The vast array of rules under consideration could decimate the $ 100 billion education technology industry in the country, sources told Bloomberg News.
China plans to ask companies offering tutoring on the school curriculum to go non-profit, according to people familiar with the subject, within the framework of a vast array of links that could decimate the technology industry. $ 100 billion in education in the country. The shares are sinking.
Under the rules currently under consideration, platforms will no longer be allowed to raise capital or become public, people have said, asking not to be identified because the information is not public. One person also said that listed companies will no longer be allowed to invest in or acquire education companies that teach school subjects while foreign capital will also be excluded from the sector.
Local regulators will stop approving new after-school education businesses that seek to offer tutoring on China’s compulsory curriculum and require additional scrutiny of existing online platforms, people said. Holiday and weekend tutoring on school subjects will also be prohibited, they said. Changes can also be made since the rules have not been published. The 21st Century Business Herald first reported prohibitions on IPOs and investments by listed companies.
The New Eastern Group for Education and Technology sank a record 41% in Hong Kong on Friday, while Koolearn Technology Holding Ltd. it fell 28%, even its biggest day loss. TAL Education fell 47% in U.S. pre-market trade and Gaotu Techedu fell 53%.
The new set of regulations, conceived and overseen by a dedicated subsidiary set up just last month to regulate the industry, could nullify the huge growth that has made the expensive schools of TAL Education Group and Gaotu Tech Inc. The regulatory assault reflects a broader campaign against the growing weight of Chinese internet companies by Didi Global Inc. at Alibaba Group Holding Ltd.
“Making the sector unprofitable is just as good for eradicating the industry all together,” said Wu Yuefeng, fund manager at Funding Capital Management (Beijing) Co. “The regulation of funding is a big surprise and shows that to the authorities, this is a matter of little importance. In the short term for the sector, any news will be bad news.”
Beijing is falling hard on the sector since excessive tutoring annoys young students and burdens parents with expensive tutoring fees. It is also considered as an impediment to one of the main priorities of the country, increasing a decrease in the birth rate. Last month, China said it would allow a couple to have three children and issued a slew of support measures to encourage births and lower children’s expenses.
Making the entire sector non-profit “would make being a listed entity meaningless,” said Justin Tang, Asia’s head of research at United First Partners. “Investors sell first and ask questions later. Everything is done to reduce the costs of education and motivate citizens to raise children ”.
Education technology had emerged as one of the hottest investments in China in recent years, with $ 10 billion of venture capital paid into the sector last year alone. Alibaba, Tencent Holdings Ltd. and ByteDance Ltd. they all entered the arena, seeking to exploit the desires of Chinese parents to give their children every academic advantage. A spokesman for the education minister said the relevant policies have always been formulated and they have refused to provide further details.
Beijing is targeting for-profit companies to stress children while enriching investors and startup founders. In May, President Xi Jinping chaired a meeting with senior officials where they approved a new set of rules to alleviate the burden of homework and after-school training for primary and secondary students.
Last month, China’s education minister created a dedicated division to monitor all private education platforms for the first time. This followed a plethora of restrictions, including limits on the fees companies can charge and time limits for after-school programs. Regulators have fined two of the largest startups for false advertising: Zuibebang backed by Alibaba and Yuanfudao invested in Tencent. A new law on juvenile protection, which came into force on June 1, also prohibits kindergarten and private institutions from teaching the primary school curriculum to pre-schoolers – not uncommon at first.
Many high-profile startups in the sector – including Yuanfudao, which at $ 15.5 billion is the most valuable of the lot – are likely to have to implement initial public offering plans due to the crackdown.
The shares of China’s largest private education companies are among the world’s top performing artists in recent months, with New Oriental Education, TAL Education and Gaotu Techedu bringing together nearly $ 100 billion worth of its maximums reached earlier this year.
Gaotu has not received official notifications of the rules, the company said in an email. New Oriental, Zuoyebang, Yuanfudao and TAL did not immediately respond to comments.