Investing in China’s Education Industry – Part 2

August 30, 2016 Posted by China Briefing Reading Time: 6 minutes

By Dezan Shira & Associates
Editor: Zhou Qian

The following is the second of a two-part article taken from our August magazine, China Investment Roadmap: the Education Sector. The first part can be found here.

Set-up Procedures

Set-up of an international school for the children of foreigners

Theoretically, all foreign organizations, enterprises, and individuals legally established or residing in China can apply to set up an international school as long as it satisfies the following requirements:

Has adequate demand
Has teaching expertise
Has necessary facilities, equipment, and other teaching resources
Has stable sources of funding

The main setup procedures include:

Submit the application and other documents to the provincial level educational administrative departments
Upon review and preliminary approval of the provincial level government, the application shall be delivered to the state-level Ministry of Education for final approval
Register with the civil affairs department

This type of school is allowed to enroll children of foreigners legally residing in China, can choose the curricula, textbooks, and teaching programs by itself, and can hire foreign staff according to relevant laws and regulations. However, it is forbidden from enrolling Chinese nationals, opening additional branches, or conducting any for-profit activities.

Set-up of Sino-foreign cooperative educational institutes

For Sino-foreign cooperative education, both the foreign and Chinese parties are required to be educational institutions with a legal presence in China. That is to say, no individual investors are allowed to engage in this type of educational institution.

Both parties may make capital contributions in the form of cash, land use rights, intellectual property (IP), and other types of property. However, except for foreign institutions invited by either the state or the provincial level government to participate in cooperative educational undertakings in China, the IP contribution ratio generally cannot exceed one-third of each party’s total contribution.

Investors seeking to set up Sino-foreign cooperative educational institutions are required to obtain pre-approval from the corresponding level of government depending on the specific category:

Generally, the set-up process for Sino-foreign cooperative educational institutions includes two stages: the preparatory stage and the official establishment stage. Applications satisfying all establishment requirements and standards can be submitted for official establishment directly.

During the preparatory stage, certain documents specifying the key information of the cooperative programs are required by the bureau in charge, including a certificate showing that a minimum of 15 percent capital contribution for the startup has been made. Upon receiving the application, the bureau in charge will approve or reject it within 45 working days. If approved, an approval certificate for preparatory establishment will be issued, which is valid for three years. No enrolment will be carried out during this preparatory period.

During the official establishment stage, another application for official set-up must be submitted with the following documents:

Application form for official establishment
Approval certificate for preparatory establishment
Status report for preparatory establishment
Articles of association
Certificates of capital and assets of the Sino-foreign cooperative educational institution
Personnel list of the first board of directors, board of trustees, or joint management committee (to satisfy the requirement of “led by Chinese party”)
Proof of qualifications of the principal, chief administrative officer, teachers, and financial staff

The bureaus in charge will review and decide whether to approve within three months of receiving the application for non-academic education and six months for academic education. Upon approval, a permit for Sino-foreign cooperative education with a standard format and serial number will be issued.

The last step for establishment is to register in the civil affairs department. After that, the educational institution will be legally formed and allowed to conduct corresponding enrolment and teaching activities. However, it is important to note that it is, once again, forbidden to open additional branches or conduct any for-profit activities.

Set-up of for-profit training centers in certain cities

For-profit training centers are now possible in limited cities, as mentioned above, though the specific procedures vary from city to city. Here we look at Shanghai as an example.

In Shanghai, qualified investors who can provide international advanced management experience, a service model, training subjects, qualified teachers, or teaching facilities are allowed to invest in Sino-foreign cooperative for-profit training centers in the Free Trade Zone (FTZ). There are a number of set-up requirements for a for-profit training center, the most important of which being that the institution must have appropriate school-running funds of no less than RMB 1 million, with one half monetary contributions. Additionally, the for-profit training center must be registered as a company rather than a private non-enterprise unit, subject to the following process:

Step 1: Make company name pre-approval and registration in the FTZ AIC department and submit required documents

Step 2: The AIC department must deliver the application to the FTZ Administration Commission. Within 10 days of receiving the application, the Commission will make a decision. Upon approval, a preparatory establishment business license will be issued

Step 3: Within six months of receiving the preparatory establishment business license, the applicant should apply to the FTZ AIC department for official establishment registration, otherwise it must change the business scope or de-register the business license

For-profit training centers are allowed to have branches, but no less than a RMB 0.5 million capital increase should be made for each branch.

This article is an excerpt from the August issue of China Briefing Magazine, titled “China Investment Roadmap: the Education Sector.” In this issue of China Briefing, we navigate through China’s regulatory framework for investment into education, presenting a roadmap for best practices in the industry. We examine the key market information that has driven the industry’s growth, analyze the different investment models that are available for foreign companies, and finally discuss the effect that China’s recently released NGO law will have on foreign investment into education.