Several Chinese tutoring companies listed in the US have seen their share prices divebomb amid speculation that Beijing could ask providers operating in a $100 billion ecosystem to go non-profit.

According to a report by Bloomberg citing anonymous sources, China is weighing rules that would prevent tutoring platforms from raising capital or going public. In addition, listed organisations would no longer be allowed to invest in, or acquire, education providers teaching school subjects, while foreign capital will be blocked from the sector.

In response to the development, New Oriental Education & Technology Group sank a record 41% in Hong Kong on 23 July, while Koolearn Technology tumbled 28%, also its biggest-ever single-day loss. TAL Education slumped 47% in US pre-market trading and Gaotu Techedu dropped 53%.

The new regulations have reportedly been designed and overseen by a new, dedicated branch established last month to better regulate China’s booming tutoring industry, which encompasses online and offline providers.

Beijing is cracking down on the sector as part of a wider package of reforms designed to ease the academic burden placed on Chinese children. Meanwhile, authorities see profit-seeking tutoring providers as a threat to China’s plans to boost its hampered birth rate because so-called tiger parents are collectively handing them billions of dollars a year, in effect increasing the cost of child-rearing.

Opponents of the regulations argue that Beijing’s plans are arbitrary and say that blocking access to capital by tutoring providers will fail to solve a problem that is ultimately rooted in a highly competitive academic culture. There are concerns that a crackdown on for-profit operators of centre-based and online tuition could give rise to a black market for home tutoring, too.

Earlier this month, one Chinese city closed down all tutoring centres.

Industry observers have questioned whether listed tutoring companies could be restructured or forced to de-list by Beijing.

Making the whole sector go non-profit “would make being a listed entity meaningless,” said Justin Tang, head of Asian research at United First Partners, according to Bloomberg. “Investors are selling out first and asking questions later. It’s all being done to reduce cost of education and motivate citizens to raise kids.”

Several start-ups in the sector – including Yuanfudao, which at $15.5 billion is the most valuable of them all – are likely to have to put initial public offering plans on hold because of the crackdown.

Date published: 23 July 2021

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