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Tuesday, Oct 19, 2021

Education Tech: China Bans For-Profit Investment in Tutoring Firms

Education Tech: China Bans For-Profit Investment in Tutoring Firms

China said companies that offer tutoring on the school curriculum cannot go public or raise capital, imposing a new set of constraints in $100 billion education tech industry.
Such companies also can’t receive investment from overseas capital, according to a notice released by the State Council on Saturday. Listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects, it said.

“All regions can no longer approve new subject-based off-campus training institutions for students in the compulsory education stage, and existing subject-based training institutions are uniformly registered as non-profit institutions,” according to the State Council notice.

The new rules will largely put China’s rapidly-growing education market out of reach from global investors. Education technology had emerged as one of the hottest investment plays in China in recent years, with $10 billion of venture capital money pouring into the sector last year alone.

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.

The out-of-school education industry has been “severely hijacked by capital,” according to a separate article on the site of the Ministry of Education. “That broke the education equity and the normalcy of the ecosystem,” it said.

The government also ordered local authorities to tighten approvals for companies providing training on extra-curriculum subjects. China will improve the quality of state-run online education services which will be free of charge, the State Council said.

The new set of rules could wipe out the growth from star education tech stocks from New Oriental Education & Technology Group to TAL Education Group and Gaotu Techedu Inc. Stocks of Chinese education firms listed in the U.S. had already slumped as news broke that the government was considering the move. The regulatory assault also mirrors a broader campaign against Chinese internet companies including Didi Global Inc. and Alibaba Group Holding Ltd.
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