International education is Australia’s largest service export and the nation’s fourth largest export overall. After iron ore, coal and natural gas. In 2015-16, the sector’s measured export earnings in 2015-16, stood at $19 billion. The Federal Department of Education has reported that enrolments of international students in the June 2016 year-to-date are 516,161 – with growth of 11.5% from the previous year driven by a 17% increase in higher education students from China, who now account for more than a third of international students at Australian universities. Almost two-thirds of all Chinese international students in Australia were enrolled in higher education as opposed to vocational education and training (VET), schools, non-award degrees, and English language intensive courses (ELICOS). The majority studied degrees in the fields of commerce and management (59%), followed by engineering (12%), and IT (5%). Global demand for education services is expected to grow strongly over coming years, driven, in particular, by large increases in China’s and India’s middle classes. Australia has historically been an attractive option for many international students because of our price competitiveness, proximity to key Asian markets, a reputation for quality business and management courses, and clear pathways from schooling and ELICOS to higher education and VET. The lower Australian dollar has also helped the recent strong growth in student numbers. Deloitte Access Economics’ recent report for Austrade, Growth and Opportunity in Australian International Education, found that Australia’s onshore international education sector is capable of increasing from 645,000 enrolments in 2015 to 940,000 by 2025 (which equates to an annual average growth rate of 3.8%). International student enrolments by sector Source: Growth and Opportunity in Australian International Education, Deloitte Access Economics The chart above highlights that higher education and VET enrolments are projected to grow at an annual rate of 4.3% and 4.6% respectively. This growth is supported by the established reputation of Australian universities and the growth of private VET providers offering flexible and tailored accredited courses. The share of all international education enrolments from China and India is projected to increase from 38% currently to 48% by 2025, while the share of students from Thailand, Vietnam, Nepal and Malaysia is also expected to increase marginally, accommodated by possible declines in the share from Brazil and South Korea. Australia’s mature and largest volume Asian education markets are not necessarily the ones projected to grow the fastest, especially in the longer term. It’s emerging economies such as Ghana, Nigeria, Kenya and the Philippines that are projected to increase enrolments by between 6.5% – 9.0% per annum over 2015-2025, albeit from a lower base. Looking ahead, destination countries like Australia (and others) will undoubtedly face stronger competition as domestic education systems in countries such as China grow in quality and capacity. The 2016 Academic Ranking of World Universities placed over 40 Chinese universities in the top 500, up from only nine in 2006. This improvement looks set to continue, with the Chinese State Council announcing plans to invest further in higher education. This may also present an opportunity for stronger links with Australian universities. A 2014 survey by Universities Australia found that Australian universities had more than 1,200 formal agreements with Chinese institutions, a 170% increase from 2003. Despite a more competitive global environment, strong growth in demand is expected to drive Australian education exports over the next decade. In fact, the education sector’s contribution to export earnings is expected to almost double to more than $33 billion by 2025. David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.