Listed Chinese companies that ventured into education from sectors including industrial production are reportedly facing intensifying scrutiny from stock exchanges over financial irregularities – one of which has been connected to a London private school group.

According to Caixin, China’s Shenzhen and Shanghai stock exchanges are examining a string of so-called “crossover” companies that have tapped the country’s booming education market in the past decade, despite focusing chiefly on other disparate sectors.

Such moves reflect a desire among public companies of varying stripes to access what L.E.K. Consulting estimates to be a $300 billion private education market in China.

According to the Caixin, since May at least five organisations have received inquiries from the two bourses, which reportedly regularly contact companies when inconsistencies or seemingly suspicious accounting practices are spotted.

Shanghai Xinnanyang Only Education & Technology, which was the first education firm to obtain a backdoor listing on the A-share market, has more than 300 education centres in Shanghai and overseas.

The Shanghai Stock Exchange has asked the company to explain why it provided a loan of nearly £13 million to Hong Kong-based investment group Sailing Capital to support Astrum Education, which operates two private schools in London, without disclosing details of creditors’ rights.

Caixin reported that “the Astrum project has been plagued by low enrolment and suffered losses for several consecutive years”, which prompted the bourse to ask Only Education to explain its failure to account for the loan.

Shenzhen-listed Jiangsu Xiuqiang Glasswork specialised in making safety glass and other protective materials until 2015 when it entered the early years sector, which in recent years has become more tightly regulated.

Government policies introduced in 2018 prevent companies from investing in for-profit childcare centres through stock market financing and bans acquisitions of private kindergartens through share issues or cash purchases.

Jiangsu Xiuqiang Glasswork began to divest from China’s early years sector, according to Caixin, and last year sold its four wholly owned preschool businesses to a company called Guangzhou Xinxing Investment Development for nearly $40 million.

However, the latter company was jointly controlled by the chairman and general manager of the former.

According to Caixin, some analysts have speculated that this transaction could have been an attempt to remove the “failing” kindergarten business from Jiangsu Xiuqiang Glasswork’s balance sheet – which is why the Shenzhen Stock Exchange is now investigating the deal.

Shenzhen-listed Wuxi Hodgen Technology produces intelligent controllers for fridges, industry and cars.

The firm, which in June received inquiries from its bourse, according to Caixin, has invested in Beijing Huanyu Wanwei Technology since 2014 and is now its largest shareholder.

Huanyu Wanwei builds software and platforms for preschools and one of its projects, Wisdom Tree, has reportedly entered a partnership with Alibaba Cloud to use big data to assist early education.

The company was “hemorrhaging money” even before the Covid-19 pandemic, according to Caixin, and the Shenzhen Stock Exchange has asked Wuxi Hodgen Technology to give investors a clear account of the former firm’s performance over the past three years.  

Date published: 25 June 2020

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