China bans for-profit core subject tutors | Liverpool City Champion


China bans for-profit private tutoring in basic school subjects to ease financial pressures on families that have contributed to low birth rates, news that sent shock waves through its vast industry. private education and falling stock prices.

The policy change, which also restricts foreign investment in a sector that has become critical to passing Chinese school exams, was contained in a government document that was released widely on Friday and verified by sources.

The move threatens to decimate China’s $ 120 billion (AU $ 163 billion) private tutoring industry and sparked a sharp sell-off in shares of tutoring companies traded in Hong Kong and New York, including New Oriental Education & Technology Group and Koolearn Technology Holding Ltd.

All institutions offering private lessons on the school curriculum will be registered as non-profit organizations and no new licenses will be granted, according to the document, which says it was distributed by the Chinese State Council or cabinet to local governments and is dated July 19.

More than 75 percent of students aged 6 to 18 in China took after-school tutoring classes in 2016, according to the most recent figures from the China Education Society, and anecdotal evidence suggests that this percentage increased.

China International Capital Corp said the rules are “stricter than market expectations and we expect a significant impact on future business activities and on capital markets.”

The pressure for children to succeed in an increasingly competitive society has given rise to the term Jiwa, or “chicken,” which refers to children bloated by extracurricular classes and the energizing “chicken blood” of anxious parents.

Existing online tutoring businesses will come under scrutiny and out-of-school tutoring will be banned during weekends, holidays and school vacations, according to the document.

The Chinese State Council did not immediately respond to a request for comment.

According to the document, mentoring institutions based on the programs would not be allowed to raise funds through lists or other capital-related activities, while listed companies would be prohibited from investing in such institutions.

China’s for-profit education sector has come under scrutiny as part of authorities’ efforts to ease the pressure on schoolchildren and reduce the financial burden on parents which has contributed to a drop in school fees. birth-rate.

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

The policy aims to reduce financial burdens on students and families “effectively” within one year and “significantly” within three years, according to the document.

Three sources told Reuters last month the crackdown was being carried out from above.

In June, the state-run Xinhua News Agency quoted President Xi Jinping as saying that schools, rather than tutoring companies, should be responsible for student learning.

The new policy would also prohibit foreign investors from investing in Chinese curriculum-based tutoring companies through mergers and acquisitions, franchises or variable interest entity (VIE) agreements, according to the report. document.

VIEs are a structure commonly used to circumvent rules restricting foreign investment in certain industries.

Those who have already broken the rules must take corrective action, he added.

“The worst-case scenario in our scenario analysis could involve a 70% + K12 drop in earnings for executives,” Citi wrote, referring to Kindergarten to Grade 12.

New Oriental’s Hong Kong-traded shares fell 50.4% to their lowest level since listing late last year.

Scholar Education Group and Koolearn Technology Holding Ltd both fell nearly 30% in Hong Kong.

Shares of other Chinese education companies listed in the United States, including China Online Education Group, Zhangmen Education Inc and 17 Education & Technology Group Inc, also plunged.

Education stocks were also sold in mainland China, with an index following the sector down nearly 5%.

Associated Australian Press

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