Economic conditions in East Asia and the near-term outlook for the UK sector

While the pandemic deeply impacted economies and international student mobility from East Asia in 2020 and 2021, the UK sector weathered the storm better than its main competitors (Australia, US and Canada) by increasing its market share, mainly amid border closures in Australia. Some correction is expected to have occurred in 2022, with the UK giving up some of those pandemic-induced gains, but the expectation was for China to lead the region’s economic recovery once its borders opened and for the pool of outbound students from EA to grow again as a result.

This is looking less likely to happen in the near term.

We take a look at how the region has performed thus far in 2023, where the near-term outlook for the region is headed, as well as what recent economic data might tell us about international student enrolment from EA countries in 2023/24.

EA countries recorded slow to moderate GDP growth in the first half of 2023. 

Weak global demand and the downturn in the semi-conductor industry, a big contributor to some of the EA economies, is weighing on the growth of export-oriented economies in the region.  Countries like Singapore, Thailand and South Korea recorded year-on-year contractions in exports in the first two quarters of 2023 while Malaysia’s exports have been falling since March 2023. Resultingly, 2Q23 GDP growth (year-on-year) underperformed market expectations in Malaysia and Thailand, coming in lower than in the first quarter of 2023. Similarly for Hong Kong and Philippines. South Korea and Singapore saw a slight pickup in the second quarter, compared to the first, but GDP growth in the second quarter was still very weak, leading to a downward revision in Singapore’s official growth forecast for 2023.

Japan, China, Indonesia and Vietnam, on the other hand, performed better in the second quarter than in the first, and 1H23 GDP growth appears to be on target vis-à-vis IMF’s growth projections, but the growth momentum could wane in the coming months – businesses are likely to put a hold on investment decisions ahead of Indonesia’s general elections in early 2024, Vietnam and China are experiencing declines in exports  and China is additionally facing a property market slump.

In its July 2023 update of the World Economic Outlook, the IMF projected that emerging and developing Asia as a region will perform better than other regions, with China and ASEAN-5 expected to grow 5.3 percent and 4.6 percent respectively in 2023 against global growth of 3.0 percent. But these projections are below the growth recorded in 2022 and already, for some of these countries, there are signs that the lower growth estimates for 2023 may be difficult to achieve.

Figure 1: 1H23 GDP growth vs IMF projections

Source: IMF Regional Economic Outlook May 2023, British Council

Growth momentum is unlikely to accelerate in the remaining half of 2023

Overall inflation in the region is levelling out but mostly remains elevated and higher than in pre-Covid years (Figure 2). The undersupply of rice this year, the region’s staple food, due to unfavourable weather conditions, as well as India’s recent rice export ban, could keep food prices elevated and further exacerbate inflationary pressures. This will continue to dampen the effects of nominal growth in wages, weigh on cost of living concerns and rein in consumption. Hence while workers may see their wages rise in money terms, the increase has mostly gone into paying for the same basket of goods and services that have also increased in prices. Without strong real wage growth, it is challenging for households to see a meaningful increase in real household income and be able to spend more on education.

Figure 2: Inflation in key EA economies

Source: IMF Regional Economic Outlook May 2023

Expectations of a China-led economic recovery in 2023 are dissipating

China’s property sector problems exacerbate the slowdown facing the country, with potential spillover effects on the region.  Over the last three years, around 50 Chinese property developers, including some of China’s largest, have defaulted on their payments amid a cash crunch and slowing demand for property and homebuying. With property being the single largest component of household assets, the average Chinese household may end up feeling poorer today than three years before as house prices fall and property construction stalls. Recent policy rate cuts and property easing measures taken by the government to boost domestic demand may help mitigate downside risks but are unlikely to bring about the strong China-led economic recovery for the region post-Covid as hoped, at least not in 2023.

How might this affect student enrolment from East Asia?

Pre-Covid, strong growth in the number of East Asia (EA) students enrolled in the main English-speaking destination countries (MESDCs – a category referring to the UK, US, Australia and Canada) came from countries with a sustained period of high GDP growth. In the 7 years prior to Covid, between 2012 and 2019, EA countries that registered significant growth in the number of students enrolled in MESDCs were China, Vietnam, Philippines, Indonesia (all registering double digit growth rates over the period) as well as Cambodia, Myanmar and Laos (double to triple digit growth rates). It should be noted that, except for China, all these countries saw enrolment in MESDCs growing from a low base (and a very low base in the case of Cambodia, Myanmar and Laos).

This was the period in which these countries enjoyed strong GDP growth rates with average annual GDP growth rates of 6-8 percent. Around an annual average of 5 percent GDP growth over the period, the trends varied; Indonesia, whose annual GDP growth rate averaged 5.2 percent, saw the number of students enrolled in MESDCs increasing by 20 percent over the period but Malaysia, whose annual GDP growth rate averaged 5.1 percent, registered a 15 percent decline in student enrolment in MESDCs (Figure 3a-f).

Looking ahead into the near term, only three EA countries are expected to record annual GDP growth rates in the high 5-6 percent range in 2023 and 2024 - Vietnam, Philippines and Cambodia. If past trends are anything to go by, then the low growth conditions in most EA countries could mean there is a chance that the total number of EA students enrolled in MESDCs countries may not grow significantly in 2023, and possibly even in 2024, if at all. Recent YTD June 2023 data from Australia appears to concur - while enrolment of EA (ex-China) students came in at a strong 13.2 percent compared to June 2022, enrolment from China declined by 5.6 percent. There was a rebound in the number of commencements (students starting new courses) from China but in essence, Australia lost more students from China than it gained new ones. Overall, Australia recorded only a marginal 0.5 percent growth in student enrolment from EA in YTD June 2023 compared to YTD June 2022.

What does the UK sector need to do?

• Be aware that economic conditions in EA are unsupportive towards a big increase in student enrolment from EA in 2023 and 2024. Additionally, with the pound sterling appreciating strongly against currencies in the region in 2023, the UK could find it challenging to increase enrolment from EA countries and maintain market share over the near term. The high priority placed on education and relatively high savings rate in many of the economies, China included, should help moderate the impact of the short-term economic slowdown in the region on the UK sector.

   

• UK universities will need to continue to invest, engage and attract students from East Asia. Instead of simply expecting students from China to return to the UK following the reopening of China’s borders, there needs to be continued and consistent investment and engagement by the UK sector across key EA markets, especially so in the near term. Although China may be experiencing slower GDP growth currently than in the past, growth is still consistent with the rise of the middle class, making it necessary for UK universities to continue expanding their influence and reach in China or risk losing out to other MESDC peers when China rebounds again. In Malaysia, UK universities should capitalise on the growing number of private school providers in the country, most of them offering the UK syllabus, and strive to build interest for study abroad in the UK. Meanwhile, increased attention should also be directed to the hitherto smaller countries by enrolment, but with higher economic growth potential – Vietnam, Indonesia, the Philippines – also the largest economies in the region by population after China.

   

• More targeted recruitment strategies are warranted. UK universities, particularly non-Russell group universities will need to work hard to be seen and to promote their distinctive qualities, course relevance to in-demand skills, scholarship offerings as well as partnerships with industry players. Each university should find ways to tap into and showcase their network of recent graduates from East Asia who have secured employment in the UK or their home country, to attract new students seeking to secure better chances of getting a job (youth unemployment in China is currently above 20 percent).