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News

End of an Era as China Puts an End to For-Profit Tutoring Companies

The new regulations include preventing IPOs, limiting workloads, and cracking down on deceptive ads.

On July 23, 2021 (Beijing), an internal government file titled “Opinions on further reducing the workload of students in compulsory education and the burden of off-campus training” spread through the internet, revealing new harsh regulations on Chinese education companies. 

These regulations include:

  • Preventing these companies from going public or being acquired.
  • Forbidding foreign teachers outside mainland China from teaching.
  • Prohibiting advertising and marketing.

A complete summary of the regulations can be found below.

Following the unverified news reveal, the stocks of almost all Chinese education companies went down, even though the regulations had not been made official as of July 23 (Beijing), 2021. In particular, the price of stocks of leading education companies plunged drastically.

The following day, China’s Ministry of Education formally announced the detailed regulations.

Drop of Chinese education companies stocks from July 22 to July 23, 2021
Company Feb 15, 2021 July 22, 2021 July 23, 2021 Drop rate*
New Oriental Education & Technology Group Inc. (EDU) $19.28 $6.40 $2.93 -54.2%
TAL Education Group (TAL) $90.15 $20.52 $6.00 -70.8%
GSX Techedu Inc. (GOTU) $103.27 $9.57 $3.52 -63.2%
Youdao, Inc. (DAO) $32.5 $22.18 $12.72 -42.7%
China Online Education Group (COE) $24.35 $6.73 $3.79   -43.7%

Since February, tutoring companies have been facing the prospect of new regulations and/or fines for deceptive marketing. This has led to stock price collapse, layoffs, and stopped IPO/Fundraising plans. Class Central previously reported on the $86 billion lost in market value. We also collected examples of deceptive marketing tactics employed by these companies.

Further drops (Source)

Regulation Details

The “Opinion” regulates many aspects of Chinese education companies — from fundraising to advertisements, for both online and offline education companies — together with over 15 Chinese national bodies, including the Ministry of Education, the Cyberspace Administration of China, and The Ministry of Finance of the People’s Republic of China.

New regulations details
Aspects Regulations Exam training  Non-exam training 
Online  Offline Online  Offline
Capitalization Prohibit IPO
Prohibit public companies from investing or buying assets of exam training companies with stocks or cash
Prohibit foreign capitals from investing in exam training companies through mergers, acquisition, VIE structure

entrusted management and franchise chain.

Ask existing exam training companies for compulsory education to register as non-profit organizations.
Company approval  Stop approval of new exam training companies for K12 education 
Stop approval of new training companies for preschool students
Re-approve registered online exam training companies and cancel the original registration records and ICP license if not passing the approval.
Strengthen approval of non-exam training companies based on training type 
Training content Prohibit training for preschool students
Prohibit non-exam training companies from providing exam training services 
Prohibit training content excess standardised difficulty 
Prohibit foreign courses 
Prohibit photo taking and answer searching services 
Prohibit copyright infringement
Training time Prohibit training during weekends, holidays and summer/winter vacations
No more than 30 minutes/course, no later than 21:00 each day, no less than 10 minutes interval between courses 
Training teachers Prohibit hiring good teachers with high salaries from public schools
Should obtain government-verified teaching certificates and be disclosed on websites and in physical locations by education companies
Approve foreign teachers located in mainland China
Prohibit foreign teachers located outside of mainland China
Marketing  Prohibit expenses other than main business, like marketing
Prohibit monopolies
Prohibit online and offline ads on social media, public places and residential areas from education companies 
Prohibit ads in primary schools and high schools, in text books, school uniforms, school buses, etc.
Prohibit deceptive and misleading ads and promotions
Tuition management Set program prices based on demand and supply, supervised by the government
Make prices and standards public 
Manage pre-charge fee by third parties, and risk reserves supervised by the government 
Strengthen the supervision of loans from education companies 

Responses of Chinese education companies and local ministries of education

On July 24, over 120 nation-wide education companies, including New Oriental Education & Technology Group Inc. (EDU), TAL Education Group (TAL), Youdao, Inc. (DAO), Gaotu Techedu Inc. (GOTU), Yuanfudao, Zuoyebang VIPKID responded to the “Opinion” with announcements on their official social media accounts. 

“New Oriental will firmly support the decision and deployment of the Central Committee of the Communist Party of China and the State Council, thoroughly implement the spirit of the 19th National Congress of the Communist Party of China and the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China, and deeply understand the significance of the ‘double reduction work”, New Oriental Education & Technology Group announced on July, 24.  

By the end of July 26 (Beijing), New Oriental Education & Technology Group Inc (EDU) and New Oriental Education & Technology Group Inc. (9901.HK) had lost 27.8 billion USD and 239 billion HKD since February 19, 2021.

Announcement of New Oriental Education & Technology Group

A special section called “Shuangjian “Double Reduction” in Action” has been established on the website of the Ministry of Education to promote the application of the new regulations. By the end of July 26 (Beijing), over 10 provinces had responded to the “Opinion” with provincial measures.

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Rui Ma

With a background in Health Statistics and Sociology, she has built a career path in Data Analytics. She joined the team as a Data Analyst and is helping Class Central to improve its services for global MOOC learners.

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