Monday, April 27, 2009

Worthless Degrees

Last month, I talked about the acceptance of cheating and the general poor quality of many of China's universities.

Today, The Wall St. Journal has provided an excellent article on the crisis that many Chinese universities face. The problems go much deeper than cheating:

University students at a job fair in Nanjing

NANJING, China -- Zhang Weidong has been making the rounds at this city's weekend talent fair for more than a month now and can't understand why he hasn't landed a job.

"These companies are looking for employees, and I have a degree," says the 22-year-old computer major, clutching a plastic organizer stuffed with résumés, business cards and company information. "I don't know what I'm doing wrong."

Unemployed university graduates used to be rare in China. But now their ranks are ballooning to critical levels just as the country suffers its worst economic slump in two decades. Up to one-third of last year's 5.6 million university graduates are still looking for work, and this year will see another 6.1 million hit the labor market. Finding jobs for graduates is suddenly a national priority: Earlier this month, the central government ordered local governments and state enterprises to hire more graduates to maintain China's "general stability."

China is suffering from a higher-education equivalent of the global credit bubble. On government orders, China's universities -- most of which are state-controlled -- boosted enrollment by up to 30% a year, year after year for most of this decade, and built vast new campuses. Financing was considered a cinch: New students would mean more tuition to pay off the loans that funded the expansion. But those plans were wildly optimistic, leaving hundreds of universities across China crippled by debt.

More serious for China's long-term prospects is that the expansion was so fast, and the pressures to pay off the debts so intense, that many of the schools turned into diploma mills, churning out poorly qualified students. Mr. Zhang got his degree from a school of traditional Chinese medicine with no history of teaching computer sciences. He looks back ruefully, recalling overcrowded classrooms and a lack of materials: "I wonder if this education was of any value?"

Read On
The article goes on to talk about how universities have built massive "university cities" and the problems some of those schools are having. This phenomenon of "university city" building has happened in Xi'an.

Xi'an has an incredibly large university population. It is the third biggest in China after Beijing and Shanghai. I don't know if every university in Xi'an has done it, but almost all of Xi'an's universities have built secondary campuses in the suburbs of the city. This has made places like the small town of Chang'an a major hub of university students. In many cases, thousands upon thousands of students are now going to school next to farms.

It's not too surprising that universities, like so many other institutions, went a little crazy with over-expansion and are now facing debt problems. While China's push to allow more of its students the chance to get a higher education is certainly noble, because of poor execution, there are now millions of students with "worthless" degrees. The story of the Nanjing Chinese Medicine University in the article above is disgraceful.

It's not just Chinese universities that have problems though. American universities also rode the bubble a bit too hard and now their endowments are tanking. From Reuters:
SAN FRANCISCO, April 27 (Reuters) - Top U.S. universities, whose endowments have been hit hard by fallout from the global financial crisis, are selling bonds to raise money to shore up their financial positions.

Stanford University became the latest top university to sell taxable debt to make up for recent losses in its endowment, the third largest of any U.S. university.


Stanford expects its endowment, which provides about a quarter of the university's operating revenue, by the end of August will have declined at least 30 percent from $17.2 billion a year earlier, shortly before financial markets began to crater.

Stanford's projected loss would be in line with the average loss of about 25 percent in university endowments in 2008 and the first part of 2009, said Matthew Hamill, a senior vice president at the National Association of College and University Business Officers.


"Assumptions institutions made about how to invest their money short term, medium term, long term all of a sudden got turned on their head when the markets went down," said Hamill.

Read the entire article
While I understand that Stanford and all other American universities needed to do something with their giant pools of money, it doesn't seem right to me that an endowment should lose 30% of it's value in one year.

Ji Wenhui, a scholar and librarian at the Nanjing University quoted in the article above, put it well:
"The reason for expanding had nothing to do with society's needs," Mr. Ji says. "The educational system was pursuing economic benefit."
I'm not sure what the solutions to these problems facing Chinese and American universities are. But I suppose it'd be a step in the right direction if educational institutions were run less like private businesses concerned with expansion and growth and were, instead, primarily focused on providing quality education.


Anonymous said...

I'm not sure that a 30% decline in endowment size is comparable to servicing $60M in annual debt on revenues of $30M...

You can critique the investment strategies of US universities, but their straits aren't nearly as dire.

Mark said...

You're right.

I shouldn't compare Stanford with Nanjing Chinese Medicine University too much.

Although they both screwed up to some degree, they aren't really in the same league.

Mark said...

That's not to say the Stanford thing isn't screwed up though. It is.

ZeLab said...

Hey there
Not sure how it's all related, but we got a pretty interesting story here in France few weeks ago, about how Chinese students bought their diploma from a French university where they were doing an exchange... It created a real fuss here - and I believe this is another case of inadequate meeting of educational demand and offer.. (more details on France24 site here :

Thomas said...

Intersting WSJ article, thanks for posting about it.

I didn't know that Chinese universities took out debt to finance their expansion. I naively assumed that the provinces or cities or whoever runs them provided them with the funds...

Rhodo Zeb said...

Stanford and similar orgs were completely blindsided by the economic crisis. I talked to too many people within that type of circle (MBAs, mostly, professors, some business leaders, nothing too fantastic) during say 2006-2007, and everyone had complete confidence.

It was, I believe, a failure of ideology.