Will China's stock market affect the flow of students to the U.S.?

Kerry Geffert
Product Evangelist, Terra Dotta

While most of us entered international education because we believe in the power of intercultural understanding, we also know that we are in a profession that is subject to the whims of economics – local, national and global. A weak dollar makes the United States an educational “bargain” while straining the budgets of study abroad programs. Though the result of political acts, the events of September 11 impacted the ability of students to come to the United States, particularly those from Middle Eastern countries, negatively impacting budgets of U.S. international student services offices and ESL programs.

The downturn of the U.S. economy around 2008 had a significant impact on study abroad enrollments as families were forced to adjust priorities in part due to the lost value of investments. Particularly impacted were summer enrollments where financial aid played less of a role and personal funds were more discretionary.

On a global level, recent reports out of Saudi Arabia indicate that Saudi student enrollments in the United States may be in for some changes. The PIE News recently reported on “the cancellation of the Middle East’s largest student recruitment event” and the potential for changes “in the allocation of the [Saudi] scholarships.” The likely reason for the changes – the continuing decline of the price of crude oil exacerbated by the resumption of oil exporting from Iran. While we may be smiling at the prospect of filling our gas tanks for under $25, one of the consequences could be fewer Saudi students pursuing their degrees in the U.S.

Malaysia federal budgetary planning may also affect future enrollments of Malaysian students. In the past month, Malaysian news sources have reported on the review and potential reduction of numbers of students being sent abroad under the sponsorship of Majlis Amanah Rakyat (MARA). The Malaysian government reportedly is seeking to establish Malaysia as a Southeast Asian education hub and thus encouraging students to pursue their degrees at home; however, additional reports of cuts to the MARA budget allocation by almost 20% imply there will be less government funding available. After seeing a 6% increase in Malaysian students studying the U.S. in 2014/15 after several years of flat growth according to IIE Open Doors, a reduction in sponsored students would be unfortunate.

While enrollments from both Saudi Arabia and Malaysia are important to American higher education internationalization efforts, the potential impact of economic changes are generally endurable (though potentially significant on individual campuses). The same may not be true with a country like China. International student enrollments from China continue to grow by double digit percentages as it retains its lead as top sending country for the past six years. In 2014/15 alone, over 300,000 Chinese students studied in the United States, comprising 31.2% of the international students in the U.S. (Open Doors 2015) Thus when financial volatility hits the China economic markets, as has happened in the past year, one wonders if waves of impact will ripple across the Pacific to U.S. campuses enrolling, or hoping to enroll, Chinese students.

The volatility of the Chinese stock markets was headline news around the world just last month. That news sparked drop offs in markets around the world, including here in the United States. Of course, this wasn’t the first time fluctuations in the Chinese markets have caused concern, but given the numbers of Chinese students in the United States, one wonders if the predicted “bubble bursts” will impact the flow of future students, as well as the financial stability of those students currently enrolled.

As with any complex problem, the answers are rarely simple. On the surface, it would seem that falling market values could negatively impact the finances of Chinese families. Without the necessary funds, fewer families would be able to send their children overseas to study. American colleges and universities, therefore, would see declining interest and enrollments. But it’s not that simple.

As with enrollments from any national group, they should not be considered as one homogeneous group. Open Doors 2015 tells us that the number of undergraduate Chinese students in the U.S. continues to grow at a rapid pace. Undergraduate and graduate students each comprise about 40% of total Chinese enrollments (the remaining 20% are in other categories). Graduate students often – though certainly not always – have obtained assistantships which may offer tuition remission and/or monetary stipends. They are less dependent on funds from China, and so are generally unaffected by the Chinese economy, unless the economy affects their family in China.

Undergraduate Chinese student enrollments represent a newer market for most U.S. institutions. Each year millions of Chinese youth take the National College Entrance Exams (or gaokao) to determine their eligibility for entrance into a Chinese university. Like admission to a highly selective university in the United States, not every student taking the exam passes, and not everyone is offered admission into a Chinese university. The stakes are high with outcomes often determining one’s future. Therefore, admission to a university outside of China, particularly a prestigious university, offers a parallel track.

For the highly prestigious universities, the opportunity to remain selective can carry over to those undergraduate applicants from China. Dr. Ivor Emmanuel, Director of the International Office at the University of California Berkeley, reports that of the almost 5,000 freshman applicants this past year from China alone, less than 20% actually enrolled.

Widely known universities, such as UC Berkeley and MIT (where only 55 Chinese undergraduates were enrolled in Fall 2015), generally do not need to recruit in China to help build their undergraduate classes. For the vast majority of U.S. institutions, though, making your name known and building your reputation are key. Many institutions send recruiters to China to represent the institution at fairs such as those organized annually by IIE. Others work with agents, a still somewhat controversial practice in the United States though fairly common – and trusted – in many countries, including China.

Still other universities have become creative in developing their Chinese enrollments. Exchanges with Chinese universities are nothing new; universities often have one or more relationships with Chinese universities facilitating the flow of students and faculty, usually for short-term activity. Oklahoma State University has developed relationships with several universities using the 2+2 model. Chinese students spend their first two years on their home campus then complete their undergraduate studies with the last two years at Oklahoma State, according to Vivian Wang, Manager of Chinese Development in the OSU International Student & Scholars Office.

Currently, OSU’s 2+2 programs exist for students studying engineering, business, agriculture, and hotel & restaurant administration. Spending two years in the United States, as opposed to four, helps to reduce the overall cost for Chinese families. “Most of the families have savings in the bank so they are not as dependent on the stock market. If they were here for four years, it might be an issue,” says Wang. Tim Huff, manager of the ISS Office, adds that these programs have helped OSU grow its Chinese enrollments by over 50% since 2009 while increasing academic standards. “We have a good reputation.”

Michael DiMauro, CEO of LPI Learning, recently returned from a business trip in China where he met with partners offering educational services, including opportunities to travel and/or study in the United States. Despite the changes in the Chinese economy, “people are spending money,” noticed DiMauro. These families typically have insulated themselves against economic changes caused by stock market swings and minor currency devaluations. “We are seeing families sending their children at younger ages [to the U.S.] to obtain the advantage of getting into a good university.” Most, if not all, of his partners are seeing increases in the numbers of students with whom they are working.

But what of the undergraduate Chinese students currently studying in the United States? Has the latest volatility in the Chinese financial markets caused concern amongst current students? If it has, the students are not expressing that concern to international student staff within any of the universities contacted for this article. Part of the reason may be that students had to show liquid assets in order to obtain their U.S. student visas. Part of the reason, though, probably has to do with perceptions of the recent volatility.

When a stock market the size of China’s sees a significant drop, as did China’s last month, the world takes notice. But as we have learned in the United States, daily market results can be fickle. Unless we are short-term investors, we are encouraged to take dramatic swings in the U.S. markets in stride. It’s the long term that is more important to most of us; financial advisors caution against rash decisions made on the basis of one day’s activity. The situation for Chinese families may be no different. As OSU’s Wang observed, “most of the [Chinese] families have savings in the bank so they are not as dependent on the stock market.”

We must remember that sending a child to a university in the United States (or the UK or Australia or several other countries) is a goal for many Chinese families, one for which the family has saved for many years. The family will sacrifice, if necessary, to make this happen.

Additionally, our idea of the typical Chinese family economic standing may need altering to reflect current realities. To be sure there are still large numbers of Chinese families struggling as their economy shifts from one based on manufacturing to one based on services. But there is also a burgeoning middle class and a significant upper class. Families from these groups have funds to provide overseas opportunities for their children as DiMauro noted, many having diversified their investments for protection. Many of our undergraduate students are likely children of these families. When one considers the sheer size of the Chinese population, the number of potential students from families with financial means will likely continue to increase despite additional economic volatility.

Short-term strategies and reactions to short-term events have their place. However, when considering the population of Chinese students in the United States and the impact of changes within the Chinese economy, the longer term perspective will likely provide better guidance. For a good summary of separating fact from fiction regarding recent economic news in China, read a recent Forbes.com article by Kenneth Kim entitled “What’s Going On With China’s Stock Markets And Economy?”

Resources:

Astro Awani Network – MARA will not stop sponsoring its students abroad – Ahmad Jazlan, February 6, 2016.
Daily Express – Mara to review policy of sending students abroad, January 31, 2016.
The Malaysian Insider – Mara to review policy of sending students abroad, January 30, 2016.
Massachusetts Institute of Technology – International Student Statistics.
University of California Berkeley – International Student Enrollment, Fall 2015.