Testing times for China's private tutors

Shares of private education providers, which plunged last Friday, face growing pressure after Beijing published regulations that threaten to upend the sector and jeopardize billions of dollars in foreign investment on Saturday.

Listed firms will no longer be allowed to raise capital via stock markets to invest in businesses that teach classroom subjects, which could include capital from the offshore registered entities of Chinese firms, according to a notice released by the State Council.

Outright acquisitions are forbidden. All vacation and weekend tutoring related to the school syllabus is now off-limits. Those now in violation of that rule must take steps to rectify the situation, the council added.

The new regulations are focused on compulsory subjects, meaning critical material like math, science and history. Classes for art or music mostly would not fall under the new restrictions. Yet the government ordered local authorities to tighten approvals for companies providing training on extra-curriculum subjects.

The rules also ban the teaching of foreign curriculums, tighten scrutiny over the import of textbooks and forbid the hiring of foreign teachers outside of China - a curb that could have severe consequences for startups like VIPKid that specialize in overseas tutors.

New Oriental Education & Technology (9901) said last Friday that it had not received official notification of the new regulations.

Its counterpart Dashan Education (9986) meanwhile stated last night that the company was planning to expand businesses which it believed was not the target of the curbs.