China unveiled a sweeping overhaul of its $100 billion education tech sector, banning companies that teach the school curriculum from making profits, raising capital or going public.
Stock prices plunged yesterday in anticipation. TAL went from market cap of $20 billion to $6 billion.
Beijing on Saturday published a plethora of regulations that together threaten to up-end the sector and jeopardize billions of dollars in foreign investment. Companies that teach school subjects can no longer accept overseas investment, which could include capital from the offshore registered entities of Chinese firms, according to a notice released by the State Council. Those now in violation of that rule must take steps to rectify the situation, the country’s most powerful administrative authority said, without elaborating.
In addition, listed firms will no longer be allowed to raise capital via stock markets to invest in businesses that teach classroom subjects. Outright acquisitions are forbidden. And all vacation and weekend tutoring related to the school syllabus is now off-limits.
The regulations threaten to obliterate the outsized growth that made stock market darlings of TAL Education Group, New Oriental Education & Technology Group and Gaotu Techedu Inc. They could also put the market largely out of reach of global investors.
It’s part of a larger story. Two actually.
The regulatory assault mirrors Beijing’s broader campaign against the growing heft of Chinese internet companies from Didi Global Inc. to Alibaba Group Holding Ltd. It stems from a deeper backlash against the industry, as excessive tutoring torments youths, burdens parents with excessive fees and exacerbates inequalities in society.
The out-of-school education industry has been “severely hijacked by capital,” according to a separate article posted on the site of the Ministry of Education. “That broke the nature of education as welfare.”
Among other things, they also ban the teaching of foreign curriculums, tighten scrutiny over the import of textbooks and forbid the hiring of foreign teachers outside of China — a curb that could have severe consequences for startups like VIPKid that specialize in overseas tutors. The government also ordered local authorities to tighten approvals for companies providing training on extra-curriculum subjects.
It’s ultimately unclear how the government clampdown will turn out — many believe Beijing won’t seek to annihilate an industry that still plays an essential role in grooming its future workforce.
For now, many investors may choose to err on the side of caution. The government’s desire to assert control over the economy and one of its most valuable resources lies at the heart of recent regulatory clampdowns on online industries. Companies that operate as internet platforms have come increasingly under scrutiny because of the reams of data they collect, stirring government concern over issues of privacy and security.
Online tutoring agencies will also be forbidden from accepting pupils under the age of six. To make up for the shortfall, China will improve the quality of state-run online education services and make them free of charge, the State Council said.
I am skeptical that state-run tutoring will work well.
If general crackdown (on Ant, on Didi, etc) is one reason, what is the other?
China is planning new policies to rein in rising education costs seen as deterring couples from having more children, according to people familiar with the matter, as Beijing confronts a worsening demographic outlook.
Among the measures are new laws and tighter regulations aimed at private education companies that offer tutoring services, which have been blamed for fueling competition and increasing education costs for urban families. New restrictions would, for example, curb private lessons during school holidays, the people said.
Separately, Beijing policy makers are discussing measures to tamp down real estate frenzies that have sprung up in desirable school districts in China’s wealthy cities, adding educational anxieties to a housing market that many officials fear is overheated, according to two of the people.
Taken together, the policies are intended to blunt two trends seen as driving up the perceived cost of education for many Chinese families, which is in turn regarded as an obstacle discouraging couples from having more children.
I am skeptical that reduction in tutoring will increase birth rate.
Without cultural changes, I think lots of kids will just play more video games and watch tik tok.
That may be cheaper for parents, but I’m not sure it makes the act of parenting more enjoyable. Nobody likes to watch their kid just be on a screen all the time. That’s what Xie thinks too.
Xie Weina, a 41-year-old Beijing mother, spends roughly $1,500 each month for her 10-year-old son to attend two essay writing classes, three online and one offline English classes and one math class each week after school, as well as basketball and soccer on the weekends.
Ms. Xie said her son’s schedule can hardly compare with those of his classmates, whose parents are driven, she said, by “a herd mentality of fear and anxiety.”
She added that “parents in big Chinese cities are working for the educational centers.”
Though she thinks competition has gotten out of hand, Ms. Xie is wary of governmental efforts to ban private classes during school vacations, fearing that working parents like herself will instead wind up with unchaperoned children playing videogames all day.