Comparison between Two Regulations Regarding Foreign-invested Educational Institution

-----Alan Zhang

In the recent decade, with the gradual opening of the Chinese education investment field, more and more foreign education institutions are actively seeking for Chinese partners with the purpose of establishment and management of foreign-invested schools in China. In order to legally regulate various matters arising from the newly-opened Sino-foreign cooperation in education, State Council of People’s Republic of China promulgated Interim Provisions for Chinese-Foreign Cooperation in Running Schools (“Interim Provision”) in 1995. Whereas, as this Interim Provision was enacted in early days and many stipulations thereof are too sketchy to befit the requirements of the rapid development of Chinese-foreign cooperation in running school. In view of this fact, on March 1, 2003, the Chinese Premier Zhu Rongji signed the Decree No.372 of the State Council to publish the Regulations for Chinese-Foreign Cooperation in Running Schools (“Regulation”). This Regulation has been approved by the 68th Execute Meeting of the State Council and will officially come into effect on September 1, 2003.

The purpose of this article is to establish a comparison between the Regulation and Interim Provision, especially focusing on the newly added or supplemented provisions of the Regulation, for the readers’ reference.

1. Restrictions on the Scope and Purpose of the Cooperative Educational Institutions

With respect to the scope and purpose of the cooperative educational institutions, the Interim Provision merely states a general principle, in which Chinese and foreign parties may run educational institutions in various forms at diverse levels, but Chinese compulsory education and those forms of education and training under special regulations by the country are excluded. Furthermore, the Article 7 of the Regulation especially provides that cooperators are prohibited from establishment of Sino-foreign educational institutions engaged in Chinese compulsory education, military, police, politics institutions, or any other educational institutions in special nature. Also in the Article 8 of the Regulation, it is expressly emphasized that the cooperative educational institutions should not conduct religionary education or any other religion activities.

Obviously, these newly added restrictive provisions deserve special attention by the Chinese and foreign cooperators. It is advisable to specify and legalize the purpose and scope of the cooperative educational institutions prior to the commencement of a cooperation project; otherwise the application for establishment of a cooperative educational institution may possibly be denied by approving authority.

2. Establishment of Cooperative Educational Institution

(1) Restrictions on applicants’ qualification

The Article 7 of the Regulation provides that the foreign religionary organizations and institutions will not be allowed to carry out the cooperative activities in running schools. Besides, the Article 9 of the Regulation also definitely provides that the educational institutions which apply for establishing Sino-foreign cooperative educational institutions should be independent legal persons. While, these stipulations are not expressed in the Interim Provision. Therefore, a qualified Chinese applicant shall be an independent educational institution, whilst a qualified foreign applicant shall be an independent educational institution not engaged in religion education. This supplement may be regarded as to guarantee the quality of the cooperative educational institutions by setting restrictions on applicants’ qualification by the government.

(2) Restrictions on investment form

In accordance with the Article 10 of the Regulation, the proportion of intellectual property investment of the Chinese or foreign cooperator should not account for more than one third of the total investment by each party. This provision is supposed to mainly prevent either party from taking the method of intellectual property investment as the major form in total investment, which may result in deficient fund to maintain and develop various teaching activities. Accordingly, this is another progress reflected in the Regulation. However, the Regulation also provides that, for these foreign educational institutions invited by the Chinese government to come to China for cooperation in running school, the proportion of intellectual property investment to the total investment may exceed one third.

(3) Legal personality of the cooperative educational institutions

Based upon the Article 11 of the Regulation, a cooperative educational institution should have the legal personality and meet with the requirements provided by the related education laws and regulations. Whereas, there are some exceptional cases permitted by the Regulation. For these cooperative educational institutions which are engaged in third-level education and established jointly by foreign educational institutions and Chinese institutions offering formal higher education, the legal personality will not be a must.

(4) License for the cooperative educational institutions

The Article 18 of the Regulation provides that the approving authority will issue a so-called “License for Chinese-foreign cooperation in running school” (“License”) to the cooperative educational institutions upon its approval. This License is to prove the legality of the cooperative educational institution and its educational activities. Since the Interim Provision does not provide similar stipulations on the License, the Regulation provides in its miscellaneous that these cooperative educational institutions established before the implementation of the Regulation is obligated to re-apply the License from the approving authority, following the formalities in the Regulation.

3. The Organization and Administration of the Cooperative Educational Institutions

(1) The number, structure, and rules of the Organization and Administration.

In the Article 21 of the Regulation, it provides that the organization and administration of the cooperative educational institutions are the Executive Council, the Board of Directors or the Joint Administrative Commission, all of which should be composed of 5 or more members. Members of these administrations should include representatives of the cooperator, dean or other administration principals, representatives of the staff, etc.

Besides, after referring to related provisions in the Chinese Company Law, the Regulation further, on the basis of the Interim Provision, provides specific stipulations on the rules of these organizations and administrations, which mainly include: (I) The meeting of the Executive Council, the Board of Directors or the Joint Administrative Commission shall be convened at least once a year; an interim meeting may be held when proposed by one third of the member. (II)the following important issues cannot be passed unless two thirds or more of the members in the Executive Council, the Board of Directors or the Joint Administrative Commission have consented: (a) to appoint or dismiss the dean or other management principals; (b) to revise the Articles of Association; (c) to formulate development programs; (d) to make decision on the merger, division or termination of the cooperative educational institutions; (e) other important issues provided by the Articles of Association.

The abovementioned supplements in the Regulation create a democratic and effective process for issue discussion. In the event that the important decisions are to be made in the cooperative educational institutions, the scientific voting mechanism and professional opinions from expertise may ensure that the decisions of administration are issued under a democratic atmosphere and befit the requirements of the cooperative educational institutions.

(2) Legal representative

The Regulation revises the candidates’ scope of the legal representative of the cooperative educational institutions. The Interim Provision provides that the legal representative should be the dean or a management principal; whilst in the Regulation, it states that the candidate of the legal representative will be selected from the Chairman of the Executive Council, Chairman of the Board or the dean, and finally decided by the parties of cooperative educational institutions together. Consequently, this new provision expands the scope of the candidates of the legal representative, which may better meet with the actual conditions in practice: the dean or management principal is normally responsible for daily managing work; while legal representative is on behalf of the institution and mainly responsible for decision-making duty. The dean is certainly entitled to serve as the legal representative simultaneously, but the personnel from the management organization are supposed to be more suitable to take the role of the legal representative.

4. Assets and Finance

(1) Fee collection

Due to the lack of specific stipulation in the Interim Provision to govern the tuition-charging activities, there exists the phenomenon that certain cooperative educational institutions arbitrarily charge tuition or other fees, for instance, the level of tuition fee is discretionarily promoted, or the students are forced to pay the tuition in foreign currency. With respect to such phenomenon, the Article 38 of the Regulation compulsorily provides that the items and level of the various fees of the cooperative educational institutions should be determined and published in accordance with the standard by the government; without approval in advance, these items or levels cannot be revised automatically; all the charged fees should be paid in RMB, the only legal currency in China.

(2) Usage of funds

The Interim Provision sets strict restrictions on the cooperative educational institutions in terms of the use of the fund for startup of business, tuition fees charged from students and the fund donated in the name of the institutions. All the abovementioned funds shall be entirely used for the expenditure reimbursement or development of the institution, rather than any other purpose. The original idea of this stipulation is to prevent from the merge of fund misappropriation. However, such over-strict provisions restrict the cooperators in free use of the proceeds gained from the operation of the educational institutions, so that the encouragement of cooperators is depressed to certain extent. In view of this fact, the Regulation has therefore made progresses in this regard. The Article 39 provides that the tuition fee charged by the cooperative educational institutions should be mainly used for the teaching activities and the development of teaching conditions. As a result of this, the parties of cooperative educational institutions are allowed to enjoy certain independent disposal right on the tuition fee and other incomes of the cooperative educational institutions, which may also increase the encouragement of the cooperators.

To sum up, the Regulation is enacted on the basis of the Interim Provisions and perfects the Interim Provisions by revising or adding stipulations. As Regulation will soon come into effect on Sep 1, 2003, for these foreign educational institutions which are intending to conduct cooperation in running schools in China, fully acknowledge or awareness of this Regulation and then taking corresponding actions to fulfill the project of establishment of Sino-foreign educational institution will be fairly crucial and sensible.

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