[{"_1":2,"_92":-5,"_93":-5},"loaderData",{"_3":4,"_6":7},"root",{"_5":-5},"user","routes/tag.$slug",{"_8":9,"_81":82,"_89":84,"_90":72,"_91":73},"posts",[10],{"_11":12,"_13":14,"_15":16,"_17":18,"_19":20,"_21":22,"_23":24,"_25":26,"_27":28,"_29":30,"_31":32,"_33":-5,"_34":35,"_36":37,"_47":48,"_74":75,"_76":77,"_78":79,"_80":32},"documentId","savnz9yej506ilzbsizuab67","title","Ep. 47: Chinese K12 English EdTech: VIPKid and How Learning is Earning","slug","ep-47-chinese-k12-english-edtech-vipkid-and-how-learning-is-earning","excerpt","In episode 47 ofTechBuzz China, co-hosts Ying-Ying Lu and Rui Ma dive into a topic they have been wanting to cover for a while now: Chinese educational technology (edtech). ","content","\n

In episode 47 ofTechBuzz China, co-hosts Ying-Ying Lu and Rui Ma dive into a topic they have been wanting to cover for a while now: Chinese educational technology (edtech). Specifically, they focus on VIPKid, a company that has an incredible number of competitors but is by far the largest in terms of scale for its cross-border model of English-language instruction. Notably, 8 of the 12 startup unicorns categorized as edtech by CBInsights are from China — and this does not include the number of publicly listed Chinese education companies in the U.S. Our co-hosts explain that edtech (alongside the recent TechBuzz topics of online brokerages, e-cigarettes, plastic surgery, and e-sports livestreaming) is yet another example of an industry that is thriving in China but is either not widely reported on or would not work well in other markets.

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Rui and Ying-Ying begin by exploring the landscape for English learning in China, in the context of edtech. They remind our listeners that while over 300,000 students from China study in the U.S. every year, this demographic is a drop in the bucket as compared with the 1.4 billion Chinese citizens who are alive today. The reality is that the country as a whole ranks low in terms of education attainment: The average Chinese person has only had 7.5 years of formal schooling. Of today’s Chinese millennials, almost 20 percent have college degrees, already a sharp increase from the less than 5 percent of Chinese people who are college educated and now in their fifties and sixties. These and other trends, combined with a highly regulated education sector in China, mean that the “TTE” — test prep, tutoring, and extracurricular activities — market for K12 in China is an enormous $18 billion opportunity.

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Listen to find out: Just how much are Chinese parents spending on extracurricular tutoring for their kids — and how does that compare with the spending of parents here in the U.S.? How much of that funding is going toward English-language tutoring, and what are the reasons behind the Chinese obsession with learning English? How does this all provide context for the legend of 36-year-old VIPKid founder Cindy Mi, a high school dropout who then made her way to an elite M.B.A. program? How did the company first gain traction, and what are its curriculum and business models like today? How did VIPKid come to raise over $800 million from the likes of Sequoia, Tencent, Sinovation, and Coatue, and how did it come to generate at least half a billion dollars of annual revenue with over 600,000 paying customers? What are some of Rui and Ying-Ying’s predictions about the macro factors that may impact VIPKid’s business in the coming years?

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As always, you can find these stories and more atpandaily.com. If you enjoy our content, please do let us know by leaving us an iTunes review, liking ourFacebook page, and tweeting at us at@techbuzzchina! Thank you also to our listeners over at our partner,dealstreetasia.com.

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We are grateful for our awesome producers, Shaw Wan and Kaiser Kuo, and our interns, Wang Menglu and Mindy Xu. Thank you!

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Our co-hosts plan to take the week of July 4th off and to return in mid-July. Happy Independence Day to our U.S. listeners!

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Transcript

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(Y: Ying-Ying Lu; R: Rui Ma)

[00:00] Y: Like some of our other recent episodes, this one has been on the back burner for a while. We first wanted to cover Chinese edtech when cross-border unicorn VIPKid raised its last confirmed round of $500mm from heavyweights such as Coatue and Tencent in April 2018, which was when we first started Techbuzz.
R: That’s because we had known about the company from its earliest days, and thought it to be a fantastic example of the business opportunity in Chinese edtech.
Y: But I think it’s actually good that we waited a year, because the latest news about VIPKid, at least, is that it’s having trouble raising money, although that’s not true for the industry as a whole, because edtech continues to fly high in China.

[00:45] R: Indeed, out of the 12 startup unicorns categorized as edtech by CBInsights, 8 are from China. This kind of dominance is pretty rare. We aren’t even counting all the publicly listed Chinese education companies in the US, although it’s true that most of them primarily operate offline, and so aren’t really edtech, even if they do also all offer online and distance education as well.
Y: Yeah, but who doesn’t these days? In this episode, we’re going to focus on one specific company in the edtech sector, VIPKid, but also K12 English learning edtech more generally, with emphasis on the tech, so very little on your education companies with traditional roots like New Oriental, the $15Bn test prep giant from China that is basically twice as big as Pearson.
R: New Oriental should sound familiar to old time Techbuzzers because is also the original home of Luo Yonghao 罗永浩, the celebrity founder who has come up multiple times in Techbuzz material, most recently two episodes ago in our deep dive on e-cigarettes, but was first mentioned, along with many other now-famous New Oriental alumni, in Episode 21 on Bullet Messenger, the self-proclaimed WeChat killer.

[2:03] Y: I’m guessing this is the first but definitely not the only time that we will talk about edtech industry in China on Techbuzz, because it’s like the last few topics we’ve covered, online brokerages, e-cigarettes, plastic surgery, and e-sports livestreaming, industries that are thriving in China but either aren’t widely reported on or wouldn’t work that well in other markets.
R: Well, the English learning sector probably wouldn’t work too well here in the US, but in China, it is still growing pretty quickly and highly lucrative, and compared to some of the other sectors we’ve covered, far less controversial.
Y: Yeah, not everyone will agree on the benefits of vaping but very few will say that more education is bad for China, or anywhere really. But how does this social good actually translate into commercial success in China? Listen on for more.

[3:24] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
Y: We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.
R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma, and I’ll be in China next week! Reach out if you’re in Beijing or Shanghai and want to chat!
Y: And I’m your other co-host, Ying-Ying Lu. We’d like to acknowledge our partners DealStreetAsia and SupChina, creator of the Sinica Podcast Network! In addition to TechBuzz, you can also find Sinica which covers current affairs, NuVoices and Ta for Ta on women, the business-oriented ChinaEconTalk, and the Caixin-Sinica Business Brief from China’s leading business magazine.
[4:29] R: Speaking of DealStreetAsia, their annual private equity and venture capital conference, Asia PE-VC Summit, is set to take place on the 17th & 18th September this year. Hear from market leaders and experts, and network with the industry’s best over two days in Singapore. To register, follow the link: events.dealstreetasia.com/sg2019/
Y: As always, if you enjoyed listening to our podcast, please leave us a review on iTunes or whatever other platform you use, we check them weekly, we promise, and are always looking for feedback! Thanks to Khayra.B for your recent review, and to all of our Soundcloud fans who share our episodes. Oh, and a quick announcement, we’ll be taking July 4th week off, so the next time you hear from us will be in mid-July.

[5:27]R: Today’s episode is brought to you by The Transpacific Experiment: How China and California Collaborate and Compete for Our Future, a new book out on August 13th by Matt Sheehan, a former journalist in China and current non-resident fellow at the Paulson Institute’s think tank, MacroPolo. Matt is one of the smartest and most thoughtful voices on US-China topics and this book is going to tell you things you never knew about how intertwined China and California are, and how that’s playing out in people’s lives here on the ground. You’ll definitely want to pre-order this book on Amazon. Go to our transcript for the link, or follow Matt on Twitter at @mattsheehan88!

[6:22] Y: So I think before we really embark on a journey through China’s edtech landscape for English learning, we need to point out some of the major differences between the Chinese and Western education systems.
R: Some of you who are more familiar with China might know most of these already, but bear with us while we run through some of the most salient and maybe shocking facts for you about education in China.
Y: So first things first, you might have heard us mention this already in previous Techbuzz episodes that highlighted consumption downgrade, or the emergence of companies that serve the lower-tier cities in China and their lower-income residents,, but China is not actually a very educated country.
R: I know, hard to imagine when there are over 300,000 students from China studying in the US alone every year, making up a third of the entire international student population and contributing a commensurate percentage of the tuition fees, too.

[7:19] Y: But the truth of it is that while 300,000 is a lot of people, it’s a drop in the bucket when compared to the 1.4 billion total Chinese citizens alive today. To make it more clear, when we count adults of working age, which is 25-64 years old, only 10% of Chinese people in this age group went to any kind of college, whereas in the US that figure is more than a third.
R: You wouldn’t know it from some of the headlines that get published, but the US really is significantly more educated than China as a country. The average Chinese person has only had 7.5 years of formal schooling. China is a much bigger country.
Y: But the rate of education attainment is increasing. For Chinese people in their fifties and sixties, who came of age when the country was much poorer and going through internal strife, less than 5% got the chance to go to college.
R: For Chinese millennials, almost 20% have college degrees. But that is still much lower than the US average, and lags developed countries in general, which means, of course, that there is going to be huge growth in education in general in China.

[8:36] Y: Yeah, that’s the macro background, just so you understand the immensity of the opportunity at hand. But let’s get into a few more specific data points. LEK Consulting did a recent spotlight study on the Chinese edtech market and came up with the following conclusions.
R: First of all, the education sector is heavily regulated, so it’s not like you can just start launching schools in China. But you can roughly divide it into K12, which is for primary and secondary, and the post k12, or vocational or professional education. So let’s take the largest segment first, which is the K12 test prep, tutoring and extracurricular activities market, or TTE. In China, this is a whopping $75Bn revenue market.
Y: But wait, ELT, or English Language Training, on its own, is an enormous $18Bn opportunity. And what’s more surprising is that 70% of this is for children, not adults. Out of that 70%, almost 10% is purely online, making it a little bigger than a billion-dollar market, but one that has been growing at nearly 40% every year.
R: So there are two things to unpack here, which is one, wow, the Chinese K12 after school education market is enormous, and two, Chinese parents are obsessed with their kids learning English. Let’s dissect each one of them. So first, Chinese parents spend a ton of money on education.

[10:12] Y: In one large scale survey by the edtech media platform JMD covering a dozen Tier 1 and Tier 2 cities, over 95% of parents spent over $1500 per year on their children’s education outside of school, with almost a third spending between $7-$15,000 and a full quarter spending over $15,000. Recall that a pretty healthy salary in your thirties is something like $40K USD per year and you can see how big of a sacrifice some of these parents are making for their children.
R: Yeah, SCMP had an even larger sticker amount for how much Chinese parents are spending on extracurricular tutoring for their kids. They claimed it was anaverage of $17,400. I think that they probably only surveyed Tier 1 residents though because that would literally bankrupt people.
Y: Compare this to the US, where a recent survey by Capital One showed that wow, about 20% of families planned to spend more than $2000 on their child’s after school activities this year, and this was already considered a lot. And what’s even more ridiculous is that a financial website estimated that a New York City family making half a million dollars a year would spend $12,000 per year on after school lessons and activities. That would make them below average for a Chinese family.
R: OK so maybe those comparisons aren’t all apples to apples, but it’s the closest we can get, and the point is that there is a magnitude of difference in the willingness of Chinese parents to spend money on their kids’ education vs. us here in the US. And out of that willingness to spend, about one-third of this money went to K-12 subject related tutoring. So not music nor sports lessons, but like, actual tutoring.

[12:10] Y: Of those, English is one of the most popular but by no means the only subject for Chinese kids to beef up their skills in. Math is also a huge business in China, especially before the government removed the additional points you accrue in college admissions for math-related achievements. Luckily, it’s now moving towards a more balanced assessment system, with special emphasis on the arts.
R: We’ll have to go into Math tutoring another day, because it’s responsible for propping up another set of unicorns, but today, it’s all about English. Why, oh why are the Chinese so obsessed with learning English? I mean, unlike say in Hong Kong or Singapore, English is not actually used very often in daily life or society at large.
Y: What it does have though, is this outsized place in the education and employment system. In China, many kids start learning English in kindergarten, before they start primary school, and in any case, by grade 3, English classes become mandatory. You then study it throughout college, upon which passing the College English Test or CET at a Band-4 or Band-6, known simply as 四级 or 六级, is a prerequisite for graduation and employment.
R: Band-4 requires you to know about 4500 words, so it’s not that hard, and the speaking portion is optional, but still, this explains why at least amongst the college educated in China, quite a few people can read and write passably in English, but much fewer can speak it well. If you are an English major though, you have to take a different and much harder exam to demonstrate proficiency.

[13:50] Y: Beyond that compulsory requirement, there is just the fact that many Chinese parents want their kids to study abroad, primarily in English speaking countries. Some of them want their kids to do so because they think the Chinese system is too hard and restrictive and is just generally an unhappy place to be, but most of them know that being bilingual and foreign educated means you get the best employment opportunities back in China. So this is their way to the top.
R: And in China, it is incredibly difficult to rise to the top, because there are just so many people. Your chances of being admitted to any tier-one university, not just a Harvard or Stanford, but to any of the top 150 universities in China, are about 6%, with the real figure lower than that because, let's face it, those with wealth and connections generally can find some backdoor in.
Y: Of course, it’s difficult to compare across countries as in the US at least, you pick which schools you want to attend, versus in China it’s one giant force-ranking system based on your standardized test scores that make you minimally eligible for certain departments at specific schools. So that 6% is artificially low, but still, it gives you some insight into the inherent competitiveness of the system and explains why Chinese kids often get the least sleep during their high school years, as it’s totally normal to study until nearly midnight everyday, including weekends, with just one day off a month. Maybe.
R: In any case, studying overseas is such a big business these days that commercial banks have special products for wiring money to your kids, or special credit cards that they can get as international students. And in recent years, one of the bigger trends has been to send your kids abroad earlier and earlier.

[15:47] Y: A decade ago, only about one-fifth of all Chinese students studying abroad were doing so at the bachelor’s level, the majority were leaving the country for graduate school. By 2017, however, these numbers were roughly equal at 40% each, with the remainder filled in by the high-growth segment of Chinese students going abroad before college, many for high school, but some even earlier in their lives.
R: That group, by the way, has more than tripled in recent years for the top destination countries -- the US, UK, and New Zealand, of all places. But let's also not overstate the importance of this group -- while yeah, many rich Chinese send their kids to elite boarding schools abroad, the top destination, which is America, still boasts only about 33,000 students from China. It’s an incredibly expensive endeavor and so available only to the select few privileged enough to consider it. For everyone else, it’s just a farfetched dream.
Y: So there we go, I think we’ve explained the Chinese propensity to spend on after school education for children, and also the importance of English education, which is exactly where the addressable market for VIPKid sits. What do you think, Rui? Time to tell Cindy’s story?
R: Yup. The legend of Cindy Mi 米雯娟, who is only 36 years old this year, goes like this -- she grew up in a small town in rural China, but somehow inexplicably took to English learning like a fish to water. However, she wasn’t a genius at math, and so after being reprimanded by her teacher for being “the worst student ever,” she felt so frustrated that she simply stopped trying and valiantly quit high school her junior year, following her uncle to the big city of Harbin to open up an English tutoring business called, what else? ABC English.

[18:06] Y: She talks about that experience a lot -- the teacher who made her feel so deflated that she quit school, and how that’s what got her so passionate about getting into the education space, because she realized how traumatic a bad teacher could be, and similarly, how impactful a good teacher could be. And that every kid deserves to be a VIP, with a personalized learning experience.
R: Maybe the story is true, maybe it isn’t, but at least it’s totally believable, because in China, in most schools except for the most experimental and progressive ones, the teacher is the absolute overlord of the classroom and their authority cannot be challenged. And there’s a good portion of them who take a very militaristic, regimented approach to managing their students.
Y: Yeah, we really cannot emphasize enough the supreme dominion Chinese teachers have at school. If you are interested in just how the styles differ, we suggest you watch a BBC documentary called “Are Our Kids Tough Enough?” which featured an experiment where 5 Chinese teachers were sent to England to teach fifty ninth grade British students. The resulting cultural clashes were apparently super entertaining, but as one student put it bitterly, “acting like robots was the way to go.”
R: We took a little detour to highlight this because it explains at least some of the appeal behind VIPKid’s very differentiated cross-border offering, which essentially asks North American teachers to tutor Chinese students one-on-one online. For most kids, learning from North American teachers are going to be very different from their typical classroom experience. That is, they can expect to have a lot more fun.

[19:50] Y: Back to Cindy’s story, after working as her uncle’s right hand woman at the family business for a decade, where they became at one point Beijing’s largest children’s English learning school, she wanted to grow even faster but couldn’t convince her conservative family to take in outside capital, so she decided to part ways and go back to school.
R: After fulfilling requirements for a bachelor’s degree in English Literature, she applied and was accepted to the Li Ka Shing funded CKGSB or Cheung Kong Graduate School of Business, where she was exposed to a lot of unfamiliar and innovative business ideas. And technology. Lots and lots of technology, because this was Beijing in the early 2010s, and the startup boom was just about to commence.
Y: Armed with this new knowledge, she decided to re-enter the education market but this time with a tech-based strategy. She would still focus on what she knew well though -- teaching kids English. VIPKid would be founded in 2013.
R: From the beginning, she designed it so that it was a distance learning program where teachers were recruited from overseas, and at first she only looked for those who had graduated from elite universities like Harvard or Oxford, because those teachers were so easy to market to eager Chinese parents.
\nInitial users were mostly her classmates’ and investors’ kids, which made sense because these people were often foreign educated and appreciated the benefits of a Western education but were too busy to teach their own children, many of whom did not enjoy learning English.

[21:29] Y: Cindy felt that she had enough previous experience to be comfortable with the business model, with the only variable being if Chinese kids would take for foreign teachers, so she started off charging even her pilot customers, although she gave them back the credits so it was effectively free. But the product itself was never free, which was very smart.
R: When it turned out that the kids loved their North American teachers so much that they didn’t want to leave the classroom after the session ended, the team knew they had a winning product. Although, honestly, who wouldn’t? As we’ve explained, most Chinese teachers don’t play silly games with you, you’re crushed with homework and tests from grade one.
Y: A few other things about how VIPKid works. VIPKid makes up its own curriculum, but it’s based on the American CCSS or Common Core State Standards, a set of academic standards for what every student is expected to learn in each grade level, from kindergarten through high school. For VIPKid, the focus is on the English language arts (ELA) standards, and the company has a staff of over 200 experts who have adapted it in a way to be most effectively taught to Chinese students solely using English.
R: So basically, you are getting an American education from the comfort of your own home, or so that’s how the tagline goes. 美国小学在家上. But is it that easy? Well first of all, one of the main complaints is that in VIPKid’s system, you don’t get paired up with a permanent teacher. Sure, because the lessons are standardized and provided by VIPKid, it technically shouldn’t matter who is teaching, as long as they are well trained, but many parents still think that a different instructor every time, or nearly every time, is very disruptive to their child’s learning experience, and prefer their child to have a consistency instead.

[23:36] Y: And how much does it cost? VIPKid rates average about $15 to 18 per 25 minute lesson, depending on how many you buy, whether a few months worth of lessons, or more. Teachers, by the way, if you’re curious, get about half of that, depending on performance and incentives. Most parents are scheduling 3-5 lessons a week, and so this can easily run into the thousands annually.
R: Pricing-wise, VIPKid is up to 50% more expensive than many of the offline tutoring centers, but those tutoring centers often don’t have true North American native speaker certified teachers, and for many Chinese parents, education is one of those goods that you are willing to pay a premium for. Only the best for your kids, right?
Y: And good thing too, because by selling these large upfront packages, VIPKid gets good cashflow, from which it has been supposedly funding its continued expansion, although that might become more limited in the future as the government has announced that lessons cannot be sold more than three months in advance.
R: It’s also a sign of your social status to be able to afford a foreigner tutor. It’s not very politically correct to say this, but in China, nationalities and accents matter. People in China above all love American accents -- I know, thanks Hollywood -- and so not just having a foreign tutor, but one from North America, and one that’s gone to a top university? Well that’s a major plus for your social status.

[25:10] Y: And is it that hard to become a VIPKid teacher? Well, maybe. Cindy has said in public that the teacher interview process is highly selective -- only 5% of interviewees receive offers to teach. That sounds a little low to me but it is true that you can find many “how-to” videos on Youtube teaching you ways to ace the VIPKid interview, and we registered for the process just to get a sense, and it does seem very intense, with many steps involved.
R: But that hasn’t stopped VIPKid from recruiting an impressively large number of teachers, who, by the way, also refer each other like crazy, at something like 75%. From the early days where Cindy had to personally go on social media to cold email and invite her first twenty teachers, VIPKid now boasts over 60,000 of them.
Y: I don’t think they are all from Ivy Leagues, and indeed not all are teachers by profession, though it seems that most are, but 60,000 is more than double the 27,000 North American English teachers that Cindy estimates live and work in China today. And these 60,000 teachers are servicing over 600,000 paying students.
R: Translated into revenues, by early 2017, VIPKid was at over $50mm in revenues, and grew by six times to $330mm by Q1 2018. However, losses are also widening, because despite touting an impressive referral rate, marketing has been very expensive and very much offline, a strategy that has been blamed on Cindy’s history as a non-tech entrepreneur. It’s so expensive that in 2018 it was over 54% of revenues, which contributed to the company’s ugly -70% net margin.

[27:11] Y: So it seems that the 70% customer referral rate VIPKid boasts is not all that astounding, because a Frost & Sullivan research report says that the average referral rate for non-adult English learning in China is 60-70%.
R: And at least as of the beginning of this year, VIPKid said is not planning to be profitable for a long while. Sure, 600,000 paying students is no joke, but it estimates that it will only be profitable when it gets to 3 million paying students, meaning it’s gotta grow another five times at least.
Y: The company seems confident that it will be able to do so in the next 3 years though, and so is asking for double its last round valuation with a target of $6Bn. Assuming the company grows at least 100% last year, which it looked like it was on track to do, that’s about a 10x revenue multiple for calendar year 2018. Not terrible, until you consider the fact that it might have lost half a billion dollars as well, if operationally it hasn’t learned to lower marketing costs.
R: So, to no one’s surprise, earlier this year rumors abounded that the company was going bankrupt and unable to pay for employee benefits, which it quickly denied. But further bad news came in the form of a harsh announcement from the Walt Disney Company who denied any official cooperation with VIPKid, despite VIPKid claiming deep content partnerships over the years with them.
[28:47] Y: Disney, by the way, is one of the most valuable Western brands in China, and has its own very successful English program for kids called Disney English that should be in the hundreds of millions of revenues this year. So it kind of makes sense that it wouldn’t have established any deep ties with VIPKid, who is ostensibly a competitor.
R: Meanwhile, VIPKid is presumably continuing to fundraise, and to expand into further verticals. There’s test prep for more advanced students, more collaboration with publishers for branded content, and there is also Mandarin education with, yup you guessed it, teachers from China. It’s called Lingobus for those of you who might be interested in checking it out for your 5 to 12 year olds. The target audience seems to be kids of Chinese descent living abroad.
Y: As an aside, we’re super curious if the Chinese-learning craze is as intense in your city as it is here in the Bay Area, where every parent wants us to test their kid’s Chinese proficiency from attending bilingual immersion school. Definitely tweet at us if that’s the case for you, too.
R: It’s also putting in effort into data collection and analysis like every other tech company is, and should be doing. But some of the applications sounded a bit strange to me. For example, it adopted facial recognition technology to rate kids on their focus, happiness and excitement level, so that teachers can better respond to their students and the staff can better adjust the curriculum. Seems kind of invasive, but some parents apparently really like getting a highlight reel of the lesson and a summary of their child’s overall behavior encoded in scores.

[30:36] Y: VIPKid, by the way, has an incredible number of competitors, which we won’t go into today, but in terms of scale for its particular type of cross-border instruction, it’s by far the largest. And it’s also seemed to crack the problem of keeping Western employees happy. While most Chinese companies have abysmal Glassdoor ratings, VIPKid seems to be liked by its part-time army of teachers, getting an aggregate score of 4.3.
R: Yeah, again, while It’s fallen off of the list of unicorn darlings recently in the minds of investors and business media, it seems to still have a good number of teacher fans. Makes sense. So let’s summarize for everyone what we learned today, shall we, Ying-ying?

[31:30]Y: We learned that China actually ranks pretty low as a country in terms of education attainment, and on a percentage basis, only about 10% of working adults went to college, much lower than the one-third we see in the US, which creates all sorts of opportunity for K12 and vocational learning.
R: We also learned that Chinese people spend $75Bn per year on K12 test prep, tutoring and extracurricular activities, and $13Bn on English language learning for children, of which a little less than 10% is being conducted online, with most of the lessons done offline.

[32:09] Y: We also learned that the reason English learning was such a big market is because not only is a basic proficiency in English required to graduate from college and to apply to most knowledge worker jobs, it also fits in nicely with the bigger trend of studying abroad at younger and younger ages, since bilingual returnees often get better jobs than those who have never left China.
R: But maybe mostly, Chinese parents are just more willing to spend on their children’s education because the school system is just so competitive. Depending on which survey you look at, the average number of dollars Chinese parents spend seems to be in the five digits, whereas the vast majority of American parents are spending just a few thousand dollars a year.
Y: And in stepped VIPKid’s Cindy Mi, a spunky female entrepreneur who was a high school dropout that eventually made her way to a premier MBA program in China and got the idea to have North American teachers teach Chinese kids English using a proprietary curriculum. Although priced at a premium, the company is now generating at least half a billion dollars of revenue annually and has over 600,000 paying customers.
R: That being said, it’s not a given that the company will thrive, despite having raised over $800mm from the likes of Sinovation, Sequoia, Tencent and Coatue. The main reason is because its marketing costs remain astronomical. And one thing we haven’t discussed is, will rising US-China tensions affect VIPKid’s business at all? International student enrollment from China to the US will certainly decline in the near future, and maybe less folks from North America go teach English in China. How will these forces interact and affect the K12 English learning market in China?
Y: Let us know what you think! As a reminder, we’ll be taking off one week for July 4th, so Happy Independence Day to our US listeners and Happy Canada Day to those of you tuning in from Canada! We’ll see you in three weeks!

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[34:21] Y: OK, that’s all for this week folks! Thanks for listening. As a reminder, episodes will now be available every other Friday instead of Wednesdays. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter @thepandaily, @techbuzzchina, and my personal Twitter account is GINYGINY.
R: And my Twitter is spelled RUIMA. TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Shaw Wan and Kaiser Kuo. Thank you for listening!

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Tag: #CBInsights

Ep. 47: Chinese K12 English EdTech: VIPKid and How Learning is Earning