Teaching English in China has turned into a multi-billion-dollar business over the past fifteen years.
Today, this market is extremely fragmented, with over 50,000 companies involved in English teaching – from tiny family-run offices to huge corporations with hundreds of branches in dozens of Chinese cities.
"Hello, how are you? I just want to practice English," can be heard every evening on Beijing's main pedestrian tourist street, Wangfujing, near which I live.
According to China's National Bureau of Statistics, the share of educational expenses in the family budget has increased from 5% to 10% since 1992. In this country, even in difficult times, parents will cut spending on their children's education last, after reducing all other expenses.
Wild English
In addition to Chinese themselves, people of various nationalities – including Russians, Nigerians, and Costa Ricans – are involved in teaching English in China. Foreign teachers are considered the highlight of any school; they are usually sought among Chinese language learners at universities. At the same time, skin color is often more important than origin or level of knowledge – Chinese headhunters are primarily interested in "white faces," then Africans, and only then American or Australian Chinese.
This is especially true for children's education: parents pay quite a lot of money for the opportunity to study with a "real foreigner," and they pay in part for a Western appearance. And the school managers themselves often don't speak English at all, so they also unconsciously focus on appearance. Regardless of nationality, teachers are usually presented as "native speakers," typically from the US – the Chinese prefer to learn (or think they are learning) American English. "We had a Russian girl named Maria working for us. If asked, we would say she was from New York," a manager of one Beijing school tells Expert correspondent on condition of anonymity.
Most foreign students in China pass through such schools. Ten years ago, I happened to teach Chinese children in Beijing three times a week, and both the parents and the school principal (the hiring company simply provided foreigners to several elementary and middle schools) were convinced that their teacher had come from Canada.
Easy Money
President of the Xi'an educational company NaoTu, Li Haichan, is a typical example of a Chinese education entrepreneur. Like many in this industry, Li – formerly an engineer at a Chinese state-owned enterprise – speaks almost no English, but that does not hinder his business at all. I ask: "Why did you decide to get into this?" – "It's easy money. Think about it yourself: if you go into manufacturing, you have to build a factory, so much hassle. But here, money practically from thin air."
Li started as a manager at another company, then decided to start his own business. However, along with easy money came a sense of responsibility; now Li wants to improve English language teaching in China and take it to a new level. NaoTu is known for its English comic books and operates mainly on a franchise basis – branches in other regions receive methodological support and a relatively well-known name in exchange for profit sharing. Development funds are taken from the company's profits; educational organizations rarely use bank loans – thousands of students provide a very stable and regular cash flow. For 2009, Li Haichan has planned explosive growth and the opening of branches in several new cities. "Crisis? What crisis?" he asks back.
The entrepreneur's confidence rests on the fact that the Chinese are accustomed to paying for education. In China, free education ends with elementary school, and further education is not only noticeable for the family budget but also not always affordable for parents. Zhang Lifu from a village in the outskirts of Xi'an has two sons, both attending middle school. "20,000 yuan – almost three thousand dollars – goes to education and related expenses per year," she laments. She doesn't have that kind of money herself; numerous relatives chip in, so each person's contribution is not too large. This is not charity but a wise calculation: once they rise in life, the former students will work for the entire extended family. In China, this is never forgotten.
It is clear that all additional education, whether English, fine arts, or music, is paid. "That's how the traditional Chinese family is structured; even in difficult conditions, they will try with all their might to give their child the best education," explains Jiang Jie, owner of a network of music schools in Beijing and Tianjin. The birth control policy adopted in China in the early 1980s only amplified this effect: for the sake of their only child, Chinese parents are indeed ready to bend over backwards. Jiang Jie himself plans to open two new branches this year and increase the number of students from 30 to 35 thousand.
Industry Leader
Business development director of China's largest chain of English schools New Oriental, Joseph Kauffman, used to work for the Chinese branch of Coca-Cola and admits that bottles were easier. "It's a completely different business. In that market we fought with a few large predators; here we are stung by tens of thousands of bees," he explains in an Eastern manner.
New Oriental revolutionized the industry by being the first Chinese educational company to list shares on the New York Stock Exchange in 2006. The success of the listing (the stock price rose 45% in one day) drew the attention of Western investment funds to the education industry in China and provided an impetus for the creation of other large companies.
According to various estimates, New Oriental's market share ranges from 5 to 7%. The figures for other competitors are even lower. Meanwhile, consolidation of the industry is not imminent; the barrier to entry is too low. To open a school in a provincial city, it is enough to find a couple of teachers with flexible schedules and establish good relations with one of the local middle or primary schools – extra lessons can be held right there. “Such is the specificity of this industry; we are growing quickly, faster than the market, but we are unlikely to become the Coca-Cola of education,” says Joseph Kauffman.
According to the China Education and Training Industry Research Report, the total market for English language training in China is about $4 billion per year and is growing by 12% annually. “We are growing at a rate of 20-30% per year,” Kauffman reports. In the near future, New Oriental plans to focus on acquisitions; the market has been too overheated for the last two years due to the effect of New Oriental's IPO, but now company prices are going down. Last year, the network acquired two small players and strengthened its position in the segment of preparation for the gaokao exam (the equivalent of Russia's Unified State Exam). Based on the results of this exam, which is held once a year, admission to Chinese universities is conducted. The total market for gaokao preparation (far from everyone succeeds on the first try) is estimated at over $3 billion per year; children who fail the exams are often sent to special boarding schools.
“We will develop not only English courses but also preparation in other subjects – mathematics, literature, and so on,” says Joseph Kauffman. Today, children's education accounts for about 90% of the company's total revenue, and New Oriental plans to develop this direction. This will help compensate for losses in the adult course market – during the crisis, companies cut budgets for employee retraining, and students themselves may decide to wait for better times before pursuing additional education.
Deeper and wider
Overall, New Oriental's development model reflects the general trend in the industry. Companies that started working in several major Chinese megacities – Beijing, Shanghai, Guangzhou, Tianjin – are expanding to second- or even third-tier cities. The main indicator influencing the decision to open a branch is the level of per capita GDP, to which the price of tuition is tied. In some Nanning or Lanzhou, it can be half as low as in Beijing.
However, despite the educational boom, the level of English proficiency in China is still low. On the Internet, one can find sites collecting examples of “Chinese English” Chinglish – absurd announcements and signs that can be seen both in the private sector and in government institutions. In Beijing, before the Olympics, the authorities conducted a review of all existing English signs, correcting errors. But some are even saddened by this. In one social network, a community has already appeared called “Stop the destruction of Chinglish – save the vanishing culture of China.”
Mark ZAVADSKY,
own correspondent
of the magazine “Expert” in Hong Kong.