Establishing International Schools in China (chinalawblog)

https://www.chinalawblog.com/?s="international+schools"

These are my notes from a blog post from China Law Blog. The blog post was intended to explain investing in schools and establishing schools, but it also does a good job of explaining these three different categories of schools in China.

School for the Children of Foreign Workers 外籍人员子女学校
1. In 1995, the Ministry of Education (MoE) published Interim Measures for the Schools for the Children of Foreign Workers (中华人民共和国国家教育委员会关于开办外籍人员子女学校的暂行管理办法).
2. There are currently over 120 schools of this type in China, with the majority of them in Beijing and Shanghai. Though some foreigners send their children to Chinese local public schools (one of our Beijing lawyers does that), most do not.
3. In Schools for the Children of Foreign Workers, foreign students typically receive an education very similar to what they would receive in their home country. Most of these schools contain “International School” in their name.
4. The MoE made an allowance for this type of school to be completely under foreign control. MoE review of the curriculum at these schools is not required, and both its governing board and legal representative can be foreigners. These schools, however, cannot be religious in nature.
5. No Chinese students are allowed to attend them.
6. School for the Children of Foreign Workers is either not suitable or unworkable or just not possible when any of the following are true of the parties involved
  1. They want to provide a university level education
  2. They want to open a training school
  3. They want the Chinese party to have equity in the educational entity
  4. They want the Chinese party to legally control the entity
  5. They want the school to serve Chinese students.
7. The following is a brief overview of issues to consider when establishing a School for the Children of Foreign Workers:
  1. The school must be only for early childhood, primary, and secondary education. Post-secondary (university level, technical training school, etc.) education is not permitted.
  2. The school must have a China legal entity sponsor its establishment. This entity can be a Wholly Foreign Owned Entity (WFOE) or a Joint Venture (JV) whose purpose is to start and operate a school. Our China lawyers have established numerous WFOEs for this purpose, and it should be noted that the requirements on WFOE type, business scope and name substantially differ from standard WFOEs. More than once, lengthy negotiation was required between the local SAIC and Education Bureau to secure approval for a WFOE with the Chinese characters for education (教育) in its WFOE name.
  3. Local Education Bureaus differ in the amount of registered capital required, but it is often a minimum of USD$1,000,000.
  4. The sponsoring company appoints the first school director and governing board. This fact is often critical in determining whether to go into this sort of venture as a WFOE or a JV.
  5. Once established, a School for the Children of Foreign Workers is an independent legal entity, owned by itself (as non-profits are) and governed by its board. All money received by the school must be used by the school, and therefore cannot be remitted as profit to investors, of which there are none. It follows, then, that there are no investment shares possible in this type of school, a fact that often also scares off would be powerful Chinese investors or government officials looking to cash in on their influence and connections.
  6. As mentioned earlier, only non-PRC students are allowed to attend these schools. Note that the regulation carefully uses the term commonly used for non-PRC citizens,外籍人, rather than the term for “foreigner,” 外国人. The effect of this is that students from Taiwan, Macau and Hong Kong families can also attend a School for the Children of Foreign Workers.
  7. From 1995 – 2012, all School for the Children of Foreign Workers applications had to be approved by the National Ministry of Education in Beijing. From 2013 onward, each provincial Education Bureau has had approval authority for these types of schools, which, due to a lack of clear procedures existing at the provincial level, has only further complicated application efforts.
Sino-Foreign Cooperative School 中外合作办学
1. In 1995, the Ministry of Education published the PRC Guidelines for Running a Sino-Foreign Cooperative School (中华人民共和国中外合作办学条例). The main purpose of the law, which was updated in 2003, was to boost the development of quality private schools in China by recognizing the need for foreign education partners invest their intellectual property and expertise.
2. A Sino-Foreign Cooperative School is essentially a joint venture between a recognized foreign education entity and a Chinese entity. Although education is a restricted area of foreign investment, Sino-Foreign Cooperative Schools can actually be foreign-majority owned and can have up to half of the seats on the governing board held by the foreign entity. Note that the equity component held by the foreign party in the school cannot usually consist of more than 1/3 of the total possible equity.
3. The legal representative of a Sino-Foreign Cooperative School can also be a foreigner. However, the president of the school must be a Chinese national. In practice, the Chinese partner will usually insist on controlling the entity and on majority control of the board since they typically provide the land for the school and a significant amount of the money needed to get it going.
4. The Chinese party’s land investment is what usually makes Sino-Foreign Cooperative Schools an attractive structure for establishing an international school in China. Land zoned for schools is difficult to obtain in China, and having the Chinese partner undertake this as their responsibility can be the key to a project’s success. The foreign party primarily contributes the IP and, in some cases, a financial investment. Disputes about the value of each party’s contributions and getting a clear understanding of the implications of the ownership share ratios often stalls efforts to establish Sino-Foreign Cooperative Schools.
5. A Sino-Foreign Cooperative School can serve students of any age and nationality, although the law makes clear that secondary, university and training school collaborations for Chinese students is what is being encouraged. NYU’s campus in Shanghai is a good recent example of a Sino-Foreign Cooperative School.
6. Quite a few secondary (high school) Sino-Foreign Cooperative Schools have also been established in the last few years. These schools are typically connected with an American or European secondary school, and they can offer both an international (often the Internal Baccalaureate) and a Chinese diploma. Both foreign and Chinese students can attend, provided they meet the particular school’s admissions standards. Some of these schools are connected in some way to existing Chinese private schools, and they often have dorms for attending students. These schools can also be branded as an “International School” or a “Bilingual School.”
7. The Sino-Foreign Cooperative School regulations do not completely address the important issue of whether investors can receive future profits on their investment, nor, if so, how exactly they can do so. Income received by the school is required to be used exclusively for the school. In light of this lack of clarity, investors will typically form a separate company to charge royalties or other service fees to the school, making a return on their investment that way. Some recent draft regulations seem to indicate that the government is warming to the idea of for-profit schools. If these modifications are confirmed, they will likely provide clearer guidelines on how to handle the issue of investor returns.
Chinese Private School 民办学校
1. a Chinese investor wholly-owned school, serving mainly Chinese students. It is not surprising to find these schools located within the investor’s own property development.
2. The main difference between these schools and China’s public schools is that these private schools often work to infuse some foreign or other higher-level education standards into their curriculum. These schools often emphasize English or another foreign language or a well-funded arts program. Some even offer of US high school Advance Placement classes at the secondary level. Dorm housing is also usually available.
3. These schools can also be branded “International Schools,” though it is more common to see them branded as a “Bilingual School” or an “Experimental School.”