The Collapse of Chinese Tutoring Industry Sends Businesses Scrambling

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Examinees hug their teachers at an exam site of a high school in Guiyang, capital of southwest China’s Guizhou Province, June 7, 2021. (Xinhua/Tao Liang)

Investors in the Chinese Ed-tech industry are now on the edge of their seats. On July 24, Chinese authorities introduced a sweeping new set of guidelines, dubbed as a “double reduction” policy, to ease the burden of excessive homework and off-campus tutoring for students undergoing compulsory education. The policy, interpreted as China’s crackdown on the private tutoring industry, has plunged the entire sector into an existential crisis.

The guidelines were jointly issued by China’s State Council and the Party’s central committee,barring the for-profit tutoring of core school subjects. Companies that teach subjects already covered in primary and middle school should register as “nonprofit institutions.” Meanwhile, companies are banned from raising capital, going public, or allowing foreign investors to hold stakes in their firms. According to the policy, no new licenses of the private tutoring firms will be granted. 

If one looks close enough, the new raft of stringent regulations against China’s booming private-tutoring industry has long been in the making. The policy comes after months of swirling rumors about a crackdown on the industry. In March, the representatives of several after-school tutoring giants were called in for a meeting with China’s Ministry of Education, during which they were asked to treat their handouts as publications and would therefore be subject to advanced censorship. Before the “double reduction” policy, Chinese authorities had already restricted homework and curbed live-streaming hours for online tutoring. 

The policy will fundamentally alter the business model of private firms teaching the school curriculum as China aims to overhaul a sector “hijacked by capital.” The move could help create a more harmonious society by leveling the education playing field for children across the country and may boost the country’s birth rate by lowering family living costs.

“This unprecedented crackdown is from the top and is beyond the education ministry. The intention is not to particularly target the private sector, but it aims to rectify education itself,” according to a source from South China Morning Post. However, the policy does deal a fatal blow against the entire private tutoring and test preparation industry. 

China’s Ed-tech market has swollen significantly in recent years as millions of middle-class Chinese families have been willing to invest large portions of their income to prepare their children to perform well in the National College Entrance Examination and Senior High School Entrance Examination. According to Reuters, China’s after-school tutoring sector is valued at more than 120 billion US dollars.

Even amid the COVID-19 pandemic, China’s private tutoring industry showed strong headwinds. The widening lockdown fueled the demand for online education which then facilitated the impressive growth of China’s Ed-tech market. Statistics from iiMedia Research, a data mining and analysis platform, showed that China’s online education market jumped to 70.25 billion US dollars in 2020, increasing 10 percent compared to the figure from the year before. Online education platforms were expanding and acquiring massive amounts of financing. In 2020 alone, a total of 13 Chinese education institutions were listed for public trading.

Coveting the lucrative Ed-tech market, Chinese tech giants jumped on the bandwagon in recent years and invested in the education sector. Compared to industry leader Yuanfudao, founded in 2012, and Baidu-backed Zuoyebang in 2013, ByteDance is a late entrant to China’s online education market. The company that operates several education-related apps, ranging from English tutoring to live courses, has made education technology one of its top priorities in 2020 alongside its short video app TikTok. In 2020 when the economy slugged along, the education industry boomed as investors poured in, hoping to grab a slice of the market’s pie. No one anticipated that the ballooning Ed-tech market would suddenly deflate. 

Examinees wait outside an exam site at a high school in Guiyang City, southwest China’s Guizhou Province, June 7, 2021. China’s annual college entrance exam, better known as the Gaokao, recorded more than 10.78 million candidates this year who had signed up for perhaps the world’s most grueling test. (Xinhua/Tao Liang)

Doomsday came much quicker than expected, and the stock market is always the first to react. News of policy shift slammed the share prices of China’s private education firms, wiping out millions of dollars in the process. In Hong Kong trading, shares of education companies including New Oriental Education & Technology, Koolear Technology Holding Scholar Education, and China Best Study Education plummeted by more than 47% on July 23. In New York trading, shares of TAL Education Group fell by more than 70 percent while Gaotu Techedu lost 63 percent of its market value.

The raft of policies hit the Chinese education sector hard. In a statement released on July 26, New Oriental Education & Technology said it expected the guidelines would generate a serious ripple effect through its business. Still, the company will fully cooperate with the government. TAL also admitted that the guidelines “will have a material adverse impact on its after-school tutoring services related to academic subjects in China’s compulsory education system.”

“Before, companies were still hoping that they could continue, but after July, some school managers just decided to close down and run away,” said Aidan Chau, a researcher at the Hong Kong-based organization. 

One of the world’s most highly-respected and wealthiest English-language tutoring companies, Wall Street English, recently announced its bankruptcy in China. The Italian company is an apparent but not the only casualty of the recent overhaul in regard to private education institutions. Chinese tech giant ByteDance will also shut its curriculum-focused preschool and K12 tutoring business in China to be compliant with the regulation. Educational platforms such as Guagua Long, Qingbei, and GOGO Kid have also closed their doors.

Staff from the tutoring industry are preparing for the worst as the sector has already started to see sweeping layoffs. Bytedance planned to lay off some teachers, sales and advertising staff in its education unit. Another Chinese Ed-tech company, VIPThink, will be forced to lay off nearly all its workers. The layoff ratio is reported to be as high as 70%-80%. An employee of Gaotu Techedu’s HR department confirmed that the company was “optimizing” the size of its staff numbers.

“They have fired people over the last few days. Everyone is worried. It is not our turn yet, but I feel like we’re waiting for it,” an employee from Gaotu told Pandaily.

In the immediate aftermath of the crackdown, Ed-tech companies across China have been grasping at loopholes and considering other options to stay afloat. According to one media report, TAL Education group plans to alter their content, such as teaching children only on weekdays, never on weekends, and using recorded tutoring videos; Yuan Fudao is trying to readjust as they plan to promote a “practical” online learning app, which will be aimed at children’s “scientific temperament” rather than delving into facts of the exam; New Oriental Education has switched its target to the parents. Some media outlets have reported that the company is planning to establish a Beijing center to help parents “master scientific parenting methods,” which includes how to help their children to better manage their time and control their emotions. Staff from Gaotu said the company is now preparing for the adults’ education services. From a deliveryman to a civil servant test, the company is targeting everything that requires a certificate or a test.

Even though the revamp has disrupted the industry, the industry is still not dead. As of now, the players involved in the game have analyzed the polices and are finding ways to sruvive.