(This essay was published in South China Morning Post on 18 May 2016.)


What price has not changed for 18 years in Hong Kong?


Since 1997 the annual tuition fees that undergraduate students pay at universities funded through the University Grants Committee have been frozen at HK$42,100. Government tuition policy seeks to recover 18 percent of the recurrent provision for undergraduate education. By implication, the government has also not increased the funding it provides per student to the universities.


University tuition fees are soaring in most countries. In the US, a household with median income had to spend 8.4% of its income to send one child to a public university in 1995, and 17.4% by 2015.


In Hong Kong, by contrast, the trend has moved in the opposite direction. A household with median income had to spend 20.0% of its income to send one child to a public university in 1997, but only 14.9% by 2015. If government grants for families without means are factored in, then the percentages were 12.3% in 1997 and 11.3% in 2015.


In 2015, students received an average grant of HK$10,364 against $16,168 in 1997-98. This amount has declined over time, presumably because there are fewer qualified families.


Low tuition fees reduces parents’ burden, but what are its consequences? And is this good policy?


Parents and students in Hong Kong are under a lot of pressure to score well in public examinations in order to get into the university. This pressure is not unique to Hong Kong, but it is particularly intense here because of two related factors: the unusually high private rates of return of a university education and the limited number of subsidized places (approximately 60,000 students compete for 15,000 places each year).


In 2001 the private rates of return were 20.8%, which increased to 23.6% by 2011. This is much better than the 40-year performance of even Warren Buffet’s Berkshire Hathaway.


Such unusually high rates of return are seldom found in rich economies and only occasionally in some undeveloped economies. For example, the estimated rates of return in the US are 15.1%, in Australia 14.1%, in South Korea 12.7%, in the UK 11.9%, in Singapore 10.3%, in Canada 8.2%, and in Japan 7.4%.


Hong Kong’s very high rates of return generate multiple consequences. First, parents and children are misled to overestimate their suitability for university education and strive too hard to get into a subsidized university place.


Second, public examinations become the only acceptable means for allocating scarce public university places.


Third, highly in-demand for-profit institutions crop up that tutor students to prepare for examinations and aim to capture part of the gains from the unusually high private rates of return to university education.


Fourth, some parents are transformed into monster parents who focus on supervising homework and preparing children for tests, rather than engaging in other productive activities.


The new subject of liberal studies intended to develop critical thinking is becoming just another examination subject. Students are drilled to provide different points of view to give the appearance they have critical thinking. I fear it only teaches students confusingly many points of view, all valid to some extent, free to choose whichever one they like as they do on Facebook, and abandon the relentless pursuit of truth that is the central purpose of why a person should develop critical thinking. Making liberal studies a pass or fail examination subject would restore the fun back into liberal studies.


Fifth, low tuition fees are in effect an implicit subsidy that benefits mostly better-off families, who can afford to pay more. Moreover, the children of higher- and middle-income families have a better chance of entering university than lower-income families. This results in a perverse effect on intergenerational mobility.


Sixth, the high subsidies for university education place a heavy burden on public expenditure, making it difficult for government to increase university places. As a consequence, further expansion of university places has to take the form of self-funded degree programs.


Seventh, students with better ability (as proxied by public examination scores) are subsidized, but those with lower ability are not, which will worsen income distribution.


Eighth, the high rates of return make successful candidates less demanding of the type and quality of education they receive at university.


Raising tuition fees could alleviate many of these ills. When every child spends a dozen years cramming for examinations, one has to seriously question if they are being properly prepared for the future.


Raising tuition fees need not and indeed should not disadvantage students from less well-off families given enhancements to the existing grant and loans scheme. Higher fees only means that well-off families would have to pay more.


The additional fees could be used to finance transfers to the less well-off families and expand the number of subsidized university places. Both effects would lower the rate of return to university education. Government spending on university education would most likely increase, but in a way that fosters greater efficiency and equity.



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