More fuel for the fire
Hong Kong's schools
The $1m question
Jun 14th 2007 | HONG KONG
From The Economist print edition
What is the price of a good education?
AMONG the most commercial of cities, Hong Kong follows many markets; but none more intently than the trade in debentures tied to admissions to the city's international primary and secondary schools. These non-interest-bearing bonds are typically issued to pay for construction or other costs. Bought by parents anxious to do the best by their children, or by employers anxious to attract the best staff, they are then traded at prices set by the city's volatile economic fluctuations.
Recently, slots in international schools have become precious. The economy is booming in China's tailwind, attracting well-paid expatriates. Prosperous local residents, meanwhile, are deserting local schools because of what is seen as deterioration in English-language teaching since the reversion to Chinese sovereignty in 1997. It is not just the very rich who are worried: early this month a small group of not very well-off South Asian residents marched through central Hong Kong, demanding more schooling in English, arguing their children were suffering from having to attend classes conducted in Chinese.
Demand is high, supply is limited, and the results, at the top end of the market, are predictable: soaring prices. In 2004, the price of a debenture at the Chinese International School, possibly the most sought-after institution, sold for HK$600,000 ($77,000). On June 9th the South China Morning Post splashed on its front page a report that a family had paid HK $1m for a debenture, and then entered its child in the school's first grade. Similar, if less dramatic, price increases were reported at other international schools.
The schools all treat the debentures differently. The Chinese International School stresses that theirs does not guarantee a school place. Applicants sit a merit-based test, and some debenture-holders are rejected and some non-holders accepted. Still, holders must feel their children gain some advantage. Hong Kong International School, popular among Americans, gives debenture-holders more rights. If an applicant meets the school's standards, a debenture places him at the head of the queue. Most schools lie somewhere in between these two approaches.
All the international schools have lengthy waiting lists for all ages. So companies scoop up debentures for their staff—some expatriates are refusing jobs in Hong Kong because they cannot find schools for their children. Resale rights exist, with schools in some cases sharing the profits. Alternatively, two years ago Hong Kong International School bought back all its debentures and then reissued them at a higher price—much as a company might when business is good.
Even so, the debenture systems are opaque—the ratio between debenture-holders and accepted students is unknown. Schools are understandably sensitive about acknowledging the embarrassing tie between money and admittance. Raising money for education is a challenge everywhere and Hong Kong's system compares favourably with, say, British private schools, where prices are stratospheric, or American ones, where parents' “contributions” often can carry the same benefits as debentures, but have no market-signalling value. Hong Kong's school-debenture prices are sending two messages: there is a market for good education; and some people have the money to pay for it.