Delivering the vice-chancellor's annual oration yesterday, Professor Andrew Hamilton regretted that while governments elsewhere were substantially raising investment in higher education, particularly research, "treading water will not be enough" in Britain.
The David Cameron government has slashed funding in the higher education sector as part of efforts to reduce the large budget deficit.
He said: "It is dispiriting to say the least to learn that the share of GDP the UK spends on higher education has fallen to 1.2 per cent, thereby pushing it still further down the OECD index, and further behind the international average.
And this is while public expenditure on universities elsewhere is expanding". Highlighting the international profile of post-graduate students at Oxford, he recalled that the university's alumni with doctoral degrees included "the Prime Minister of India, the US Ambassador to the UN, the Governor of the Bank of Canada, and the Colombian Minister of Foreign Affairs".
Stating that new hurdles in student visas and reduced funding had affected international students and academic coming to the UK, Prof Hamilton said the competition for post-graduate students was intensifying at the global level.
He said: "(Competition) for the most able graduate students is intensifying in what is increasingly a global market for talent.
Our competitors are not only in the Ivy League but in places like China and India".
Prof Hamilton added: "China now attracts 265,000 foreign students every year. That is a greater number than the 180,000 Chinese students who study outside China annually".
The international trend in this area, he said, was clear: China has a project to make two universities – Tsinghua and Beida--among the best in the world -- and is investing over 280 million US dollars per institution per year in pursuit of that goal.
"In all China is aiming to create more than one hundred leading universities in the course of the century. The observation that the Chinese are starting from a much lower base than in the UK, may be true, but scarcely does justice to the scale of the challenges that are looming," he said.
Stating that there were constraints on the free movement of students and staff due to the visa restrictions, Prof Hamilton said that if they were not checked, they could "adversely affect the academic health of the University".