Exclusive China plans new action against the private tutoring sector

© Reuters. FILE PHOTO: Children leave a school in Shekou, Shenzhen, Guangdong province, China, April 20, 2021. REUTERS / David Kirton / File Photo

By Julie Zhu and Yingzhi Yang

HONG KONG / BEIJING (Reuters) – China is setting tough new rules to contain a booming private tutoring industry. The aim is to both ease pressure on school children and increase the country’s birth rate by lowering the cost of living for families, sources told Reuters.

The clampdown will also cool China’s market for tutoring for kindergartens through 12th grade or K-12 students, which has grown exponentially to around $ 120 billion in recent years.

At least one large tutoring company put a $ 1 billion private fundraising round on hold after Beijing and the emerging uncertainty in the industry came under scrutiny, according to three different sources.

The changes being worked out by the Department of Education and other agencies target K-12 tuition before and after school, three knowledgeable people told Reuters.

According to one source, the draft rules could be published as early as the end of June. All three sources asked for anonymity as they were not allowed to speak publicly.

Under the planned rules, on-campus academic tutoring will be banned, as will on-campus and off-campus tutoring on weekends, two respondents said. Regulators will also be restricting off-campus tutoring, especially for English and math, they added, restricting class times on weekdays.

According to the latest figures from the Chinese Society for Education, more than 75% of K-12 students attended after-school tutoring classes in 2016. Anecdotes suggest that the percentage has increased.

In addition to protecting sleep-deprived students, Beijing sees the changes as a financial incentive for couples to have more children as it seeks to sustain a rapidly declining birth rate, the sources said.

“It’s pretty urgent to reduce student workloads and the financial burden on their parents, who want fewer and fewer children,” a source said.

China’s population grew at the slowest pace in decades in the decade to 2020, the country’s latest census on Tuesday showed, and feared the dwindling workforce could no longer support an increasingly older population.

The cost of living in large cities, of which education is a large part, has deterred couples from having children.

The new rules would try to limit the fees charged by companies for tuition, one of the sources told Reuters.

The ministry did not immediately respond to Reuters’ request for comment.

INDUSTRY ON NOTE

According to market researcher Qianzhan, the K-12 tutoring industry would grow to nearly 1 trillion yuan ($ 155 billion) in 2025, up from around $ 120 billion in 2019.

Beijing’s increasing oversight, however, is already hitting corporate stocks and fundraising plans.

The proposed rules would contribute to the restrictions imposed in March, including a ban on live streaming courses for minors after 9 p.m., anti-advertising crackdowns and a ban on academic tutoring for preschoolers.

Online education startup Yuanfudao, backed by tech giant Tencent, has suspended preliminary talks to raise around $ 1 billion, which would have grossed the company $ 22 billion, according to the three separate sources .

Yuanfudao, valued at $ 15.5 billion in a financing round last October, started informal talks with investors in December.

Yuanfudao, who along with main competitor Zuoyebang raised billions of dollars during the COVID-19 lockdown in China when the students were put online, did not respond to a request for comment.

Yuanfudao and Zuoyebang were fined 2.5 million yuan (US $ 389,420) each by regulators on Monday for false advertising.

A source told Reuters that a major state broadcaster was ordered by regulators last month to remove television ads from two players, the New Oriental Education & Technology Group and the TAL Education Group (NYSE :), that they had previously placed .

New Oriental and Peer TAL stocks, listed on the New York Stock Exchange, are down 23% and 26% respectively this year, compared to a 13% increase in the benchmark NYSE Composite.

Shares fell 5.8% and 2.1% respectively on Wednesday.

New Oriental said it had not run any television commercials in the past two months and declined to comment on the possible tightening rules. TAL did not respond to a request for comment.

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