A US university is buying insurance in case Chinese students stop coming

Insurable risk
Insurable risk
Image: Reuters/Aly Song
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At first it seemed like the best thing to happen to universities since post-modernism.

Chinese students offered a new, steady source of tuition revenue and smart, able students. They diversified universities tuition revenue, but over time they began to become a larger, and larger share of it. Only 4% of student visas, just under 12,000, went to citizens of Mainland China in 1997. But as the market opened, and China’s middle class grew and prospered, many more Chinese students wanted and could afford to study in America. By 2015 more than 40%, or 600,00, of student visas were issued to students from mainland China.


According to the Brookings Institute, between 2008 and 2012, Chinese students paid nearly $7 billion in American tuition. But after years of growth, the trend turned downward in 2016, when the number of Chinese student visas issued fell 46%. There are many reasons this might be, including compelling options from other countries to fears from Chinese families about populist rhetoric and the US’s propensity for gun violence.

It is no wonder a drop in Chinese students visas is making school administrators nervous. Especially Jeff Brown, dean of the University of Illinois’s business school, where in 2015 Chinese students made up 51% of foreign students and almost 12% of the entire student body.

Brown’s research focuses on the economics of retirement, so he is naturally attuned to potential sources of risk. He started exploring his options in 2015, before the drop-off. What started out as a good way to diversify revenue—bringing in more foreign students—had morphed into a significant exposure to the political risk of a single country.

To protect his school against the potential loss of revenue should the supply of students dwindle, Brown bought an insurance policy. Since 2017, the university has paid a total of $424,000 in premiums for coverage up to $60 million if there’s a 20% drop or more in revenue from Chinese students in a single year following “triggering events,” Brown told Times Higher Education , a UK publication. “These triggers could be things like a visa restriction, a pandemic, a trade war — something like that that was outside of our control.”

The insurance policy, which also covers engineering students, illustrates the new risk of globalization. In theory, globalization should offer more diversification of revenue and customers for universities or businesses, and less exposure to a single county’s economy. But when a single large market like China opens quickly, diversification can quickly become concentration, and businesses find themselves dependent on a single economic relationship. Industries from movies to pork feet are increasingly dependent on the Chinese market and as tensions mount between the US and China over trade and politics, other enterprises will likely seek out insurance or other forms of hedging too.

It is a smart move for the University of Illinois, but like all insurance, it could create moral hazard, and embolden universities to double down on Chinese students instead of finding ways to diversify their revenue. Brown says, “hedging the risk that we face gives us more confidence to be able to continue proactively investing in the very strong relationships that we have in China.”