On April 25, 2021, Beijing imposed a maximum fine of US$80,000 on four private tutoring companies for misleading pricing. On May 10, 2021, a notice from the State Administration for Market Regulation (SAMR) showed that Zuoyebang and Yuanfudao were fined 2.5 million Chinese yuan for false advertising or deceptive marketing materials. On June 1, 2021 (Beijing), the State Administration for Market Regulation (SAMR) announced the maximum fines for another 13 off-campus training companies for their misleading advertising. In a short period of nearly a month, 19 educational organizations were fined for more than US$6 million.
Deceptive marketing is the main reason for the penalty, including falsifying/exaggerating teachers’ education or professional experience, exaggerating student’s learning progress, and advertising misleading discounts to mislead consumers and increase sales. According to an online complaint platform, these companies have received hundreds or thousands of complaints from consumers about not being able to get refunds, being misled by false advertising, receiving many promotional calls, and revealing users’ personal information.
Regulations on online education are becoming more stringent as several new policies have been introduced and implemented. In the report “Key points of the Ministry of Education’s work in 2021” released in February, the Ministry of Education stated that it will deepen the governance of off-campus training institutions. “Opinions on further reducing the workload of students in compulsory education and the burden of off-campus training” was subsequently published in May 2021. And on June 1, the Ministry of Education introduced the “Regulations of protecting minors in schools”.
The result of the tightened regulations has been devastating for many companies.
Stock Price Crashes
Five Chinese education companies have lost a combined US $10billion in value on the NYSE since mid-February.
The Stock price for Chinese education companies on NYSE.
Stopped IPO/Fundraising Plans
Zuoyebang, the online tutoring platform backed by Alibaba group with a US$1.6 billion Series E round, was considering a US$500 million initial public offering (IPO) back in April 2021. However, after the ‘Double Reduction‘ policy was published in May 2021, the potential IPO might have been suspended. In February, it was reported that another online tutoring company, Yuanfuda, was seeking over US$1 billion to reach a value of US$20 billion. However, Yuanfudao halted its ongoing fundraising plans in March. “The valuation of education companies in the secondary market has dropped by half, and we cannot raise a fund at the company’s planned valuation ”, a shareholder disclosed.
GSX Techedu (GOTU) started cutting its preschool business, laying off 30% of its staff and freezing its workforce for new graduates. Some new graduates complained about GOTU cancelling their offers on a local online hiring platform. Business restructuring, layoffs and offer cancellations are also taking place at other online education companies such as VIPKid, Zuoyebang, and Yuanfudao.