China bans tutoring firms from profit-taking
Print Edition
China is barring tutoring for profit in core school subjects to ease the burden for students undergoing compulsory education and reduce financial pressures on families that have contributed to low birth rates, according to government documents published on Saturday.
Curriculum-based tutoring institutions will be barred from raising money through listings or other capital-related activities, while listed companies will not be allowed to invest in such institutions under the rules set out by the General Office of the Communist Party of China Central Committee and the General Office of the State Council.
The new policy would bar foreign investors from investing in China’s curriculum-based tutoring businesses through mergers and acquisitions, franchises, or variable interest entity arrangements.
VIEs are a commonly used structure to circumvent rules restricting foreign investment in certain industries.
All institutions offering tutoring on the school curriculum will be registered as non-profit organizations, and no new licenses will be granted, according to the document. Mainstream media, new media, billboards in public places and residential areas and online platforms cannot publish or broadcast off-campus tutoring advertisements.
Beijing, Shanghai, Shenyang, Guangzhou, Chengdu, Zhengzhou, Changzhi, Weihai and Nantong are selected as national pilot cities to implement the guidelines.
The policy aims to reduce burdens on students and family finances “effectively” within one year and “significantly” within three, the document said.
China’s nine-year free compulsory education system covers primary school and junior middle school. More than 75 percent of students aged from around 6 to 18 in China attended after-school tutoring classes in 2016, according to the most recent figures from the Chinese Society of Education.
The pressure for children to succeed in an increasingly competitive society has given rise to the term jiwa, or “chicken baby,” which refers to children pumped with extracurricular classes and energy-boosting “chicken blood” by parents.
Existing online tutoring firms will be subject to extra scrutiny and after-school tutoring prohibited during weekends, public holidays and school vacations, the document said.
The move is a major blow to China’s US$120 billion private tutoring industry. An unverified copy of the document had been circulated on the Internet earlier this week, triggering a heavy selloff in shares of tutoring firms traded in Hong Kong and New York.
“The worst case in our scenario analysis could imply 70 percent+ K12 revenue plunge for leaders,” Citi said, referring to kindergarten to grade 12.
New Oriental’s Hong Kong-traded shares slumped as much as 50.4 percent to their lowest since its listing late last year. Scholar Education Group and Koolearn Technology Holding Ltd both tumbled nearly 30 percent in Hong Kong. US-listed TAL Education and Gaotu Techedu tumbled roughly 60 percent.
The rules affect the listing ambitions of venture capital-backed education firms, including Alibaba-backed Zuoyebang, and online education platforms Yuanfudao and Classin, both backed by Tencent.
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