The Daily Update: China Education Technology Crackdown

Over the weekend the Chinese government began a crackdown on the USD100bn education technology sector as it seeks to rein in the big education and private tutoring companies. The new rules, published by China's Ministry of Education, seek to overhaul the sector, and reduce student workloads, which the ministry believes has been ‘hijacked by capital’. The new regulations state that companies that teach school curriculums are prohibited from making profits, raising capital, going public and nor can they seek foreign capital through mergers and acquisitions. In its statement it said that ‘Capitalized operations are strictly prohibited’ warning ‘Those who have violated regulations shall be cleaned up and rectified’.

The education system in China has been very competitive for years now, and with parents wanting their little cherubs to have a head start, meaning private and online tutoring has flourished. The new rules mean these companies can also no longer offer tutoring related to the school syllabus over the weekends or during the holidays. Plus, they are banned from online tutoring or private lessons for children under the age of six. These new rules will ‘comprehensively move to lower the workload and learning hours of students’ the ministry said, plus ‘improve the quality of after-school services’. Regulators also said no new licences will be granted.

The news of the changes over the weekend has sent shock waves through China’s private tutoring sector and triggered a massive sell-off in the shares of companies. China’s education industry sub-index dropped 8 percent on Monday, whilst in Hong Kong listed shares of New Oriental, Koolearn, Scholar Education and China Beststudy plunged by up to 40 percent.