medium-sized city between Beijing and Tianjin, also threw in 5 billion yuan for its "Oriental University City". Nanjing, provincial capital of Jiangsu, has built two university cities. One is on 70 square kilometers of land with investments of 5 billion yuan, while the other is on 30 square kilometers with investments of more than 4 billion yuan.

With so much money thrown in, China's higher education has indeed taken a "great leap forward". The number of higher educational institutions in China jumped from 1,022 in 1998 to 1,731 in 2004. The number of students enrolled expanded from 6.43 million in 1998 to 25 million by end of last year. In 1999 alone, more than half a million more students were enrolled.

While almost all money borrowed by universities was spent on property-development projects, the schools are unfortunately not commercial housing developers that can sell whatever they have built. There are only two ways for them to repay the banks. One is to take out new loans to repay old ones. The other is sharply to increase charges for students.

But since early 2004, when the new cabinet headed by Premier Wen Jiabao launched macroeconomic controls to end the expansionary fiscal policy, borrowings by universities have been stopped. Commercial banks have also become very prudent in granting new loans in fear of increasing their bad debts.

For a long time after 1949, higher education in China was free and the government even gave a living stipend to each student. From the early 1990s, the government began to allow schools to charge tuition fees. In the mid-1990s, the annual tuition for a student averaged several hundred yuan.

But since 1999, tuition has increased exponentially. Now it ranges between 5,000 and 8,000 yuan ($645-$1,030) a year; the more prestigious the school, the higher the tuition fees. But the average income of mainland Chinese residents only increased fourfold during the same period.

Skyrocketing education expenses has thus become a major source of growing public anger. Even Zhang Baoqing, before he retired as vice minister of education early last year, complained that with both his and his wife's incomes, they had barely enough to support just one child's education.

But even with such sharp increases in tuition fees, the universities could hardly make loan repayments. For example, Shao Hong said his Nanchang University owes 2 billion yuan. Annual interests on the loan stand at 110 million yuan. But the school's total income, including tuition fees, is less than 300 million yuan. It could barely pay the interest, let alone repay any principal loan.

There is no way for the universities to increase tuition fees sharply now as the government is tightening its supervision to ease growing public discontent.

Most of the bank loans borrowed by universities are in six- or eight-year terms, so many loans are maturing or will do so soon. Thus this is the peak time for repayment. There is a fear that massive defaults on repayments will cause the decreasing non-performing-loan ratio of state lenders to rebound again.

To quell growing public concern, Minister of Education Zhou Ji agreed to an interview with the media two weeks ago. "It is an exaggeration to say that some universities will go under. Higher education will not become another sector of state-owned enterprises," Zhou said.

He promised that his ministry would seriously deal with the problem of loans owed by universities. "The problem will be solved step by step," the minister said without elaborating.

Zhou's remarks have boosted hopes that the government may eventually bail out the schools. In fact, with the huge extra-budgetary revenues in recent years, the government has the capability to do so.

Ma Ning, an official with Hebei Provincial Development and Reform Commission, recently wrote: "This bill in the end should be covered by the state, because all public schools are owned by the state."

Lin Li, a doctorate candidate with Xiamen University's Institute of Education, suggests that the central and local governments allocate special funds to cover the principals of bank loans taken out by universities, while the schools should pay the interest.

But some say China should take the opportunity to restructure higher education by privatizing some public universities.

Zhu Yongxin is one such advocate. He proposes that the country run about 10 first-class national universities, each province run one or two provincial universities, and each prefecture-level city run one of its own. All the remaining schools could be sold to private investors. In addition to repaying bank loans, funds raised could then be used to improve the national universities and help primary and secondary education. Gu Haibin, a professor with Renmin University of China supports Zhu's view, saying now is a good time for privatization.

Whatever solution Beijing eventually adopts, one thing is certain: it must conduct a thorough review of the policy of running public higher education like a commercial sector, which has created enough troubles for the country. While most universities in China remain public, the government must take up its responsibility to support higher education as a public service instead.

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