China plans to turn tutoring companies into non-profit organizations | Business and Economy News


The set of rules under consideration could decimate the nation’s education technology industry by $ 100 billion, according to sources at Bloomberg News.

China is considering asking companies that offer private lessons on the school curriculum to become a non-profit, people familiar with the matter say, amid a broad set of constraints that could decimate the tech industry. education of the country, worth 100 billion dollars. The shares sank.

In rules currently being considered, platforms will likely no longer be allowed to raise capital or go public, the people said, asking not to be identified because the information is not public. Listed companies will likely no longer be allowed to invest or acquire educational companies teaching school subjects, while foreign capital will also be excluded from the sector, one of the people said.

Local regulators will stop approving new extracurricular education companies seeking to offer one-to-one lessons on China’s compulsory curriculum and demand further scrutiny of existing online platforms, people said. Holiday and weekend private lessons on school subjects will also be banned, they said. Changes may still occur because the rules have not been published. The 21st Century Business Herald earlier reported on IPO and investment bans by listed companies.

The New Oriental Education & Technology Group lost a record 41% in Hong Kong on Friday, while Koolearn Technology Holding Ltd. fell 28%, also its biggest loss on a day. TAL Education fell 47% in pre-market trading in the US and Gaotu Techedu fell 53%.

The new set of regulations, designed and overseen by a dedicated branch created last month to regulate the industry, could wipe out the huge growth that has made the stock market darlings of TAL Education Group and Gaotu Techedu Inc. The regulatory assault reflects a wider campaign against the growing weight of Chinese internet companies from Didi Global Inc. to Alibaba Group Holding Ltd.

“Making the non-profit sector is just as good as eradicating the industry as a whole,” said Wu Yuefeng, fund manager at Funding Capital Management (Beijing) Co. “The regulation on funding is a surprise major and show that to the authorities, it is a not insignificant question. In the short term for the industry, any news will be bad news. “

Beijing is hitting the industry hard because excessive tutoring distresses young students and charges parents with expensive tuition fees. It is also seen as an obstacle to one of the country’s top priorities, spurring a falling birth rate. Last month, China announced it would allow a couple to have three children and released a series of support measures to encourage births and cut spending on children.

Making the whole industry nonprofit “would make being a listed entity meaningless,” said Justin Tang, head of Asian research at United First Partners. “Investors sell first and ask questions later. Everything is done to reduce the cost of education and motivate citizens to raise children.

Education technology had become one of the hottest investments in China in recent years, with $ 10 billion in venture capital poured into the sector last year alone. Alibaba, Tencent Holdings Ltd. and ByteDance Ltd. have all entered the arena, seeking to capitalize on the desire of Chinese parents to give their children full educational benefits. A spokesperson for the Education Ministry said relevant policies were still being formulated and declined to provide further details.

Beijing is challenging for-profit companies that stress kids while making investors and startup founders rich. In May, President Xi Jinping chaired a meeting with senior officials where they approved a new set of rules to ease the burden of homework and extracurricular training for elementary and secondary school students.

Last month, China’s education ministry for the first time created a division dedicated to overseeing all private education platforms. This followed a plethora of restrictions, including caps on the fees companies can charge and time limits for after-school programs. Regulators have fined two of the biggest startups for false advertising: Zuoyebang backed by Alibaba and Yuanfudao, an investment firm of Tencent. A new law on the protection of minors, which came into force on June 1, also prohibits kindergartens and private establishments from teaching the primary school curriculum to preschoolers – which was not uncommon before. .

Several leading startups in the industry – including Yuanfudao, which at $ 15.5 billion is the most valuable of the bunch – are likely to put their initial public offering plans on hold due to the crackdown.

Shares of China’s largest private education companies are among the worst in the world in recent months, with New Oriental Education, TAL Education and Gaotu Techedu together losing nearly $ 100 billion in value from their earlier highs This year.

Gaotu has not received an official notification of the rules, the company said in an email. New Oriental, Zuoyebang, Yuanfudao and TAL did not immediately respond to requests for comment.

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