China's private tutoring firms brace for hit from new rules

Education | Donny Kwok 27 Jul 2021

China's private education firms are bracing for a hit to their operations after Beijing announced new rules barring for-profit tutoring in core school subjects to ease financial pressures on families.

News of the rule changes on Friday sent shockwaves through China's US$120 billion (HK$936 billion) private tutoring sector and triggered a massive sell-off in the shares of companies including TAL Education Group and Gaotu Techedu.

Under the new rules, all institutions offering tutoring on the school curriculum will be registered as non-profit organizations, and no new licences will be granted, according to an official document.

China's for-profit education sector has been under scrutiny as part of Beijing's push to ease pressure on students and reduce a cost burden on parents that has contributed to a drop in birth rates.

"The company is considering appropriate compliance measures to be taken, and expects such measures to have material adverse impact on its afterschool tutoring services," New Oriental Education said in a statement.

Online education services provider Koolearn also expects its tutoring services to be affected.

Scholar Education said authorities had yet to provide details about the implementation of the rules and there were uncertainties as to when and how such rules will become applicable to the group.

"I have always stayed away from the education sector as regulations have been changing erratically for many years," said Dave Wang, portfolio manager at Nuvest Capital in Singapore.

"But the broader view is that the Chinese government has always been more particular on sectors that have widespread social implications. The increasing difficulty for investors and companies is that the boundary seems to be extending and no one knows what might be next."

In May, China said it would allow couples to have up to three children, from two previously.

"The company is in communication with the regulatory authority and will make appropriate adjustment of its business model whenever needed to ensure compliance with the new policies," said China Beststudy Education.


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