Far Eastern Economic Review
July/August 2006
By Wang Jianmao

China's ambitious plan for the development of its science and technology program aims to raise its R&D-to-GDP ratio from 1.3% in 2005 to 2.5% in 2020, exceeding the current OECD average of 2.3%. Assuming a modest average growth of 7% in GDP, this would imply R&D spending of RMB 1.25 trillion ($156 billion) by 2020.

Translating this huge increase in investment into bona fide innovation and intellectual property, however, will require more than just state-of-the-art laboratories and researchers; there also needs to be the right management expertise to guide the process. Currently there is a shortage of world-class MBA training programs in China. But the process has already come a long way over the past 20 years.

In the early 1990s, when Deng Xiaoping decided to establish a socialist market economic system, the first batch of MBA licenses was granted to nine state-owned universities. However, these schools had difficulty producing graduates qualified for mid-level positions in foreign-invested enterprises. In addition to teaching in Chinese with a teacher-centered curriculum, they were also part time and profit oriented. As China's FDI inflow exploded from $4.4 billion in 1991 to $11 billion in 1992 and $27.5 billion in 1993, the need to improve on China's pool of "international MBA" graduates became obvious.

But simply expanding and upgrading state-owned business schools were not going to be enough to meet this exploding demand. Rather, what were needed were cooperative alliances similar to the country's joint ventures and cooperative enterprises in industry.

Based on a pilot project to introduce MBA education into China, the China Europe International Business School (CEIBS) was established in 1994 as a joint venture institution between the Shanghai Municipal Government and the European Commission. As a "special education zone," CEIBS was granted full autonomy to design programs according to best practices overseas, recruit professors from world-class institutions across Asia, Europe and the U.S., admit students through its own admission exam and issue its own degree certificates. Less than 12 years later, CEIBS is offering the largest full-time international MBA program in China and the largest EMBA program in the world. The two programs are respectively ranked 21st and 13th globally by the Financial Times.

Tsinghua University in Beijing and Fudan University in Shanghai followed in 1996 with the establishment of their international MBA (IMBA) programs in cooperation with MIT's Sloan School of Management. The curricula of the programs were jointly developed by the American and Chinese partners, following the model of Sloan MBA. Every year, Sloan receives Chinese faculty members for training and sends a few professors to China to conduct workshops for Chinese faculty as well as co-teach classes with their Chinese colleagues. The Lingnan College of Sun Yat-sen University in Guangzhou entered into a similar partnership with Sloan in 1999. All these Chinese-foreign cooperative MBA programs admit students through the same admission exam and issue the same degree certificates designed by the Academic Degree Committee of the State Council as their wholly state-owned counterparts.

In 1998, Beijing International MBA (BiMBA) was created as a joint venture between the China Center for Economic Research of Peking University and a consortium of 26 U.S. business schools headed by Fordham University. The faculty of BiMBA is a combination of full-time CCER employees and visiting professors of the U.S. schools.  All courses are taught in English, and graduates receive MBA degree certificates from Fordham University, a standard practice for all Chinese-foreign joint-venture MBA programs with the exception of CEIBS.

Currently, there are several dozen joint-venture MBA programs in China approved by the education authorities in which partnering institutions share curriculum and faculty. Nevertheless, an overwhelming majority of these are some discounted version of a second-, third- or even fourth-tier foreign program. In fact, none of the top 30 business schools in the Financial Times' global MBA ranking has any joint-venture program in China, thanks to China's insistence that foreign universities may only teach in the country under the auspices of a joint venture. Concerned that part-time, profit-oriented local partners may damage their image, first-tier U.S. and European business schools have chosen to stay away.

By the beginning of the century, all first-tier state-owned business schools in China had established their international MBA programs. At their inception, however, almost all of these were part-time. But organizers soon realized that they needed to go at least partially full-time in order to take advantage of their English-language curriculum. A full-time schedule would allow them to increase the diversity of their student body by accepting students from other parts of the world and to exchange students with foreign business schools with less difficulty.

A full-time schedule would also give their students enough time to digest course content, to attend foray by corporate CEOs and to share experience and forge team spirit and friendships amongst themselves. None of this would be possible for a part-time MBA student in China, as a recent survey of 705 multinational corporations in China revealed. The study, conducted by Hudson, a leading recruitment agency, indicated that 42% of respondents' employees work more than 50 hours per week. Most of them give the same reason for working overtime as for choosing a part-time program: They are afraid of losing their jobs in a very competitive job market. Since a profit-oriented program usually cannot afford to eliminate nonperforming students, and a part-time program usually cannot ensure that students have the time to perform, a profit-oriented, part-time program is more likely to produce low-quality graduates.

To address the need for a full-time program, and to emphasize the importance of practical work experience, the State Economic and Trade Commission and the Academic Degree Committee of the State Council created a new track of MBA in 1997. The new track shares the same curriculum as the existing one, but rather than the traditional fall enrollment after a spring examination, the new track enrolls students in the spring, after an admission exam in fall of the previous year. Because of this difference in the enrolment season, the new track is commonly referred to as "spring MBA" while the existing track as "fall MBA." The two tracks also differ in some minor aspects: The spring MBA remains a part-time program requiring five years' work experience and four years' university education; the fall MBA can be either part- or full-time, and students need only as little as three years' experience, depending on education level. Tuition for the spring program is also 10% to 20% lower than the fall's. Every state-owned MBA school offers both tracks, with the spring program ranging in size from 57% to 94% of the fall enrollment levels.

In 2002, the Ministry of Education granted EMBA licenses to 30 state-owned MBA schools. These schools were allowed to charge 200,000 yuan ($25,000) or even higher for an EMBA degree, several times as much as that of an MBA degree, on condition that 30% of the EMBA courses be taught by those faculty members who have taught EMBA overseas, 50% be taught by those with a doctorate degree and 80% be taught by those with business experience.

In the long term, the introduction of EMBA programs might help these state-owned business schools upgrade their faculties and allow them to use the profits of EMBA programs to subsidize MBA programs. In fact, a subsidized MBA program is a necessary condition for a brand business school no matter what the source of the subsidy is. In the short term, however, the introduction of EMBA programs took the best of their faculty members away from MBA programs. Around that time, graduates from low-quality MBA programs, whether state-owned or joint venture, started to flood the market, arousing outcries from corporate recruiters and media. After the government granted 27 new MBA licenses to raise the number of state-owned MBA schools to 88 in 2003, the "MBA bubble" in China burst.

There were alarming signs of a qualitative nature as well: The proportion of "fall MBA" exam-takers with junior college education had been rising while the average age of exam-takers had been falling. However, oversupply only happened in the low-end MBA market. In the high-end market, undersupply has persisted due to a shortage of high-caliber professors.

To address this shortage, some Chinese business schools aspiring to be world-class have been making great efforts, and there are outsiders able and willing to help. Harvard Business School introduced the Program on Case Method and Participant-Centered Learning to provide guidance and support regarding best practices in management education. The program focuses, in particular, on the case-study method of instruction and the participant-centered learning model. In 2005 and 2006, faculty members of 13 business schools in mainland China participated in PCMPCL on the campus of the Harvard Business School in Boston.

Facing insufficient supply of quality MBA education in China, many young Chinese have chosen to earn an MBA degree overseas, mostly in English-speaking countries. It was estimated that about one third of the 106,500 Chinese who left China in 2005 to study overseas at their own expenses were majors in business and related subjects. In fact, China has been outsourcing most of its full-time international MBA education.

According to a report by China's biggest daily newspaper Cankao Xiaoxi, Keele University of the United Kingdom is planning to enroll 100 Chinese students into its MBA program every year. Kevin McCarthy, Director of London Higher, which represents London's universities and colleges, says that more than 40% of 40,000 Chinese students currently enrolled in British universities are majoring in management, business, economics or finance. Business studies accounts for an even larger proportion in Chinese returning from overseas study than in those leaving for overseas study. At a reception for applicants and alumni held by the U.K.'s Bath University at the Hilton Hotel in Shanghai this April, more than 80% of the alumni that showed up were from the school of management.

However, for those aiming at a future business career in China, studying abroad is never a perfect substitute for a world-class MBA education in China, not only because the focus of any MBA program overseas is unlikely to be business in China, but also because few foreign business schools can extend their marketing activities and career services to China. Which is why people with MBA degrees earned from second-tier or below overseas schools have started to experience the frustration that they cannot compete with graduates from the best full-time international MBA programs in China. Although a few business schools in the U.S. and Canada had plans to launch a "China track" MBA, all but one of them have dropped such a plan because they do not have enough faculty members with the appropriate expertise and cannot find a Chinese partner able to provide such professors.

In total, "fall MBA" programs (including Chinese-foreign cooperative MBA programs), "spring MBA" programs, Chinese-foreign joint-venture MBA programs and others in China are enrolling approximately 25,000 students a year, close to the combined annual MBA enrolment of all Western European countries. However, China still lags significantly behind Western Europe in the existing stock of MBA degree holders and the average quality of MBA education, not to mention those of the U.S. Only about 5% of MBA students in China are enrolled in full-time programs while the proportion in the U.S. is more than half. Various studies suggest that there is a huge gap between demand and supply of qualified managers, especially those with cross-cultural competency-the most sought-after for the China operations of multinational corporations and emerging Chinese global competitors. The fact that most international MBA programs in China have been reporting double-digit growth in average starting salaries of their graduates is the best evidence.

If China wants to succeed in its new endeavor to sustain high growth by switching the mode of growth, to enjoy the full benefits of its WTO membership by expanding trade and investment, and to develop its huge pool of raw talent, it will have do many things, including expanding and, more importantly, upgrading its management education.

Many things can be done to augment China's capacity of producing world-class managerial talent, including the establishment of more "special education zones" and MIT-type partnerships between first-rate foreign schools and the best schools in China. It can also allow foreign partners to have more control in joint-venture programs, or even allow world-class foreign business schools to have wholly-owned operations in China-something similar to INSEAD in Singapore. If MIT can have partnerships with Chinese schools in coastal regions, then schools in coastal China can have similar partnerships with schools in inland China.

China needs a great number of quality professional managers at all levels-"horses that cover a thousand li a day"-for its huge and fast-growing market economy. However, China needs to reform its semi planned business education and invest more in order to develop this resource in sufficient quantity and quality.

Mr. Wang is associate dean of the China-Europe International Business School in Shanghai.