| The university development program is the first project of the World Bank which has been implemented since China recovered its seat in the World Bank in 1981. It is also the first foreign loan project utilized by China's education system. The successful implementation, the positive effect, and the high profit of this program abundantly reveal the necessity and feasibility of utilizing World Bank loans to support the development of our country's education. In the following 20 years, China's education system has exploited the loans of international financial organizations and foreign governments, such as International Finance Corporation (IFC), the World Bank and JBIC to develop China's higher education, vocational education and basic education. However, since the first of July, 1999, the World Bank ceases providing Non-Interest loans because Chinese GNP per capita exceeds 800 dollars. Up to now, the World Bank provides almost 10 billion dollars non-interest loans to our country in the social development fields, such as agriculture, poverty, and education, health, and environmental protection, etc. Additionally, in 2005, Japan declared to stop providing China with ODA in 2008 on the excuse that China's economy has been developed and the Chinese government utilized the loans in expanding military force. The ability of utilizing foreign funds has been seriously restricted after the World Bank and Japanese government ceases to provide loans.According to the Education Law, "the government must establish a system of which education mainly relies on government's financial allocation with the assistance of other financing channels". However, over a long period of time, insufficient financial allocation is a big problem in educational reform and development. The two indexes reflecting the degree of government's efforts at education—the proportion of national financing education expenses in GDP and the proportion of education expenses in financial expenditure—are not satisfactory. According to China's education reforming and development Outline(1993 and 1994) and its implementation, the proportion of national financing education expenses in GDP should be 4%, while according to the Financial Department documents, the proportion of education expenses in financial expenditure should be more than 20% in the budget of the province, city and county respectively. But according to the result of the supervision of the educational allocation, these two indexes have not met the demand. Under this situation, our education area must answer a series of questions. Firstly, as one of unprofitable social development organizations, should it refuse the loans from the international financing organizations and foreign governments? Secondly, although our government increases education investment, financial allocation is still insufficient, and at the same time the domestic banks offer loans to education department positively. Under this situation, is it necessary to utilize loans from IFC and foreign government to develop China's education? Thirdly, in addition to the function of funding the expenses of China's education development, is there any other effectiveness of IFC and foreign government loans? If it is necessary to use foreign funds (IFC and foreign government loans, the same below) in the new period, how to determine the scale of loans, how to avoid risk and are there any new opportunities? Those are the most urgent questions that the education department must solve. And they are also the questions this thesis tries to answer.On the premise of serious shortage of input in education, this thesis demonstrates that utilizing foreign is still the most important channel to raise funds for education. It reviews and summarizes the basic situation and the research of the effectiveness, scale and risks of utilizing foreign funds by making a comparison between the domestic funds and foreign funds in the aspects of circumstances, risk, overflow effectiveness, and effectiveness of input and output.About the study of effectiveness, this thesis analyzes the advantages and disadvantages of a country's exploitation of foreign loans on the theoretical and macro level on the basis of the commentary of Classical Economics and Modern Economics on utilizing foreign funds. Meanwhile, it also analyzes economical effectiveness and social effectiveness of utilizing foreign funds in education system on the macro level. Furthermore, it demonstrates utilizing foreign funds has good economical and social benefits through analyzing substantial evidence of the World Bank Impoverished Province Education Development Project organized by Ministry of Education.About the loan scale study, this thesis puts forward the guidelines of utilizing foreign funds of education system, defines the principles of the scale of foreign funds, quota and the factors which affects the scale of foreign funds, constructs the model of controlling the quota of foreign loans and evaluating their risks. Thus, it raises the theory that "loan risk index" is the core indicator of controlling loan scale. According to this model, this thesis analyzes the loan scale and risk of a university in 2005 as substantial evidence.About the risk study, this thesis first analyzes the risk of interest rate and exchange rate, and then studies the currency, the interest risk and also how to minimize and avoid those risks by combining the problem of risk management existing in education system.At last, in order to solve the problems of utilizing foreign funds project, the thesis gives suggestions to the education system as to how to use foreign funds in the new circumstance. The suggestions include actively and effectively using foreign funds, introducing donation of third party, deducting loan prerequisite through the government's paying interest in the form of a deduction, integrating the introduction of capital with the introduction of human resource, technology and advanced management, and paying attention to currency and interest risk as well.
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