Last month, share prices in Chinese education companies plummeted again after rumors spread that President Xi Jinping will intensify a crackdown on the sector, which was devastated last summer when the government launched its “dual-alleviation policy,” an effort to reduce the burden of homework and after-school tutoring on students, and reduce inequality caused by parents’ differing abilities to pay for it. After its implementation in July last year, China’s $100 billion tutoring industry was forced to go nonprofit and end the use of foreign teachers. By the end of the year, those tutoring companies that survived had shed most of their staff and depleted most of their cash reserves.
A Bloomberg Intelligence index of Chinese education firms plunged 27% over a period of just three days, the steepest loss since the government announced a sweeping overhaul of the industry in July. It was triggered by an unverified document from the Ministry of Education which prompted speculation of a potential ban on the variable interest entity structure used by Chinese education companies to list abroad, as well as restrictions on their school assets, mergers, and tuition-fee increases.
There has been no official announcement on the matter and the companies themselves were not aware of any impending rules, but New Oriental Education ($EDU), one of the largest private tutoring companies, posted a year-end summary showing a decline in revenues of 80%; the dismissal of 60,000 employees, and a loss of 20 billion yuan ($3 billion) through expenses like tuition refunds and severance pay.
The founder of New Oriental, Yú Mǐnhóng 俞敏洪, outlined his 2022 plans on his WeChat account (in Chinese), saying the company had already ceased online K-9 training in test subjects in favor of programs that advance more qualitative growth factors such as general literacy and research skills. The company has also increased its investment in university and study-abroad programs to tap into more of the postgraduate and overseas Chinese student market.
