Edtech in China Down to Death; How Clever is India?

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In the latest development, Edtech in China receives a big blow! Chinese authorities issue a new reform banning after school private tuition.

The government has a nine-year free compulsory education system stretching from primary to junior middle school in China. While pursuing this compulsory education, students succumb to an overload of homework from private tuition in addition to schoolwork. To help students ease the stress, the General Office of the Communist Party of China Central Committee and the General Office of the State Council have outlined a solution guideline. The guideline explains strategies to reduce homework overload, improve the quality of classroom education, and after-class services provided by schools. In this effort, China has also pledged to adopt a strict approval and supervision system for off-campus private tuition in maths and physics.

Source: Holon IQ

According to the document, the highlights are-

— Students should not skip going to bed on time, irrespective of incomplete homework.

— Chinese education authorities should improve the quality of free online learning services.

— Local governments shall not approve edtech companies offering subject-based tuitions for students in compulsory education.

— Existing edtech companies should now register as non-profit institutions if they plan to continue in the business.

— No subject-based private tuition companies be allowed to go public (IPO) for financing.

— Listed companies should not invest in edtech companies offering private tuition.

— No foreign capital be allowed for edtech companies in China into private tuition for students in compulsory education.

— Even after school, edtech companies will not sell overseas education programs to students during their compulsory education years.

— No overseas courses for Chinese students be allowed on national festivals and holidays during their compulsory education years.

— Online education from schools must ascertain that no class exceeds 30 minutes, thereby protecting students’ eyesight.

— Online class administrators should schedule classes with a minimum interval of a minimum of 10 minutes.

— No online classes after 9 pm. 

— In the future, China restricts all off-campus tutoring advertisements, whether online or offline.

— Chinese authorities have selected Beijing, Shanghai, Shenyang, Guangzhou, Chengdu, Zhengzhou, Changzhi, Weihai, and Nantong to lead this directive for edtech in China.

Because of the above regulation, China’s $120bn private tutoring sector has triggered a massive sell-off in the shares of companies, including US-listed TAL Education Group and Gaotu Techedu.

Apparently, the Hang Seng Index (HSI) of Hong Kong has already realized a massive hit with newly listed shares of New Oriental (HKG: 9901), Koolearn (HKG: 1797), Scholar Education (HKG: 1769), and China Beststudy Education Group (HKG: 3978) tumbled between 30 percent and 40 percent.

According to JPMorgan Chase & Co, the “worst-case became a reality.” There’s no clarity whether the publicly listed edtech in China should go for massive restructuring to stay in business or should they be completely erased. “It’s unclear what level of restructuring the companies should undergo with a new regime and, in our view, this makes these stocks virtually un-investable.”

China has always been critical of power that is bigger than the reach of the Chinese government. China was contemplating this move for a long time. It could see how the for-profit edtech companies in China were pressuring school children beyond their school hours and monetarily taxing parents who would not consider a second child any more important for China’s aging population than ever. But, whatever it is, we see it as a huge relief for children’s mental health and China’s total population of school-goers and their parents.

Contextually, in India, we see Byju’s insatiable appetite for acquiring edtech companies left, right, and center. According to MCA filings, the Indian edtech giant just acquired Toppr and Great Learning. A week ago, it acquired a US-based edtech company, EPIC. Now, check India’s Right to Education Act 2009 [Download PDF]. Education is free in India also, but in theory, the practical is enslaved by Byju’s. 

On the one hand, we see this as a recipe for a total crash of the Indian edtech market when Byju’s swallows every for-profit edtech venture. For Indian education authorities to aim at shutting one edtech would be overwhelming. So, strategically once Byju’s has bought out all the edtech companies, thereby releasing the founders of many, it would be the only one at the peak, and to then dismantle it would be the ideal move of the government of India following China’s one good move focusing on real education. 

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