Author： EnglishTeacher 2021-08-11
China unveiled a sweeping overhaul of its $100 billion education tech sector, which bans companies that teach the school curriculum from making profits, raising capital or going public.
On Saturday, news sources in Beijing published a plethora of regulations that together threaten to up-end the sector and jeopardize billions of dollars in foreign investment. In other words, 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.
For now, many investors might 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.
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. In addition, all vacation and weekend tutoring related to the school syllabus is now off-limits.
What Bloomberg Intelligence Says:
“Operating losses at New Oriental and TAL can only worsen over the next several years as China overhauls its tutorial industry. Cost cuts won’t keep pace with revenue declines in the short term as the government, with the stated goal of lightening students’ workload, banned for-profit school tutoring as well as holiday and weekend lessons.”
— Catherine Lim, Bloomberg Intelligence
In a series of statements over the weekend, all the major education companies said they would comply with the new rules and support the decisions of the party. In a post on its official Weibo account, TAL said it would “fully implement the party’s education policy” and “strive to cultivate people’s talents with all-around development of morality, intelligence and physical health.”
So what’s the real reason for the crackdown?
Once regarded as a sure-fire way for aspiring children (and parents) to get ahead, after-school tutoring is now viewed as an impediment to boosting a declining birth rate.
It is a stunning reversal of fortune for an industry that once boasted some of the fastest growth rates in the country. Alibaba, Tencent and ByteDance were among the big names that have invested in a sector that had been expected to generate 491 billion yuan ($76 billion) in revenue by 2024. Those lofty expectations groomed a generation of giant startups like Yuanfudao and Zuoyebang. Online education platforms attracted about 103 billion yuan of capital in 2020 alone.
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.”
Devised and overseen by a dedicated branch set up just last month to regulate the industry, the rules unveiled Saturday were couched in general terms that could be applied broadly to common practices throughout the industry. The new regulations are focused on compulsory subjects — meaning critical material such as math, science and history. Classes for art or music mostly would not fall under the new restrictions.
Who does the ban affect most
The new regulations are focused on compulsory subjects, meaning critical material such as math, science and history. Classes for art or music would primarily not fall under the new restrictions.
However the ban does affect the teaching of foreign curriculums, including tightened scrutiny over the import of textbooks and forbidding 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.
Online tutoring agencies will also be forbidden from accepting learners under the age of six. In an effort to make up for the shortfall, “China will improve the quality of state-run online education services and make them free of charge,” the Chinese State Council said.
Alternative companies to consider
If you wish to stay in the same field of work, consider other online tutoring companies, such as Chegg, Think Academy, Tutor.com, or Skooli. The biggest takeaway I can offer from this is to be as proactive as you possibly can if you are in a job that is being threatened by this ban.
In a nutshell
If you are currently a contracted employee working for an online tutoring program based in China, I would start looking for other options. While some companies, such as Magic Ears, have chosen to maintain transparency with their teachers and offer a promising timeline of employment through February 2022 at a minimum, the same cannot be said for several other companies. The reality of this shift is terrifying for those who have relied on this role as their primary source of income (such as myself). Though some of the companies mentioned above (VIPKid) are classified as an ‘Education Technology,’ the likelihood of it also being held to this new regulation is something unable to be ignored.