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Asia's international school boom cools amid crisis

HONG KONG (Reuters) - Asia’s breakneck growth was a boon for international schools as expatriates moved to the region in droves bringing their school-age children with them. But as the economy cools so too has this lucrative niche industry.

Turning over hundreds of millions of dollars, in its heyday Asia’s international schools couldn’t keep up with demand for places for the progeny of business people relocated by companies expanding their interests in the region.

Fees that ranged from $20,000-$50,000 per child per year meant the private companies that ran these schools were pulling in handsome profits. Some schools in Singapore charged $200,000 just to put names on waiting lists.

Now, as expatriates leave China, Hong Kong, Singapore and other countries across the region due to the financial crisis, waiting lists for international schools are getting shorter or disappearing altogether as enrolments drop.

“In comparison with 12 months ago, we’ve seen a big change,” said Lee Quane, the regional Asia director for ECA International, which advises companies globally on international assignments.

“Back then there was a lack of availability (of school places) or relatively long waiting lists, and this was having a negative impact on the attractiveness of Hong Kong for expatriates,” Quane added.

Experts say the lull may be just what the industry needs to consolidate and prepare for future growth once Asia is back on its feet, led by the economic powerhouses of China and India and with growth increasingly fueled not only by expats but by burgeoning middle-class Asians seeking an English education for their children.

“I think you’re going to see an increasing demand for school space,” said Richard Vuylsteke, the head of the American Chamber of Commerce in Hong Kong.

Many top international schools in Hong Kong, such as the German Swiss International School, have had trouble expanding capacity given red-tape and land shortages in the tiny city.

Following calls to address “a critical squeeze” on school places by a broad coalition of business chambers, Hong Kong plans to expand its pool of international school places from 35,000 to 40,000 in the next five years.

“In terms of land (allocations), our priority is on international schools in the next five years,” said Raymond Sy, a principal assistant secretary at Hong Kong’s Education Bureau.

“We can’t afford another shortfall of educational places ... which has a deterrent effect on the expatriate community planning to come to Hong Kong for investment or work,” he told Reuters.

SCHOOL PLACES

There are about 1,200 international schools in the Asia-Pacific compared to 937 in 2007, according to ISC Research, which tracks the international school market.

ISC says Asia was the world’s fastest expanding region for international schools, with average growth of around 11 percent in recent years, but the rate could ease to 5-7 percent this year. China was one of the fastest markets, leapfrogging from 123 schools in 2006 to 210 this year.

There are no figures for the industry, but conservative calculations suggest it generates revenue worth hundreds of millions of dollars a year across the region, drawing interest from private equity funds.

Prior to the crisis deepening last year, private equity group Barings Asia paid $360 million for Nord Anglia, a British-listed education provider that runs 9 international schools including four in China and one in South Korea. The high price tag partly reflected growth potential in Asia.

Cognita, a British education group with funds from Englefield Capital, has been buying up schools overseas including the Australian International School in Singapore in 2007. Brand name schools such as Dulwich College and Harrow School have set up campuses in China.

While activity has slowed amid the downturn, big regional players such as Singapore-listed Raffles Education RLSE.SI added capacity in India and Indonesia this year.

“This (international education) is very much an area that big business has fixed upon, because returns in the medium term, even for new schools, are extremely high,” said Nicholas Brummitt, the managing director of ISC research.

“We know of loads of projects that are going ahead around the world regardless of the recession, they may have a longer time frame now, (and) although they may have been scaled back in the case of Dubai but they’re still going ahead,” he told Reuters.

A recent global survey by the Academy of International Schools Heads (AISH) found that 42 percent of 120 schools expected enrolment in the 2009-2010 school year to remain the same, while only a fifth said enrolments would fall including schools in China, Thailand and Japan.

The fairly robust findings accord with the experience of some new expatriates who’ve still struggled to find schools.

“We inquired with four or five schools, and effectively all of them had waiting lists,” said Lucy Wilkinson, who arrived in Hong Kong earlier this year with her kids and husband Craig, a senior private equity banker with Lloyds TSB Development Capital.

“There was nobody who said “yes, you can have a place” she added, saying it took nearly half a year before a place was nailed down for her son Archie: “There’s been a huge amount of uncertainty, and this hasn’t been great for the family.”

ENROLMENTS

Some segments of the market are hurting. In China, enrolments at high-end international schools appear to be falling as students move to more affordable schools.

While in Singapore, some international schools have seen their student bodies shrink by as much as 20 percent as expats left when the city-state entered recession, local media reported.

The recession and the tumbling won in South Korea have lead Korean firms to recall expat staff posted in China and other countries in Asia, dealing a blow to Korean-language schools.

“The Korean market has been hit really hard,” said John Kung, the founder of Beilin International Education Company in Beijing, describing a Korean school in Qingdao that is reeling from an exodus of Korean expats and a sharp fall in the Korean currency.

Still, the downturn has had little impact on Hong Kong’s top international schools such as HKIS in Hong Kong, which has a long waiting list despite the mid-term departure of 68 children.

“For us, right now, essentially it’s business as usual,” said DJ Condon, the Associate Head of Hong Kong International School, which charges up to HK$165,000 ($21,280) a year. “But we are wondering how long that will continue, will it change?”

Additional reporting by Michael Flaherty in Hong Kong and Owen Fletcher in Beijing; Editing by Megan Goldin

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