Private universities constitute a significant portion of global higher education, enrolling approximately one-third of all students. However, their quality varies considerably across countries. In developed nations, many private universities achieve high quality, while in developing countries, their quality often lags behind public institutions. China presents a pertinent case, with a large number of private universities but a notable quality gap compared to public counterparts. This study addresses a crucial question in the higher education landscape of developing nations: which management model – not-for-profit or for-profit – best supports the high-quality development of private universities? Limited quantitative research exists in this area, prompting this study to employ system dynamics modeling to offer insights into this critical issue. The study aims to provide a quantitative analysis to inform policymaking regarding the optimal management type for private universities striving for high-quality development within the context of China's specific policy environment and challenges.

The literature reveals a global trend of expanding private higher education, driven by increased demand and the limitations of public sector provision. The debate surrounding the optimal management model – not-for-profit versus for-profit – is central to this discussion. While some studies suggest that for-profit institutions may offer positive outcomes for students, others emphasize the potential for profit motives to compromise quality. The literature highlights challenges faced by private universities globally, encompassing financial instability, risks associated with specific ownership structures (e.g., family-owned institutions), and allegations of questionable practices in certain for-profit sectors. In China's context, the classification management policy implemented in 2016 aimed to address these challenges, but its implementation has been slow and uneven, with many private universities continuing to operate essentially as for-profit entities despite legal requirements. Existing research primarily analyzes the factors influencing private universities' choices or discusses policy implementation difficulties; this study contributes by providing a quantitative model to evaluate the long-term consequences of each management type.

This study employs system dynamics modeling, a method suited for analyzing complex, dynamic systems. A system dynamics model of private university development was constructed, incorporating four interconnected subsystems: students, teachers, finance, and quality. The model incorporates various variables, including student enrollment, faculty numbers, financial inflows (tuition, government allocation, etc.), outflows (expenditures, taxes), and quality indicators. The study focuses on four distinct development paths: (1) steady development with not-for-profit management, (2) rapid development with not-for-profit management (including government funding), (3) steady development with for-profit management, and (4) rapid development with for-profit management (with all surplus reinvested). K University, a well-established private university in western China, served as the case study for model simulation from 2022 to 2031. The model was validated through historical data from K University (2019-2021), comparing simulated and actual values for key variables. Four control variables—government financial allocation, tuition growth rate, land cost, and tax expenditure—were adjusted to simulate the four development paths. Vensim PLE software was used for the simulations. The model includes 4 state variables (number of students, financial surplus, number of teachers, quality evaluation index), 6 rate variables, 7 auxiliary variables and 16 constants. The model was validated using historical data from the case study university for the years 2019-2021. The error between simulated and actual values was calculated to verify the model's accuracy and realism.

The simulation results reveal significant differences in the development trajectories under the four paths. While the choice between not-for-profit and for-profit orientations showed little impact on student enrollment or teacher retention, substantial differences emerged in financial aspects. For-profit paths (3 and 4) yielded higher tuition income and accounting income initially, but these gains were offset by significantly higher land costs and tax expenditures. Consequently, accounting expenditures were higher under for-profit paths, resulting in lower financial surpluses compared to the not-for-profit paths (1 and 2). Path 2 (rapid development, not-for-profit with government funding) showed the most significant increase in financial surplus and school operation investment. By 2031, the accumulated school development funds under paths 1 and 2 were significantly higher than paths 3 and 4, demonstrating the positive impact of government financial allocation and a not-for-profit structure on long-term financial sustainability and investment capacity. Specifically, Path 2 resulted in the largest investment in school operation, followed by Path 1, Path 4, and finally Path 3, clearly suggesting that government funding and not-for-profit status are essential for the long-term high-quality development of private universities in China. The difference between Path 1 and Path 2 illustrates the value of government support, whereas the comparison between Path 3 and Path 4 shows that even with reinvesting all surplus profits, the for-profit model falls short of the not-for-profit one in terms of accumulation of school development funds.

The findings directly address the research question by demonstrating the superior performance of the not-for-profit model, particularly when coupled with government financial allocation. The significant difference in financial surplus and school investment between the not-for-profit and for-profit paths underscores the importance of government support in mitigating the financial constraints faced by private universities. The results highlight the limitations of relying solely on tuition income in achieving high-quality development. The positive correlation between government funding, not-for-profit structure, and financial sustainability has considerable implications for policymaking in China and other developing nations with substantial private higher education sectors. The results challenge the assumptions that for-profit status automatically leads to higher financial success. The additional land costs and taxes associated with for-profit universities, even when profits are reinvested, significantly reduce the capacity for school development.

This study concludes that the rapid development path with a not-for-profit orientation, complemented by government financial allocation, is the most conducive to high-quality development for private universities in China. The simulation results indicate that while for-profit models can increase short-term revenue, the additional costs and lack of consistent government support severely limit long-term investment in school operations and overall quality enhancement. Three strategic implications emerge: encouraging not-for-profit structures, increasing government investment in not-for-profit universities, and strengthening financial supervision of not-for-profit institutions. Future research could explore diverse funding mechanisms, examine the experiences of private universities in other developing countries, and further refine the system dynamics model by incorporating additional factors, such as factors affecting student quality and the influence of university reputation on funding. Further research should also investigate how the specific policies implemented by different provinces affect the development of private universities and the success of different development paths.

The study's primary limitation is its reliance on a single case study (K University). While the model was validated using historical data, generalizing the findings to all private universities in China requires caution. The model's parameters and assumptions might not perfectly capture the complexities of all institutional contexts. Furthermore, the model focuses on financial aspects of high-quality development, acknowledging that quality encompasses other dimensions beyond the scope of this analysis.