After School & Weekend Education to be Banned?

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• In an unprecedented escalation of China’s crackdown on education companies, the country is considering to bar for-profit after-school tutoring in core school subjects in a harsher-than-expected crackdown on its vast private education sector, according to a government document widely circulated on Friday (July 23) and verified by sources. After-school tutoring is also prohibited during weekends, public holidays and school vacations, the document said.

• The full document (in Chinese) can be found here: http://www.moe.gov.cn/jyb_xwfb/s6052/moe_838/202105/t20210521_532904.htm-new link in comments

• The new rules would force China’s private education companies to turn nonprofit, and no new licences will be granted. Share prices of tutoring companies plummeted, and some see the end of a highly lucrative industry.

Source: http://www.moe.gov.cn/jyb_xwfb/s6052/moe_838/202105/t20210521_532904.html

 Unprecented crackdown on education companies 

The title of the document in question roughly translates to “On the further alleviation of compulsory education: Opinions on the burden of homework and after-school tutoring,”. It gives 30 key measures to alter the current education sector. Education reforms which are thought to be aimed at making having children more affordable, and raising China’s birth rate - will  reduce homework load, raise education quality on services during and after school, and standardize education services.

The most concerning of the measure is the 13th; which will prevent the registration of new after-school tutoring institutions. Existing ones will need to be “uniformly registered as nonprofits.”

The full document (in Chinese) can be found here: http://www.moe.gov.cn/jyb_xwfb/s6052/moe_838/202105/t20210521_532904.html

Curriculum-based tutoring institutions would be barred from raising money through listings or other capital-related activities, while listed companies would be banned from investing in such institutions, according to the document.

Listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects while foreign capital will also be barred from the sector. 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 (VIEs) arrangements, according to the document. VIEs are a commonly used structure to circumvent rules restricting foreign investment in certain industries.

Those which have already violated the rules must make corrective measures, it added.

 China's for-profit eduction sector has been under scrutiny 

Beijing is coming down hard on the sector as excessive tutoring anguishes young pupils and burdens parents with expensive tutoring fees. It’s also regarded as an impediment to one of the country’s top priorities, boosting a declining birth rate. Last month, China said it will allow a couple to have three children and released a slew of support measures to encourage births and lower child expenses.

Making the whole sector go non-profit “would make being a listed entity meaningless,” said Justin Tang, head of Asian research at United First Partners. “Investors are selling out first and asking questions later. It’s all being done to reduce cost of education and motivate citizens to raise kids.”

Local regulators will stop approving new after-school education firms seeking to offer tutoring on China’s compulsory syllabus and require extra scrutiny of existing online platforms Vacation and weekend tutoring on school subjects will also be banned. Platforms are also strictly prohibited to use foreign teachers based outside China, which will ruin the online teaching industry completely. Changes may still occur as the rules haven’t been published.

The new set of regulations, devised and overseen by a dedicated branch set up just last month to regulate the industry, could wipe out the enormous growth that made stock market darlings of TAL Education Group and Gaotu Techedu Inc. The regulatory assault mirrors a broader campaign against the growing heft of Chinese internet companies from Didi Global Inc. to Alibaba Group Holding Ltd.

“Making the sector non-profit is just as good as eradicating the industry all together,” said Wu Yuefeng, a fund manager at Funding Capital Management (Beijing) Co. “The regulations on financing are a major surprise and shows that to the authorities, this is a matter of no small importance. In the short term for the sector, any news will be bad news.”

 Not surprising: previous policy 

Last month, China’s education ministry created a dedicated division to oversee all private education platforms for the first time. That followed a plethora of restrictions, including caps on fees firms can charge and time limits on after-school programs. 

Regulators have fined two of the biggest startups for false advertising: Alibaba-backed Zuoyebang and Tencent-investee Yuanfudao. A new law on minor protection, which went into effect June 1, also bans kindergarten and private institutions from teaching the primary-school curriculum to pre-schoolers -- not uncommon previously.

Several 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 put initial public offering plans on hold because of the crackdown.

Source: Straits Times.

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