1 Ka-fu Wong University of Hong Kong Direct Subsidy Scheme

2 The education system in Hong Kong Kindergarten (K1 to K3) Primary School (Grades 1 to 6) Lower Secondary School (Form 1 to 3) Upper Secondary School + HKCEE (Form 4 to 5) Secondary School Matriculation + HKALE (Lower + upper 6) Tertiary Education Undergraduate Studies (3 years) Tertiary Education Postgraduate Studies Based on school districts. Based on school districts + academic ability. Based on academic ability.

3 Primary One Admission System Choose many DSS schools

4 Different types of schools Private schools (e.g., international schools) Government schools Aided schools Direct subsidy scheme schools

5 Direct Subsidy Scheme The DSS was introduced in 1991 with the objective of providing a wider choice of schools and improving their quality. Schools that were part of this scheme had the autonomy to choose their own curriculum, to set the fees, to determine entrance requirements and to hire teachers. Initially, only newly established schools could apply for the DSS. In 1999, the government allowed aided schools to apply for the DSS from 2000 onwards. DSS schools continued to receive funding from the government, but also charged fees. This provided the schools with more funds, enabling them to enhance their education levels without having to charge as much as private and international schools. The subsidy provided by the government was about HK$29,500 per student provided the tuition fees did not exceed HK$68,000 annually.

6 Direct Subsidy Scheme vs. Aided Schools Direct Subsidy Scheme Admit students regardless of school districts May interview students for admission Aided/government schools Admit students within school districts Cannot interview students. Based on randomization if number of applicants are larger than the number of places.

7 Direct Subsidy Scheme vs. Aided Schools Parents Entering DSS schools will help avoid the uncertain Central Allocation system – where their kids will end up. Schools Entering DSS schools will help avoid the uncertain Central Allocation system – about the quality of student intake. Schools under the DSS tend to take away the better and more willing-to-pay students.

8 Consider the decision of parents. If we go for the Central Allocation, it is very uncertain where our son will end up. A very good school or a very bad school? If we go for the DSS, we can select the school that best matches our son’s ability and character. We are willing to pay several thousands to ensure that our son will enjoy his learning and learn more from the teachers and his peers at school. Let’s try DSS schools first. If our son do not get admitted into any of those DSS schools, we can always continue to go for the Central Allocation.

9 Consider the decision of a traditional top school. If we go for the Central Allocation, my school will receive average students in my school district. Since we are a traditional top school, if we go for the DSS, we can interview the students and will likely get much better students from all over Hong Kong. Since “garbage in, garbage out”, better intake means better graduates too. That will reinforce our top ranking. If we do not go for the DSS (i.e., go for the Central Allocation), but some schools go for DSS, they will steal the better students and our school will be left with students of lower quality, on average. Since “garbage in, garbage out”, poorer intake means poorer graduates too. We may lose our top ranking sooner or later. If we lose our top ranking, less students will be choosing our school. The average quality of intake is expected to deteriorate.

10 Consider the decision of a traditional bottom school. If we go for the Central Allocation, my school will receive average students in my school district. Since we are a traditional bottom school, if we go for the DSS, students may not choose us. We may end up with inadequate students. We may have to close. If we do not go for the DSS (i.e., go for the Central Allocation), but some schools go for DSS, they will steal the better students and our school will be left with students of lower quality, on average. But not lower than what I would be getting under the DSS. Without substantial improvement in its learning environment, a traditional bottom school will likely end up with no students under DSS. That is, switching to DSS for this type of school is suicidal.

11 How about the case from primary to secondary school? Currently, students are classified in 3 bands of academic ability. (Previously it was 5 bands.) If the number of bands reduces to 1, we have the secondary school admission the same as the primary school admission. Our analysis will apply perfectly. Analogously, we would predict that when the number of bands is reduced (say from 5 to 3), there will be stronger incentive for those traditional top secondary school to switch to DSS.

12 More thoughts What is the impact of DSS on the private international schools? Will Hong Kong have all DSS schools in the very long run? How is DSS compared to the voucher system proposed by a lot of economist (say, Milton Friedman)?

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