China: Reforms for private education companies

China announced new rules under which profit tutoring in core school subjects has been barred to ease financial pressures on families. China’s private educational firms are bracing for a hit after the announcements were made. The rule changes sent shockwaves across the country’s private tutoring sector triggering a sell-off in the shares of the educational companies which includes the US-listed Gaotu Techedu and TAL Education Group.

Key Points about the rule change

  • The new regulations announced by the country bans educational firms that teach school curricula from raising a capital, making a profit or going public.
  • Regulators also said no new licences will be granted.

After-effect of the announcement

  • New York-listed shares of Tal plunged 71%.
  • A drop of 8% in China’s education industry sub-index in the morning trade.
  • Hong Kong-listed shares of Koolearn, New Oriental, China Beststudy and Scholar Education tumbled between 30% and 40%.

 

Reason for implementing the rule change

China had put the country’s for-profit education sector under scrutiny with the aim to reduce cost burden on parents that has contributed to a drop in birth rates and to relieve pressure on school children.

Conclusion

In the month of May, the Chinese government announced that it would allow couples to have up to three children, from the previous two child policy. Keeping this in mind China has been making certain changes in the rules of the country. The government’s moves to rein in the nation’s powerful tech firms such as Didi Global Inc and Ant Group Co have sent global investors fleeing.

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