources devoted to higher education (para. 6.13). 36. The report concludes, however, that along with plans to quadruple GVIAO enrollment by the year 2000, there are strong reasons for otherwise pursuing the medium growth scenario. At that level of participation in higher education, requirements for high-level manpower could be broadly satisfied. .ikewise, at that level of participation, China would approach the educational sltandards of the middle income developing countries. It would also be in a stronger position to emerge as a modern industrial state in the next cen- tury. There are, of course, other pressing claims on public resources for etducation. Some of these priorities, such as nine year compulsory education, a significant increase in the share of secondary students in vocational and technical programs, and new investment in teacher education, will themselves require substantial increases in levels of public expenditure It is unlikely that goals for these other educational programs would be achieved if public spending on higher education takes a share which significantly surpasses historical levels for China or levels allocated to higher education in other countries. Accordingly, this report suggests that there is, in effect, a tradeoff between the medium target for expansion of higher education and other desirable educational goals. The analysis of the medium enrollment scenario signals clearly the need for improvements in internal efficiency and of greater cost-sharing in higher education if this scenario is to be financially feasible. In the absence of firm measures in these two areas, enrollment growth would have to be curtailed (para. 6.14).  Recommendations 37. Information obtained in the manner of this report for a country of the size and diversity of China may prove unrepresentative. Forecasts, however careful, are. often wrong; lessons of international experience may be ambiguous; and certainly, comparisons are hard to apply to China. The findings of this report should be understood, therefore, as an attempt to contribute to discussion and debate on management and finance of higher education and, as such, are subject to modification and adjustment. Only from this perspective, the mission has formulated a number of recommendations based on findings. These are listed below keyed to the related paragraphs in the main body of the text. 38. In broad terms, among the three targets for enrollment growth dis- cussed between educational officials in China and the World Bank, the mission finds the medium enrollment target of a 12.5Z enrollment rate in 2000 a reasonable goal. It is reasonable, however, only if public expenditure on education continues to increase to a share of GNP closer to levels of other countries of East Asia and if difficult choices are made substantially to increase the internal efficiency of higher education and to distribute a somewhat larger share of the cost to students, families and employers. In the view of the mission, prospects for gains in internal efficiency and for greater cost-sharing would improve if the following recommendations in management and finance of higher education are implemented: (a) Under the medium enrollment plan, the demand for high-level manpower would be broadly satisfied. But Government should maintain regular, short- term analysis of manpower supply and demand to gauge the adequacy of output in relation to demand within specific fields. The report finds that, in line with current policy, expansion of programs for technicians and engineers may proceed slightly below planned rates of growth for higher education overall. The report also concurs with Government's plans for expanding enrollment in economics, finance and related fields as preparation for management, administrative and support personnel at a higher rate of growth than is planned for higher education overall (paras. 2.29-2.31). (b) With respect to recurrent expenditures the mission recommends several measures: (i) universities should seek to raise substantially the student teacher ratio. The current level of about 3.7 to 1 should increase to at least 8 to 1 by 1990, the official target. But levels of 12 to 1 are standard elsewhere and should become the ultimate target for universities in China (para. 3.13); (ii) Government should reduce the level of student subsidies in higher education while increasing selective support for qualified students from needy families. The intention to pursue this goal has already been announced by the Government in May 1985. Specific measures include: reduction in residential accommodation where alternatives are possible; application of fees to students able to pay or to those  sponsored by work units; and award of scholarships to qualified students unable to finance studies A reasonable target for the year 2000 may be for 30% of full-time students in conventional universities to be enrolled as day students and for lOZ of recurrent costs in conventional universities and 20% in polytechnics to be financed by fees and charges. At least 50% of recurrent costs in correspondence, special and evening courses should be recovered from employers (paras. 3.14-3.19); and (iii) Government should encourage universities to operate with much larger enrollments, at least twice the current average size, in view of the likelihood that larger institutions can be operated more economically. Enrollments in the range of 8,000 to 10,000 full-time students would be reasonable in mosts cases and should become a medium-term target for institutions where specific restrictions, such as limitations on available land, stringent building codes or related factors, do not apply (para. 3.20). (c) With respect to physical plant planning and management, the mission recomends that: (i) space standards should be lowered to levels that are seen as acceptable for public universities in other countries. Classroom and laboratory space, in particular, could be reduced, parallel to the introduction of the credit system and measures to increase the level of utilization of facilities. At the same time, space standards should be applied in the future more as guidelines than as design specifications. In general, greater flexibility and diversity are called for in university design (paras. 4.10-4.17 and 4.36); (ii) several improvements in design should become standard in all programs for major expansion of existing universities or development of new universities: more study hall or library reading space should be provided in order to free classrooms for actual teaching use; universities should plan for more flexible, multi-purpose laboratories; and new buildings should incorporate improvements in lighting, noise reduction and other comfort standards (paras. 4.17 and 4.37); (iii) further gains are required in the level of utilization of classrooms and laboratories. Increase in utilization would result if universities centralized scheduling and assignment of classrooms and laboratories under one academic office and, in the future, made greater use of computers for this task (paras. 4.25, 4.26 and 4.38); (iv) the SEdC Production and Supply Bureau should continue to strengthen guidelines, and its capacity, to monitor university equipment management. More attention is required to achieve  greater use of centralized testing and analysis centers; to improve access to equipment for users outside the department housing the item of equipment; and to increase sharing of com- puter facilities among all sectors of the university (paras. 4.27 and 4.39). (v) SEdC should encourage universities to allocate a larger share of recurrent expenditure to facilities and to equipment maintenance and repair. The SEdC Bureau of Construction should prepare guidelines as well as standardized procedures for maintenance management (paras. 4.28-4.32 and 4.40); (vi) SEdC should encourage universities to consolidate all aspects of physical plant planning and management within divisions reporting to one senior administrative officer (paras. 4.33 and 4.41); and (vii) SEdC should adopt a long-term goal of reducing the number and scope of support services that universities provide directly for themselves. In the design of new institutions, proposals for hospitals, schools, printing presses, factories and other facilities to be included as part of the university operation, should be subjected to rigorous analysis of the cost- effectiveness of self-provision versus the option of purchasing these services from outside the university campus (paras. 4.05 and 4.35). (d) With respect to fiscal management and university organization, the mission recommends that: gi) new systems of accounts for revenue and expenditure should be developed in order to improve university cost accounting. These systems should be based on a functional approach to accounts classification so that revenue and expenditure can be assigned and evaluated by functional area (paras. 5.14-5.22 and 5.43); (ii) SEdC, in coordination with the Accounting Affairs Administration of the Ministry of Finance, should encourage each university to create an internal audit unit and should organize a program of regular external audits of university accounts (paras. 5.26-5.27 and 5.43); (iii) in support of new accounting procedures, the Finance Division of the SEdC Finance and Planning Bureau should develop manuals for accounts and reports. The manuals should include accounts and reports for budgetary, accounting and reporting purposes. The manual should also include reports for purposes of internal and external auditing (paras. 5.23-5.27 and 5.43); and (iv) universities should formalize their management organization to create more clearly defined levels of responsibility and authority within separate operating units. Examples of models are contained in the report and could be adapted to the specific  needs of each institution. The new organizational structures should be compatible with a budget and accounts system reflecting functional costs (paras. 5.28-5.35 and 5.44). (e) Finally, SEdC should consider establishing a Higher Education Management Institute as a focal point for university management staff training an,d for development of new practices in university management and in financial operations. The proposed Higher Education Management Institute could organize programs of management training, prepare training materials and establish relationships with corresponding agencies in other countries. Working through such a body, SEdC would be able to promote much needed staff development for university administrators in all areas of physical plant and financial manage- meint. Such training could take the form of study tours abroad, workshops, and visits to selected institutions in China that have introduced new management approaches (paras. 4.32, 5.37, 5.40 and 5.45).  I. BACKGROUND Recent Developments 1.01 China's ultimate economic objective is to catch up with the developed countries, while maintaining a socialist system in which the benefits of prosperity are widely shared. Major, though uneven, progress toward this goal was made in the past three decades. During the next two decades, there could be substantial further progress, laying the foundations for rapid and equitable growth in the next century. 1.02 The Government has set targets of quadrupling the gross value of industrial and agricultural output (CVIAO) between 1980 and 2000 and increas- ing per capita national income from about $300 to $800 (about 5% per year) in constant prices over the same period. The World Bank has recently concluded that qualfrupling GVIAO would require an investment of about 30% of national income.- This is comparable to the rates in other fast-growing East Asian economies, as well as East European countries, and in line with China's past investment. With progress in efficiency of investments in social and economic infrastructure, and provided that the population in 2000 is close to the official target of 1.2 billion people, quadrupling GVIAO would allow the Government's per capita income target to be attained. I.03 It is generally recognized that the drive for economic development to the end of the century depends on how successful the economy is managed. This is not only a matter of importing and developing technology and of mobil- izing both financial and human resources, it is also a matter of achieving greater efficiency in investments, in the sense of reducing costs, increasing productivity, and of allocating resources to those sectors and projects with the highest returns. This demands foresight, flexibility, incentives and, no doubt, modification of some long-standing practices and patterns. In recog- nition of these preconditions, the Government has announced and introduced a series of economic reforms in recent years. These reforms began on a national scale with the introduction of the peasant responsiblity system in agriculture in about 1979. Under this system, the individual household has replaced the collective as the basic unit of farm management and production. Since October 1984, the reforms have also affected the urban economy with a general loosening of controls over enterprises, greater freedom in pricing and related decisions and a number of financial reforms designed to increase financial Elows for investment. 1.04 In the first four years of the Sixth Five-Year Plan, 1981 to 1984, the success of these adjustments in economic management has been impressive. Since 1981 agricultural output has grown by 50% in current prices; rural incomes are up 60Z on average; industrial output 45%; and the commercial sector by 100%. Over that same period prices across the economy rose only 1/ See China: Long-Term Issues and Options, Report No. 5206-CHA, World Bank, 1985.  -2- about 20Z altogether. In 1984 the overall growth performance was the best of recent years. Real gross domestic product (GDP) increased by 14X; real gross output value in agriculture was up by 12X; industry grew by 161; energy production increased by about 10S; transport by about 12%; and commerce jumped by as much as 20% depending on the measure. The impact of recent policy changes has been so explosive and so widespread that, in the medium term, some intervention is necessary to prevent overheating of the economy or troublesome fiscal or external imbalances. 1.05 To sustain rapid growth over a longer period, to the year 2000 or beyond, requires more than the rapid growth stimulated or released by the loosening of state controls. It is a hard and complicated task that depends on numerous factors -- not the least of which is the development of human potential through investments in education and training. 1.06 The Government of China recognizes that people are both the means and the ends of economic development. Their numbers, knowledge and skills, effort and initiative will largely determine the pace and pattern of China's development. This primacy of human resource development is evident in China's achievements in education since 1949 -- unmatched among developing countries of the same income level: two-thirds of China's adult population is literate; the secondary enrollment ratio, 35X, is higher than in countries with compara- ble levels of income; adult education has been widespread; and in many respects quality of,higher education has been high and, at its best, of inter- national standard.- 1.07 That is not to say that educational development has been without problems. China's education system has suffered from numerous problems: dis- continuity in planning and policy; uneven development of basic education; a structure of senior secondary education that leaves the majority of those entering the labor force without specialized preparation; and a decline in coverage and quality of higher education from 1965 to about 1980 as a conse- quence of the disruption caused by the Cultural Revolution. 1.08 In recognition of these deficiencies in education, the Covernment has brought educational policy under the purview of ongoing system reform. A series of actions are now proposed that recognize the need for policy and institutional change in education if this sector is to be "a motor rather than a brake" on development in the years to come. The guide to policy adjustment in educatiqn is found in a recent Decision on Educational Reform, announced in May 1985., In five main sections, this document announces that: 2/ China: Long-Term Issues and Options, Annex A: Issues and Prospects in Education, oP. cit. 3/ Decision on Educational Reform, Beijing, May 1985.  (a) the purpose of the (educational) reform is to improve the quality of the nation and produce more qualified people; (b) responsibility for developing basic education will rest with provincial and lower level administrations, and the goal is to implement in stages a nine-year system of compulsory education; (c) the structure of senior secondary education will be adjusted in favor of a higher proportion, about 50Z, enrolled in vocational and technical education; (d) in institutions of higher education, enrollment plans and graduate assignment will be adjusted to allow for greater flexibility; and higher education institutions will have greater autonomy in the management of programs and resources; and (e) in order to strengthen leadership in the education sector, the State Education Commission (SEdC) has been set up to replace the former Ministry of Education and is responsible for controlling general educational policies and guidelines, mapping out an overall plan, coordinating the work of various departments in education, and providing unified guidance for reform. 1.09 As with the reforms in the urban and rural economies, which place a premium on improved economic management, so this announced package of adjust- ments in educational policy rests on improved management of the education system. A unifying theme in both areas of system reform -- economic and educational -- is to seek efficiency in the use of resources through dele- gation of responsibility within a planned and coordinated framework; flexibil- ity in implementation; and incentives for improvement of management perfor- mance. 1.10 According to the Decision on Educational Reform, under the leadership of the Party, SEdC is responsible for overall guidance of higher education, defined as all "policies, decrees and plans of the state." A three-level system of management and finance -- namely at the central level (one third of all institutions) and the provincial and major city levels (remaining two thirds) -- exists to implement and monitor state higher education policy. Accordingly institutions of higher education may be operated and financed by SEdC, by education departments of central ministries or by provincial and municipal departments. These latter may be called, for example, provincial departments of education or of higher education depending on the degree of specialization. SEdC (and the Ministry of Education prior to May 1985) develops norms and standards for both academic and administrative functions. In the past this has resulted in relatively uniform courses of study, similar academic standards and common practises with respect to personnel management, budgeting and general university administration. Since 1978 university admission has been managed under a central admission examina- tion. Qualified students have been enrolled in institutions within an overall plan developed jointly by SEdC and the Central State Planning Commission (SPC) and worked out in coordination with education departments of central ministries or provincial and municipal administrations. Assignment of  -4- graduates has likewise been managed by SEdC and SPC with first claim on graduates' services exercised by sponsoring departments. Students enrolled in national institutions (under SEdC or other central ministries) would be assigned nationally. Students enrolled in provincial institutions would be assigned within their own province. Academic degrees are recommended by each institution, but control on conferral of degrees is ultimately held by the State Council through an Academic Degree Committee. Although policy and guidelines are set by SEdC under the leadership of the Party, adult higher education has functioned with less central guidance. Administration of adult education, however, remains a similar three-tier structure with students enrolled in institutions operated by education or adult education departments of central ministries and provincial or municipal governments. The rapidly growing television university system is managed by both SEdC and provincial governments. 1.11 This system of relatively tight administrative control, especially that exercised over the network of greater than 900 regular academic institutions, is likely to change quite significantly as a result of the 1985 reform decision. Change is in the general direction of greater autonomy for academic institutions. Newly authorized functions of universities include: authority to revise and introduce new courses of study within various disciplines; authority to engage in research projects and develop consulting and other arrangements of technical assistance; greater authority in allocation of available resources for operations and capital development; authority to appoint or remove university personnel; the power to enroll students at employer's request and qualified students at their own expense in addition to students enrolled under the state plans. At the same time preferences of students will be given greater consideration within the system of job assignment. SEdC and operating departments will continue to provide overall policy guidance, finance and inspection. Various units within SEdC, in particular, will be called upon to develop and revise guidelines for academic and management services of universities and to provide or arrange for technical assistance to universities seeking to introduce new or improve teaching programs and to modernize their management systems. 1.12 The subject of this report is management and finance of higher education -- the subsector of highest priority for the Government in education since the Cultural Revolution. Deficiencies in higher education have been a central focus of China's educational strategy since about 1979, and great efforts have been made to improve academic standards, expand enrollments and plan for further substantial enlargement over the next 15 years. Turning to the strengthening of higher education within the program of Four Modernizations has been a justifiable choice. In the three decades since Liberation China has addressed many major problems in the supply and quality of primary and secondary education, and with notable success by comparison with countries of similar levels of income, particularly in urban areas. By comparison with other developing countries, however, the number of people in China with post-secondary educational qualifications -- only about 0.5% of the adult population -- is very small. In 1979, enrollment in higher education was about 3% of the age group, in 1983 this share reached 4%. In a group of middle income developing countries, the enrollment ratio in higher education was about 12%; in the East European nonmarket economies about 20%; and in the  -5- induistrialized market economies about 37Z, all in 1982.4/ Full-time enrollment in four-year universities in China was only 1.0 million in 1979. It had grown to about 1.2 million in 1983. This figure could reach between 5.2 and 7.6 million by the end of the century. Adult higher education, that includes the television university system, part-time studies and enrollment in specialized institutions for workers, peasants and staff, was approximately 500,000 in 1979, as many as 1.1 million by 1983. Enrollment in adult higher education is estimated by the mission to grow to between 3.7 and 5.6 million by 2000. The number of universities has grown apace. There were about 630 in 1979 and 900 in 1985. SEdC expects that the number of university institutions will continue to increase to the year 2000 with increased enrollment accommodated both in new institutions and in new facilities added to existing institutions. Incremental resources (both recurrent expenditure and capital investment) for higher education will be substantial. The World Bank estimates that annual recurrent expenditure for higher education could grow from about Y 3.0 billion in 1983 to between Y 12.1 billion and Y 16.9 billion in 2000, that additional equipment requirements could reach about Y 3.4 billion more from 1983 to 2000, and additional investment in physical facilities, about Y 22 billion more (all in 1983 prices)./ These are large sums especially in view of per student recurrent expenditure in universities in China, about US$715 in 1983 or 2.2 times GNP per capita (and about 15 times the average unit expenditure at the secondary level and 40 times average unit expenditure at the primary level). 1.13 Major educational issues in the development plans for higher education China have been analyzed in government reports and World Bank docuiments.- * These include: analysis of academic programs; improvement in curricula, experimental work, and academic support services such as computer centers, audio-visual centers, test and analysis centers, and libraries; demnnd and supply of teaching faculty and faculty upgrading; development of teacher education; and expansion of graduate programs. A gap remains in a detailed and analytic review of issues in management and finance of higher education. Institutional capacities and financial constraints effectively determine the implementation of educational objectives. In the light of ambitious enrollment plans and the substantial investment required, failure to attend to management and finance issues could easily jeopardize the achieve- ment of long-term goals for higher education in China. 4/ See Table 25, World Development Report, IBRD, Washington, D.C., 1985. 5/ China: Long-Term Issues and Options, Annex A: Issues and Prospects in Education op. cit. 6/ See government project preparation reports and World Bank reports: China: University Development Project 1, Report No. 3366-CHA, 1981; China: Agricultural Education Research Project, Report No. 3819-CHA, 1982; China: Polytechnic/Television University Project, Report No. 4406- CHA,1983; China: Second Agricultural Education Project, Report No. 4871- CHA, 1984; and China: Provincial. Universities Project, Report No. 5673- CHA, 1986.  -6- Issues in Management and Finance of Higher Education 1.14 In this report, issues in management and finance of higher education are examined under several categories. Chapter II reviews, first, Government's plans for long-term expansion of higher education. It examines enrollment expansion in terms of alternative goals for enrollment growth and the respec- tive roles of different delivery systems, such as regular higher education and adult higher education. Broad estimates are made next of possible demand for, and supply of, high-level manpower in function of different prospects for, economic growth and structural change in the Chinese economy to the year 2000. Demand for technicians and engineers and for professionals in economics and finance is considered in more detail. 1.15 Chapter III investigates the structure of recurrent costs in the operation of conventional universities in China, the kernel of the higher education system. It focuses in detail on the relationship between size and type of institution and unit recurrent cost. It is recognized, for example, that the average size of university institutions in China is very small by international standards. Also many institutions are highly specialized pro- viding training within narrowly defined disciplines. In order to formulate policies for efficient expansion of higher education, planners must ask in general: Are there major differences in cost structure among the different types of universities? Are there possible savings in per student expenditure in the expansion of existing institutions? Specific questions are: What are the principal cost components of university institutions in China? What level and share of resources is devoted to teaching, administrative and other services? What share is allocated to non-teaching services such as student housing? How do these vary by size, cost, kind of institution and by agency of Government responsible for operation (national or provincial level, SEdC or technical ministries)? The chapter concludes with observations on the cost of student boarding and related student subsidies; the prospect for some reduction in subsidies to students in the light of recent reform proposals in Beijing; the impact of the student teacher ratio on recurrent expenditure; and the possible savings in universities of larger size. 1.16 Chapter IV focuses on capital investment and physical plant manage- ment in universities in China. It examines current practices in the planning, design and construction of physical facilities; the assignment, utilization and management of space; and the maintenance and repair of equipment and facilities. This includes a comparison of space requirements with standards elsewhere; an analysis of utilization of space as practised in several univer- sities; an estimation of maintenance budgets as a share of required mainten- ance; and organization structure related to physical plant operation and management. The principal questions concern: What improvements may be made in physical plant planning, design, and construction? What savings may. accrue to policies for revised space standards and improvements in space utiliz- ation? What institutional changes may assist the management of university physical facilities and maintenance? What form of technical assistance and staff development would facilitate implementation of improvement in physical plant management? The chapter concludes with observations on possible reductions in space requirements and greater flexibility in their application; improvements in building design; increased utilization of classroom and labor-  atory space; systems for maintenance and repair; and organizational changes and opportunities for training of physical plant managers. 1.17 Chapter V discusses, in turn, the fiscal management of universities in China. It examines the strengths and weaknesses of the existing systems for revenue and expenditure classification and for cost accounting of diverse university functions -- including some functions, such as schooling for children of employees, hospitals for employees and students, printing facili- ties and so on, that many universities currently supply themselves but that, over the longer run, may be purchased from the outside at lower cost. It considers internal and external audit requirements and identifies the need for a standardized manual of accounts and reports for both accounting and audit purposes. The chapter examines university organization for management and for delegation of authority. It identifies revised and more formal organizational structures that would create levels of responsibility below the office of the president and would be compatible with a budgetary and accounts system that would reflect functional costs of diverse university programs and activi- ties. It concludes with an analysis of training and technical support requirements for management personnel that may be provided by SEtC, possibly working through a proposed Higher Education Management Institute. 1.18 Chapter VI assesses the financial feasibility of the overall plans for the development of higher education to the year 2000. By incorporating a number of measures identified in Chapters III, IV, and V, the chapter examines the financial prospects for enrollment growth under different packages of reforms with repect to internal efficiency and cost-sharing in higher educa- tion. It concludes that a central scenario of medium target enrollment (to an enrollment rate of 12.5Z by 2000) is only feasible with the adoption of policy changes in internal efficiency and cost-sharing.  8- II. EXPANSION OF HIGHER EDUCATION Introduction 2.01 The Government of China bases its higher education development strategy to the year 2000 on two principal considerations: the ambition to increase aggregate enrollments in higher education to levels more commensurate with those of the middle-income countries, and the understanding that the technical competence of the labor force must be raised if China is to achieve the economic status of a middle-income country and, ultimately, emerge as a modern industrial state. This chapter examines these two points of view in turn. Firat, it reviews plans for enrollment expansion in terms of alterna- tive goals for enrollment growth and different systems for delivery of higher education in China. Next, broad estimates are made of possible demand for and supply of high-level manpower in function of alternative scenarios of economic growth, using the World Bank multisectoral model of the Chinese economy. Finally, the chapter focuses in detail on two key occupational groups: technicians and engineers, and personnel in economics and finance. Enrollment Expansion 2.02 A chief goal of education policy in China is to achieve a signifi- cant expansion of higher education by the end of the century. The Government is keenly aware of the substantial waste inherent in providing less than 5% of the nation's youth with opportunity for education beyond secondary school. In this regard, the Government of China places great importance on international comparisons, especially with the more advanced developing nations. In 1985 China's higher education enrollment ratio surpassed the LDC median and reached 4.8%. For the upper quartile of developing nations, a level which China aspires to reach, the ratio is now 11.0%. Projections to the year 2000, based on World Bank comparative education indicators, suggest that t49 upper quar- tile of developing nations will, by then, reach 15% or higher.-' Figure 2.1 illustrates how the higher education enrollment ratio in China may compare with other countries between 1975 and 2000. With 1983 as base year, the Government of China has examined three different enrollment plans based on different target enrollment ratios: low, an enrollment ratio of 10 by 2000 (or an average annual rate of increase of 10.4Z); medium, an enrollment ratio of 12.5% by 2000 (an average annual rate of increase of 11.8%); and high, an 71/ While useful for indicating the direction and pace of change, interna- tional comparisons of higher education enrollments must be viewed cau- tiously. Taken alone, they provide no explanation of differing histori- cal conditions that have fostered or impeded formal higher education; and they do not generally capture significant nonformal approaches to higher education -- such as spare-time worker's education, or correspondence and evening programs of regular universities -- that also serve to raise the educational qualifications of the work force.  -9- Figure 2. 1: Higher Education Enrollment In China and Other Seected Nalions Higher Education Enrollment Ratio (M) 22'- Republic of Korea 21 - 20 - 19 18 - 117- 16 15- 14 -Ih 13- -*Brazil 121- - Medkim 11 / ,LDC UpperQuartile - - 10 I - r - Lo 3 ~~~~ s D e .ssuuuuuuu Cu MexIco 9 - -000 -00 U.. * - -~~~~~~~~~~~~0*0 8 I IndIa I0 - 1 - --II 1975 1980 1985 - 199 12 7ource:.- * Wc rl Bn -ti c 6 0:u - -0 5 -0 o 4 ~~~~~~~~~~LDC MedIan 3- OL--L- I ~ ~ I I I Ip 1 I S I 1975 1980 1985 Yer 1990 1995 2000 Woild Bank-30052A Source:. World Ban* Comparative Edtucation Indicators  - 10 - enrollm wt ratio of 15% by 2000 (an average annual rate of increase of 12.9%).-O 2.03 Another perspective on the need for rapid expansion of higher education enrollment derives from the skewed education pyramid (Table 2.1). Largely because of the Cultural Revolution, which stopped or hampered higher, upper secondary and technical education for about ten years, the preparation of persons with advanced educational qualifications is relatively low (less than 1%) -- smaller in the 25-34 age group than among those over 35 -- in relation to the relatively high proportion possessing primary education (over 65%). Indeed, China's many years of isolation and corresponding disregard of higher education have contributed to the smallness of the stock of manpower equipped to apply or to teach the skills essential for modernization. Table 2.1: EDUCATION PROFILE BY AGE, 1982 (z) Lower Upper Post- Primary secondary secondary secondary Age group Male Female Male Female Male Female Male Female Total 15 years and over 79.1 51.1 42.9 26.0 13.3 8.3 1.0 0.3 15-24 95.1 82.2 71.0 53.6 23.5 17.8 0.1 0.1 25-34 88.8 61.9 48.0 26.4 13.4 7.6 0.8 0.4 35+ 63.2 24.9 21.5 7.5 6.4 2.4 1.6 0.5 Source: See Table 8.1, China: Long-Term Issues and Options. op. cit. Alternative Delivery Systems for Higher Education 2.04 In order to reach the (medium) enrollment target of 12.5% rate of enrollment in 2000 (Figure 2.1), the entire system of higher education would need to grow by about a factor of five. A strategy in pursuit of this goal would necessarily follow three tracks: (a) sharp increase in enrollment in existing institutions; (b) establishment of new institutions; and (c) expan- sion of nonconventional approaches to higher education such as polytechnics, television universities, workers universities, and correspondence, special and evening programs. Table 2.2 indicates for 1983 enrollment and number of institutions by type under regular higher education or adult higher educa- 8/ The distribution of population by age group varies, of course, across these five countries. In the target year of 2000, in China and the Republic of Korea, for example, the percentage of the total population in the 19-22 age group will be 7-8%, while in Mexico, Brazil and India, the figure will be 9-llX.  - 11 - Table 2.2: ENROLLMENT IN HIGHER EDUCATION BY TYPE OF INSTITUTION Number of institutions Enrollment Target levels for 2000 1983 1983 Low Medium High ------- ('000) ----