International education in Australia: more than just China

The trade war will weigh on the flow of overseas students into Australia in the short term but growth in living standards in emerging nations should prove fruitful for the education-as-a-service sector.

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Tourism and education are the primary drivers of service exports in Australia and China is the strongest contributor – at least up until 2019.

“A lot of the strong growth in tourism and education-related exports has come from increased student and tourism flows from the developing world, particularly China.”

Tourism and education are the primary drivers of service exports in Australia and China is the strongest contributor – at least up until 2019.

Growth in students and visitors from China has slowed rapidly and ANZ Research thinks uncertainty relating to the trade war is to blame. This is expected to continue into 2020 – when a resolution to the United States-China trade dispute is forecast.

Should further slowing in student and visitor numbers from China indeed play out, ANZ Research expects it will cost the Australian economy around $A800 million over the next two years.

But population growth and increasing wealth in other countries – particularly India and, in time, parts of Africa – will provide a growing source of tourists and students in the long term.

As a service

Service exports have been an important part of Australia’s trade and are currently worth around $A8 billion a month. Although resources have long been Australia’s largest export and accounted for a larger share of total exports, services have nevertheless been an important contributor.

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In particular, over the last half decade, service exports have been growing at a rate of 13 per cent a year. This is due in part to strong tourism and education-related spending, which has been increasing as a share of Australia’s total service exports.

China’s prominent role is hardly surprising given its population size and rapidly growing middle class over the last two decades.

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China now accounts for around 26 per cent of total students coming to Australia and 15 per cent of short-term visitors, the single-largest provider overall.

However, since around mid-2018 both student numbers and visitors from China started to slow – a move which has coincided with the escalation of the US-China trade dispute.

As the data is a moving 12-month growth rate, the series are smoothed which potentially explains the delay in drop off (assuming the dispute is the main reason for the slowing).

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The trade dispute creates uncertainty, for both visitors and in particular students. When deciding whether or not to study in a country, a potential student is likely to consider possible changes that could impact their immigration status or overall treatment.

In late 2010 the Australian Government commissioned a strategic review of the student visa program. Uncertainty about the outcome of the review seemed to have a huge impact on Chinese students coming to Australia. Only once the review and recommendations were finalised did numbers recover.

The notion the trade war is having some impact is further supported by the fact the slowing in Chinese visitors to Australia is not unique.

In early 2019 Chinese visitor arrivals at 20 major global destinations slowed to 6 per cent year-on-year, down from 18 per cent in 2018. Countries like Canada and New Zealand have also seen a slowing down in visitors from China over the same period.


ANZ Research expects a fall in national income over the next two years if growth in student and visitor numbers from China remains at a similar rate seen over 2019.

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In the context of a $A1.7 trillion economy, a potential ‘cost’ of $A800 million is not something which provides huge downside risks for Australia’s economic growth.

Looking forward, there is still plenty of potential for Australia’s education and tourism sectors.

The enormous growth globally of Chinese travellers and students going abroad over last 20 years reflects the rapid expansion of the middle class. The middle class in China is estimated to increase by another 370 million people by 2030.

Although the increase in middle class individuals will allow strong growth in Chinese tourists to Australia to return, ANZ Research does not see quite as much scope for growth in education.

As China continues to develop, its universities will also increase in quality and reputation. Once this happens fewer students will choose to travel overseas as they can get the same quality level of education domestically.

The growth in students from the US coming to Australia to study has averaged around 1.3 per cent a year from 2002. Eventually as Chinese universities reach a similar - if not higher – quality, growth will likely be similar.

But there are other markets that will become increasingly important for Australia. This is where the future of the sector is bright.

Hayden Dimes & Bansi Madhavani are Economists and David Plank is Head of Australian Economics at ANZ

This article was originally published on ANZ's Institiutional website

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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