China's Crackdown On Private Education Sector

China recently released new regulations concerning the private education sector in the country which includes conversion of companies providing educational services to non-profit status, banning of teaching of the core curriculum, restricting foreign individuals to teach remotely, restricting foreign firms from holding shares of such companies, and more. As a result of these regulations, many billionaires have seen their fortunes fall significantly. The chief executive officer, chairman, and founder of the online tutoring business Gaotu Techedu Inc. Larry Chen has seen his fortune fall significantly to around three hundred million dollars. After the introduction of these regulations, Chen on Weibo, China’s equivalent of Twitter, mentioned that his company will work towards fulfilling its social responsibilities along with complying with all the regulations. Although he is not alone, the chief executive officer of TAL Education Group, Zhang Bangxin, has also seen his fortune fall by more than two billion dollars after his company’s share lost more than half its value. Yu Minhong, who is the chairman of New Oriental Education & Technology Group Inc. also lost his billionaire status similar to Larry Chen. The regulations have been in the works for a few months now.

China’s online tutoring business is a hundred billion dollar industry, and these regulations will affect many, especially investors. A company that has a lot of market share when it comes to English language learning in the country, New Oriental, saw its share fall to two-point eighteen dollars on the New York Stock Exchange from a high of nineteen point six eight dollars. Like New Oriental, many other firms in the sector faced a similar fate. Many businesses might even have to rethink their entire business model such as VIPKid, whose business model revolved around providing access to Western educators remotely.

The country has also been pretty hard on tech companies lately, something that started with Jack Ma’s financial behemoth Ant Group which was supposed to go public a few months back but was stopped by the country’s regulators. Soon after Ant Group had to scrap its IPO, the company was fined two point eight billion dollars by the country on antitrust grounds. The country had also asked thirty tech companies, including what many people say is the Uber of China Didi Chuxing, to do self-rectification. Didi Chuxing was also hit hard by the country’s regulators, a few days after the company successfully managed to list itself on the New York Stock Exchange, (CAC) Cyberspace Administration of China launched an investigation into the company along with halting new registrations on the ride-hailing platform. A few days later, the ride-hailing giant got kicked off the country’s app stores as directed by the Cyberspace Administration of China.

The regulations placed on the private education sector aim to decrease financial stress on parents and mental stress on children, both of which the government hopes might help to reverse the demographic decline that’s happening in the country. The government also aims to reduce foreign influence on Chinese students, making them less likely to apply to foreign universities.