Chinese Education Company GSX to Close Pre-school Education Business and Cut 30% of Staff amid Increased Regulatory Pressure

(Source: SupChina)

Chinese online education platform GSX Techedu is shutting its early education unit and cutting jobs as Beijing escalates a campaign against the country’s burgeoning after-school tutoring sector, multiple media outlets reported.

Bloomberg quoted the company’s spokeswoman Sandy Qin as confirming that GSX’s decision to close its pre-school education business for children aged 3 to 8 has led to layoffs. Chinese domestic media 36Kr reported that GSX plans to dismiss 30% of its staff starting this week, while its news feed and live-streaming businesses will also be shut down.

The move came after regulators decided to ban kindergarten and private-tutoring schools from teaching the elementary-school curriculum from June 1, Qin said. She added that GSX still plans to hire more staff to develop its K-12 and adult-education businesses.

Founded by billionaire entrepreneur Larry Chen in 2014, the company is one of the largest online after-school tutoring service providers in China. It faces a cohort of rivals upstarts including New Oriental Education, Tencent-baked VIPKid and NetEase-owned Youdao. In 2019, GSX raised $208 million in its US IPO.

The firm changed its name to Gaotu Group on April 22, with its ticker symbol on the New York Stock Exchange moving from “GSX” to “GOTU”.

The New York-listed company saw its stock fall 3.34% to $18.54 per share on Monday.

China is expanding its wide-ranging Big Tech crackdown into online education. Last month, two of the country’s fastest-growing edtech startups — Tencent-backed Yuanfudao and Alibaba-backed Zuoyebang — were each slapped with the maximum penalty of 2.5 million yuan ($392,323) for violating competition and pricing laws.

SEE ALSO: Market Regulators Fine Online Tutoring Giants Zuoyebang and Yuanfudao for Misleading Consumers

According to a statement published by the State Administration for Market Regulation on June 1, another 13 private tutoring firms, including US-listed New Oriental Education and peer TAL’s subsidiary Xueersi, were fined a total of 31.5 million yuan ($4.94 million) for false advertising and pricing fraud.

Reuters reported that China plans to introduce tougher rules in June on the country’s private tutoring industry, which could include banning weekend classes, as part of a broader effort to ease pressure on school children and boost birth rates by lowering family living costs.

Cai Qi, a member of the Communist Party’s Politburo, mentioned a double reduction as a target in May: reducing students’ homework burden and after-school tutoring, The Wall Street Journal reported. Chinese President Xi Jinping himself said in March that after-school tutoring has caused children great stress and education should not be heavily focused on test scores.

However, China’s highly competitive education system will hardly dampen parents and students’ enthusiasm for cram schools. Last year, of the ten million students who took the national college entrance exam, about two million failed to advance into college.

Recent census data shows that the national population is growing at its slowest pace in decades with the number of newborns plummeting to 12 million. On May 31, a Politburo meeting chaired by President Xi decided to allow each Chinese couple to have up to three children. A rapidly aging population may push China’s decision-makers to further scrutinize the county’s cut-throat education system in the future, adding uncertainty to the sector.