Chinese colleges have expanded their campuses and enrollment at an amazing rate since the late 1990s. While their academic quality is believed to have failed to grow accordingly, their debts have accumulated to a dangerous level.

The issue has aroused the attention of the country's top legislators, who revealed during the National People's Congress session that the scale of debts owed by China's more than 1,000 universities and colleges may amount to 280 billion yuan ($36.1 billion).

Considering their weak financial state and lack of professional ability to generate income through investment, the huge debts constitute a serious danger for their future.

Behind the huge debts is the lack of a reliable accountability system in the management of the indebted, mainly State-invested colleges.

Similar to State enterprises, if a sound accountability system is not in place, the colleges are likely to make loose financial decisions.

Admittedly, expansion of enrollment, nationally supported since 1999, requires investment. But a college should make expansion decisions in accordance with its financial strength.

On one hand, colleges have become emboldened because they believe the State will bail them out no matter what happens.

With this same reasoning, the banks have lent to these colleges without reservation, largely ignoring normal financial risks.

On the other hand, the weak accountability system has encouraged college leaders to do what they want, not what the college needs.

The public, however, becomes the loser as the government uses public funds to save the institutions.

To prevent colleges from making irresponsible decisions, a sound accountability system and specific procedures for financial decision-making must be established.

A system where no one is held responsible for bad financial decisions is dangerous. Many of our colleges are operating with just such a system. They simply ask for more government support if they incur losses for unrestrained expansion and they seem to get it.

What is equally important is that information regarding colleges' financial maneuvers must be made open to relevant stakeholders, such as the teaching staff, the students and internal auditors to make effective supervision possible.

Source:China Daily