By 2008, 124 million Chinese will be old enough to enter higher education, placing unprecedented strain on universities, according to figures from the Ministry of Education.
"In the next 15 years, China has to establish at least 800 colleges to meet the need," said Hu Ruiwen of the Shanghai Academy of Educational Sciences.
"An estimated capital of 550 billion yuan (£40 billion) is needed."
But the Government has other priorities. Over the next five years the focus of public education spending will be on primary education in rural areas.
Assistant Minister of Finance Zhang Shaochun told China's second Public-Private Partnership Forum earlier this month: "The development of higher education will rely on private participation to a large extent."
China could further open up its education sector to private investors, especially in higher education and vocational training, education ministry officials say.
"Insufficient public input has become a major obstacle to the development of education," Mr Zhang said. "Public spending combined with private investment will help ease the burden."
Experience in Shanghai seems to indicate that such investment pays off.
"About one third of the 70 colleges in Shanghai are private," Professor Hu said. "The initial input for these schools, 2.5 billion yuan, has generated profits double the amount."
China faces an increasing need for diverse channels of education, and it is likely that attention and spending will be diverted away from higher education in the near future. Millions of rural migrants require training and millions of laid-off workers need retraining.
China has been keen on foreign investment in education ever since its accession to the World Trade Organisation, when Minister of Education Chen Zhili announced plans for extensive foreign participation in higher, vocational and adult education.
At that time, it was announced that despite being a WTO member, China would not permit foreign involvement in "institutions involving military affairs, police, politics, party schools or preliminary education".
It remains to be seen if these restrictions are to be relaxed, though military-affiliated institutions seem least likely to be affected. China has shown little concern over the provenance of higher education funding, unlike developing countries such as South Africa, which has objected to the inclusion of education in the General Agreement on Trade in Services.