The Australian

By Sean Gallagher and Geoffrey Garrett

THE higher education trade winds blowing Chinese students into US classrooms are approaching gale force. Chinese postgraduates have enrolled in US universities for decades, but now the big game has moved to undergraduate education. Last year, there was a 43 per cent increase in new Chinese undergraduates on US campuses. The University of California 10-campus system doubled enrolments in a single year.

Cash-strapped US public universities have finally begun doing in earnest what Australian universities have done for two decades - make up for shortfalls in government funding by aggressively recruiting in Asia.

This year will likely herald two inauspicious firsts.

One, the number of Chinese undergraduates enrolling in Australia is poised for its first ever decline. (Enrolments were 4.4 per cent lower in the first half of the year than for the corresponding period last year).

Second, for the first time in a decade, more Chinese undergraduates will likely enrol in the US than in Australia.

The last time that happened was 2002, just before the post-9/11 clampdown on foreign students that heralded a golden age for Australia of largely competition-free access to Chinese students.

Australia was still just ahead of the US last year, according to Open Doors. There were 63,496 Chinese undergraduate enrolments here versus 56,976 in the US. But, since 2009, Chinese undergraduate enrolments in the US have increased by 50 per cent a year.

They are booming for two reasons; the greenback has dropped by about a third against the Chinese currency, and more than one half in real terms, since the middle of the past decade. Chinese yuan buy a lot more US higher education these days while the mining boom-driven Aussie dollar has appreciated against the yuan over the same period.

On the other hand, US public universities now see full fee-paying Chinese students as an essential response to the biggest ever reductions in government support for public higher education.

Moreover, Chinese consumers are brand-conscious about everything, including universities. Those such as Berkeley and UCLA are elite global brands positioned well above Australia's best and are poised to swallow up market share.

Australia has the highest number of foreign students per student population in the world and campuses are stuffed full. Even if we wanted another decade of growth like the last one, campuses could not support it.

The contrast with the US is stark. With a higher education sector 15 times the size of Australia's, and with less than 5 per cent of students on its campuses from overseas compared to the more than 20 per cent here, there is tremendous capacity for growth.

Michael Knight in his review of student visas last year understood most of this, though the reality is getting bigger and grimmer by the day. That is why his review set out clear and realistic residency pathways for international students - essential to keeping our higher education globally competitive.

But if and when these reforms are fully implemented, they should be only the beginning of Australia's response to the rapidly changing global market for students. There is a fundamental problem with the Australian "higher education as export" business model.

For the better part of two decades, we have successfully competed on price with other countries and attracted quality students because other English-speaking countries have not been that focused on international students.

Now both conditions have been turned on their head, and Australia faces having to lower price or student quality to keep students, and the critical dollars they bring, coming to our shores.

To avoid this downward spiral, we need to build new competitive advantage based not on price but on quality.

Improving the on-campus, in-class experience, better residential options, more experiential learning and study abroad opportunities aligned to the global job market are all essential.

In addition, we must leverage our unique comparative advantage of being the bridge between the West and emerging Asia.

The Asian students already in our classrooms are a major strategic opportunity. We can add real value to them by giving them the opportunity to develop the leadership skills they covet by telling us about their countries. And, in so doing, Australian students will gain the Asian literacy and competency Ken Henry's white paper will highlight as mission critical to Australia's Asian Century.

Universities are so often small "c" conservative institutions where time is measured more slowly than in the world outside. Now is the time for universities to be proactive, innovative and aggressive. Sitting on our hands is no longer an option.

Sean Gallagher is chief operating officer and research associate at the United States Studies Centre. Geoffrey Garrett is dean of the University of Sydney Business School.

This article originally appeared in The Australian.