The first blow was gone in the spring: warnings then fines equivalent to several million euros had cooled investor appetite for Chinese education start-ups. This time it’s the K.-O. A series of measures announced on Saturday July 24 will change the face of the sector. As the birth rate drops in China, authorities seek to reduce the cost of education, one of the reasons couples are reluctant to have children.
On Saturday, therefore, the Council of State Affairs (the government) announced the ban on registering new businesses in the tutoring sector, and the obligation for those that already exist to become non-profit entities. lucrative. The new rules also prohibit classes on weekends and during school holidays, for subjects taught in public schools. According to the Ministry of Education, the sector had been “ seriously misappropriated by capital ”, a trend that “Misrepresented education as a public service”. In 2018, this industry weighed 260 billion dollars (220 billion euros), according to the research firm LEK Consulting.
Faced with such restrictions, companies plunged into the stock market, investors being particularly suspicious. “The level of restructuring needed for companies in the sector is not clear with this new regime, so, in our opinion, this makes these shares almost impossible to buy,” JPMorgan Chase ruled in a note on Saturday. Since its peak in February, the value of New Oriental shares has been divided by ten and that of TAL Education Group by 22.
Fines and supervision
The tumble began in March, after a warning from President Xi Jinping, who suggested that regulation of the sector would go further than that of other technology sectors, such as finance or online sales. The President of the Republic and Secretary General of the Communist Party of China had chaired several meetings on the subject, warning against excessive workloads for children, and recalling that education should above all have non-profit purposes.
According to the Chinese Education Society, seven out of ten children receive extra-curricular lessons between kindergarten and the ferry in the big cities
Shortly afterwards, the market regulator sanctioned private schools and postponed their spring school year, to “False advertising” Where ” non-proportionate promotion ‘. 1er June, fifteen companies in the tutoring sector were fined tens of millions of yuan (several million euros) for having “Violated the legitimate rights and interests of students”. The control institution also announced the establishment of a specific supervisory body for this sector. In the process, the Ministry of Education also created a specific group.
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