After Smothering Fintech And Consumer Tech, China Announces Crackdown On Edutech; Over $5.8 Billions Wiped Off From Education Stocks

Over $5.8 Billions was wiped off from stocks of leading Chinese education companies as Beijing announced that it will be unveiling a tough new regulatory regime to overhaul the private tuition industry.

Education stocks led the Hong Kong Stock Exchange in declines, with New Oriental Education & Technology Group sinking 47%, Scholar Education Group plunging 45.5%, China Beststudy Education Group down 42.5% and Koolearn Technology Holding tumbling 33.4%, Nikkei Asia reported.

China's education industry raised 116.4 billion yuan ($17.96 billion) in 2020 as pandemic related disruption resulted in students embracing online learning, according to consulting firm iResearch. Online education accounted for 89 percent of the financing.

The new regulatory regime comes after an assessment by Chinese government that expensive off-campus learning fees have added to the financial burdens of parents, and taking courses after school goes against the Communist regime’s goal of reducing the homework burden on younger students.

The Chinese government assessed that number of after-school tutoring institutions for primary and secondary school students is almost the same as that of public schools in China, constituting a parallel educational system to the state education system

Under the sweeping regulations promulgated by the State Council, China's cabinet, and the Chinese Communist Party General Office, only nonprofit companies will be allowed to offer after-school tutoring. Foreign investors and listed companies will be barred from participation in the sector.

For core school subjects, tutoring courses cannot be offered on public holidays, weekends or school breaks. Overseas-based foreign teachers are barred from online tutoring platforms, which also must limit their classes to 30 minutes and stop each night by 9 p.m.

Foreign capital is also not allowed to control or participate in the private education sector through methods such as mergers and acquisitions, entrusted operations, or franchise chains, said the document issued by the General Office of the Communist Party of China (CPC) Central Committee and the General Office of the State Council, the cabinet, on Saturday (Jul 24).

The sweeping regulations promulgated by the State Council – China’s cabinet – include Ban on junior middle school students from taking weekend and holiday courses offered by tutoring institutions. Curbs on after-school tutoring companies from raising funds via stock market. Framing rules to remove overseas investors and assets linked to tutoring may even face removal from listed companies, according to the rules.
In 2020, the coronavirus forced Chinese children to embrace online education in a big way.

As capital rushed into the lucrative private education sector in China, the value orientation of some tutoring institutions shifted from "teaching" to "profit," leaving students and their parents as tools for capital, Global Times quoted Chu Zhaohui, a research fellow at the National Institute of Education Sciences, as saying.

Beijing has launched crackdowns on internet companies over the past year.

In November last year, the Chinese government scuppered the record $37bn initial public offering (IPO) of Ant Financial, a fintech company controlled by billionaire Jack Ma, days before it was set to go public. It then dismantled the company.

As ride hailing app Didi prepared to IPO in the U.S., Chinese regulators announced they were reviewing the company on “national security grounds”, and imposed various penalties against it. It also fining Tencent and Baidu — two other top Chinese internet behemoths— for various past deals.

Close on heels of crackdown on Didi, a giant ride-hailing firm which raised $4.4bn in the biggest American listing of a Chinese firm since 2014, Chinese regulators have opened a cybersecurity probe into more tech firms that have recently listed shares in U.S.

The Cyberspace Administration of China (CAC) said the probe was opened to “prevent national data security risks” as the crackdown on the country’s technology sector continues.

CAC said that it has launched investigations against two commercial freight platforms -Yunmanman and Huochebang -both of which are subsidiaries of Full Truck Alliance and Boss Zhipin, which offers an online recruitment service.