Australian Universities and China

Speech by Mr Peter Varghese AO, Chancellor of The University of Queensland, to the 2018 National Conference on University Governance, 4 October 2018, Adelaide.

The habits of four decades in government die hard so let me begin with a caveat. My remarks today are very much a personal perspective, drawing on my past engagement with China as a foreign policy practitioner and informed by my current role, but it is not an official University of Queensland position.

Today I wish to talk about what China means to Australian universities: what are the issues we face, how best to think about the relationship with China and, importantly, how do we manage risks while expanding opportunities.

To understand where China fits into the world of Australian universities you must start with budgets not geopolitics. Put simply, China has proven to be the easiest answer to the budget pressures facing all Australian universities. But like all easy answers it creates its own complications.

It is no coincidence that the large rise in the number of Chinese and other international students in Australia has paralleled the steady dilution of federal funding as a share of total university funding.

In 1986, when universities were first allowed to offer fee-paying places to international students, more than 80% of university funding came from the Federal Government.

International student numbers expanded by 129% from 1987 to 1992, and further doubled between 1994 and 2000.

By 2002 there were approx. 125,000 international enrolments in Australian higher education. By 2017 that had increased by 180% to ~ 350,000 enrolments.

Today across the most research-intensive universities (the Go8), federal support averages below 40% (excluding the Higher Education Loan Program, HELP). As the number of international students has grown federal support as a proportion of total university budgets has halved.

At The University of Queensland this year for the first time, income from tuition fees, overwhelmingly from international students, will surpass income from Commonwealth Supported Places, including HELP.

Moreover as the numbers of international students at Australian universities has grown so also has the mix changed.

In 2002, enrolments from China comprised 14% of total international higher education enrolees.

By 2017, enrolments from China had grown to 38% of international students.

Emeritus Professor Frank Larkins (former Deputy Vice-Chancellor of Melbourne University) recently wrote that of the 28 nations with more than 1000 enrolees in Australian higher education in 2017, seven nations had fewer students enrolled than 25 years ago. Among them are some of our most important Asian partners – Indonesia, Singapore, Thailand and Japan.

At UQ, Chinese students will account for close to half of all international students in 2018. We are towards the middle of the spectrum. Many other universities are more highly geared to China and to international students in general.

There is nothing inherently wrong with this. Quite the contrary. International students bring many benefits.

International education is now Australia’s largest services export, contributing ~$32B to our export earnings with multiplier effects through the economy. In a recent study commissioned by the Group of Eight universities, London Economics estimated that every 3 Go8 international students generate $1M in economic activity during their enrolment. London Economics also estimated that $1m of off-campus non-fee spending by overseas students supports 8.78 jobs throughout the Australian economy.

There used to be those who argued that international students stole university places from Australian students. Now we know that they actually subsidise our universities, especially our research programs.

And beyond the economic benefits, international students deepen our regional links, reinforce our foreign policy objectives, strengthen Australia’s soft power and broaden the horizons of Australian students. They also create a network of alumni in Asia who know Australia first hand, occupy significant positions and for the most part have a very positive attitude towards us.

We should bear this balance sheet in mind when we hear calls to restrict the work rights of international students or unworkable suggestions that we direct international students towards regional universities or blaming international students for the congestion in our cities.

The issue here is not the benefits to Australia of international students but whether demand from China will hold up. In the short to medium term it is more likely than not that demand will remain strong. But, like any market, the market in international students can be cyclical and influenced by external factors and universities would be wise to plan on this basis.

There are two potential threats to demand from China.

The first is the extraordinary investment China is making in its own university system.

Unlike Australia, government investment in Chinese universities has been growing strongly.

The highly-ranked Tsinghua University, which has about 36,500 students, received ~$AU3.9 billion from the Central government in 2017, close to 40% more than in 2016. Indeed when you take into account purchasing power parity it makes it a very well funded university and highly competitive.

Peking University, with some 43,000 students, received ~$AU2.9B from the central government, an increase of more than 50%.

Shanghai Jiao Tong University, approaching 41,000 students, received ~$AU2.2B in 2017, a 37% increase on 2016.

Actual government funding is even higher than the these figures, as Chinese universities also receive financial support from provincial and local governments and other granting agencies.

By comparison government funding to UQ, which has some 39,500 full time equivalent students including international students, was $739 million excluding HELP and the trend line over time is down not up. And this decline in investment in universities is part of a broader trend of falling behind in knowledge investment in Australia. For example, Australia’s expenditure on research and development and development as a proportion of GDP continues to be below the OECD average.

And if we look at research funding, the budget of the Chinese National Science Foundation has grown almost 300 fold since its inception 31 years ago. It has a similar role to the Australian Research Council, which has a budget that is shrinking in real terms.

If an objective of such investments is to improve China’s stocks in global university rankings, then it is working. China now has one university in the top 30 of the Times Higher Education rankings. Australia has none.

The bolt into the top 30 prompted the rankings’ chief knowledge officer, Phil Baty, to declare: “China’s leading universities are truly now part of the global elite and overtaking prestigious universities in the US, UK and Europe.” And he could have added, Australia.

Given the weight that most rankings methodologies give to research performance, China’s movement up global rankings is likely to continue.

As it does research collaboration between Australian and Chinese scholars and institutions will only increase.

UQ has already produced more than 3000 co-publications with China since 2013, but it’s the quality of these publications that’s really noteworthy.

Using citation count – a key measure of an article’s impact and reach – UQ’s co-publications with China are above world average. In fact, measured by the Category Normalised Citation Impact (CNCI), at 2.84, UQ-China co-publications are considered almost three times the world average.

It’s interesting to note that UQ-China co-authored publications have actually performed better, in terms of normalised citations, than the average of all UQ papers (which have a CNCI of 1.58). This is testament to the strength of UQ’s relationship with leading Chinese institutions such as the Chinese Academy of Sciences, Peking University, and Zhejiang University.

China became the world’s largest producer of research papers (by volume) in 2016, when it passed the USA to produce almost 19% of the world’s papers. The quality of Chinese papers – as judged by the percentage of papers in the top 1% of cited papers – continues to improve although it is still well behind the US, UK and Australia

It would be naïve to believe that this trend in investment in China’s university system will not have a negative impact over time on the demand in China for an Australian education.

The second risk to demand from China is much harder to assess. It turns on whether China may choose for broader, essentially political reasons, to reduce the flow of students to Australia. To address this question we need to go from budgets to geopolitics.

It is the conceit of every generation that it is poised on the threshold of something new and different. But when we look out at our international environment it is hard to avoid the sense that the ground is shifting beneath our feet. To adapt a title from the late Tom Wolfe we seem to be facing a “bonfire of certainties”.

So many of the supporting pillars of the post Cold War world seem less secure: US strategic predominance is narrowing even fading. Protectionism is on the rise. The liberal international order is under stress. In many developed democracies, identity politics is overshadowing older ideological fault lines. And illiberal democracy and authoritarian approaches are attracting more support than they deserve.

For decades we have spoken about the fluidity of our strategic environment as shifts in economic weight rearrange strategic relativities and economic integration jostles with strategic competition. Today it seems that rather than reach a settling point this fluidity may be leading us towards a tipping point.

At the heart of this churn is the US-China relationship. Where is it heading, how will it be managed and where does it leave Australia? Universities do not have to have a position on these issues but they do need to understand how they may impinge on and indeed disrupt their business models.

The last four decades have been good for the Australia China relationship. We have benefited enormously from China’s remarkable economic growth. It has boosted our trade, lifted our living standards and been a significant contributor to an unprecedented twenty seven years of uninterrupted economic growth. And geopolitically we have been able to have our cake and eat it. We have built a strong relationship with China while holding fast to our strategic alliance with the US and all the benefits that flow to Australia from US strategic predominance in Asia.

But now those four decades are beginning to look like our salad days. What lies ahead looks more complicated at best and gloomy at worst.

China’s future behaviour is likely to be a mix of many elements. It will be a responsible stakeholder where its interests are served. It will not be a classic revisionist power because China has been too much a beneficiary of the existing system to want to completely overturn it. But there are elements of the system that China will want to see replaced. it will also look to have a greater say in existing institutions and to craft new institutions and arrangements which place it at the centre in a pattern reminiscent of the Middle Kingdom. What is clear is that China will not accept a regional and global order cast in the image of the US.

China will ultimately define its own strategic settling point. It will not be forced into someone else’s view of what it should do or become. But it is now also clear that what it wants to become is the predominant power in Asia.

China’s aspiration to strategic predominance does not make it an enemy and it would be unwise to treat it as one. Nor does it negate the importance of engaging with China and working with it wherever we can. It is very much in Australia’s interests to have a close relationship with China in as many areas and at as many levels as possible. Such a relationship, anchored in mutual interest and mutual respect, serves both our strategic and economic interests. It also makes it easier to work with China on broader regional issues.

There is no sensible alternative to engaging China. Containing China, in the way the West sought to contain the Soviet Union, is a policy dead end. China is too enmeshed in the international system and too important to our region to be contained.

Nor is China an expansionist power, although it has an expansive view of what is historical Chinese territory. It is not in search of an empire. For China, strategic predominance means a return to the Middle Kingdom where regional states conceded priority to China’s interests and were careful not to act in any way which displeased China.

For Australia the strategic rub with China reaching for strategic predominance is the character of its political system. Strategic predominance, by definition, would make China the single most important shaper of the strategic culture of the region. The political character of a state and its strategic behaviour are linked. That is why passing the baton of strategic predominance from the US to China, from a liberal democracy to a one party system, is problematic for Australia.

So what does all this mean for Australian universities?

First, we must understand that the Australia China relationship has entered a new phase. Australia’s China policy has been largely constructed around the China of Deng: the China of hide and bide. Now we must deal with the China of Xi: a China which seeks to become the predominant power in Asia and whose economic reach gives it considerable leverage.

Will reducing the flow of Chinese students to Australia be part of that leverage?

I do not know the answer to that question. But universities should understand that leaving the question hanging can be a useful tactic for China. It makes universities nervous. And that leads some of them to urge the Australian Government not to do anything which might annoy China. In this universities find themselves in a similar position to many in the Australian business community who fret about any tensions or disagreements in the Australia China relationship.

It would however be unrealistic to think that the Australia China relationship can be devoid of tensions. Indeed those tensions are likely to increase as navigating between China and the US becomes more complicated for Australia.

We may well see Australian and US views on China beginning to diverge. There seems to be a growing constituency in the US to thwart China’s rise. This is a dangerous course. A country which already looks to redeem itself from a century of humiliation does not need its worst fears confirmed.

China’s rise needs to be managed not frustrated. It needs to be balanced not contained. Constructing that balance and anchoring it in a new strategic equilibrium in the Indo Pacific is the big challenge of our time.

For Australia this also means having a deeper national conversation about how we balance our economic and strategic interests with China because those two elements will increasingly diverge as China presses ahead with its ambition to become the predominant power in Asia. As a country we need a much clearer sense of what our red lines are and, importantly, how much economic pain we are prepared to bear if we take positions which protect our national interests but which China sees as cutting across its interests.

Universities need to understand this broader context, not least because some of the pain may be borne by them. This means understanding the risks and putting in place strategies to deal with them including diversifying the sources of international students and not baking into their operating budgets the revenues which come from international students. India and Indonesia will be particularly important in any diversification strategy.

While demand remains high it makes little sense for Australian universities to turn their back on the revenue stream offered by students from China and elsewhere. But it would be wise to invest the profit margin for the longer term not use it for current expenditure. Put it into a future fund or endowment which would give universities a measure of resilience in the event that the market abruptly shifts for reasons beyond the control of universities.

There are other issues for universities to consider beyond the trajectory and potential disrupters of supply and demand from China. How to react to students who object to teaching which may be contrary to the policies of the Chinese government? Should we worry about students being “dobbed in” to Chinese authorities? Are Confucius Institutes a front for Chinese propaganda?

These are legitimate questions to ask although some of the coverage of these issues paint a picture of a free speech crisis on our campuses which is far removed from the daily reality. If there are indeed threats raised by these questions then they are entirely within the power of universities to manage. A university which is committed to the principles of academic freedom, freedom of expression and institutional autonomy, and with robust systems to give effect to these principles, should have no trouble dealing with students who insist on teaching politically correct lines or who want to stop others from expressing their view or to use the perch of a university position to promulgate propaganda.

If any of these principles are breached the responsibility lies squarely with the university leadership, not with students who may act in ways inconsistent with the idea of a university. Any university worth its salt would simply not allow them to get away with it.

We can only hope that all our students accept the foundation principles of a university. But we can insist that all university leaders give full effect to these principles. I accept there may have been some lapses and when this happens it should be called out and corrected. But the lapses are, in my experience, isolated incidents. For the most part university leaders stand up for the freedoms of inquiry and speech which are so fundamental to the idea of a university. They believe in that idea and understand the need to be vigilant.

At UQ we have a Confucius Institute. These institutes can be seen as part of China’s soft power, just as Goethe Institutes and the British Council advance the soft power of Germany and the UK. All governments engage in varying degrees in promoting soft power. The Australian government has in the past funded chairs in Australian studies at prestigious universities abroad. The key point about the Confucius Institutes is that they are subject to the rules, processes and principles of the university. They make available services which are valued by a large number of students. To the best of my knowledge, the teaching of the Confucius Institute at UQ has not crossed any lines. If it did the university would deal with it as it would any actions that cut across the principles of academic freedom, the independence of universities and freedom of expression.

Let me conclude with these observations.

Australian Governments from both sides like to say that they have never spent more on universities. But this ignores the huge expansion in the number of Australians who today attend universities, the expansion of research which strangely in Australia is not fully funded and the undeniable reality that the proportion of government funding in university budgets has been dramatically cut.

Australia has a world class university system: to have six out of 37 public universities consistently in the top 100 globally is a remarkable achievement. But to keep it world class it requires investment and that includes from government. Today too much of that investment is off the back of international students.

China has consequently become an important partner of Australian universities: the largest source of international students and now also a key research partner. Much like the broader Australia-China relationship, this is good for Australian universities, good for China to whom well over eighty per cent of Chinese students return on completion of their Australian studies and good for our broader national strategy of regional engagement.

But also like the broader bilateral relationship there are risks, most significantly the risk of over reliance. We are heading into a more uncertain future, geopolitically and economically, and uncertain times put a premium on spreading risk.

China is already a crucial part of Australia’s future. That is unlikely to change. But navigating the relationship will inevitably get more complex for all the reasons I have mentioned. Universities cannot expect to stay aloof from those challenges of navigation.

The answer for universities, as for the nation, is not to turn away from China but to engage with China, to manage the risks and always to have a clear eyed view of the bigger picture.