As China represses online education, destroys stock market prospects Business and Economy News


China is stepping up repression of its online education sector, forcing new high-flying companies to plan mothballs for initial $ 1 billion public offerings this year.

A few months ago, edtech suits were one of the hottest investments in China’s post-coveted internet industry as they secured more than $ 10 billion in risky financing last year from power plants like Alibaba Group Holding Ltd., Tencent Holdings Ltd. and SoftBank Group Corp. Beijing intervened.

President Xi Jinping suggested in March that the increase in extracurricular tutoring was putting immense pressure on children in China, which showed a personal interest in curbing excesses. This led to warnings in the state media and sanctions aimed at predatory practices that play on a nation’s obsession with academic performance. Now, the country’s education ministry plans to create a division dedicated to overseeing all private education platforms for the first time, according to people familiar with the issue.

The government campaign has stopped several potential mega-IPOs. VIPKid and Huohua Siwei, backed by Tencent, have postponed U.S. listings despite working in concert with banks for months, according to people. One of them said that Zuoyebang, invested by Alibaba, will miss the goal of debuting as early as this year. And Tencent-backed rival Yuanfudao, with $ 15.5 billion the most valuable in the lot, will not soon begin preparations for the IPO, they said, asking that they identify themselves by talking about internal affairs.

Beijing is focusing on tutoring startups that thrived when schools sent students home, and then launched free marketing for all regulators who say it is channeling millions of children into amazing virtual classes with uncertain benefits . Their concern is not only with reckless pricing or advertising, but also with widening the divide between those who have and those who don’t, those who can afford to be burdened with additional lessons. To that end, officials set a number of restrictions this month, including limiting the extracurricular tuition fees that companies may charge, and fined Yuanfudao and Zuoyebang for false advertising claims.

Chinese media have reported more, from a ban on online courses for children aged six and under to restrictions on homework and compulsory licensing for all teachers. Reuters reported that the new policies could include a moratorium on weekend classes, which account for more than a third of private tuition in the country according to Bloomberg Intelligence.

“This could lower revenue across the industry,” Bloomberg Intelligence analyst Catherine Lim said in reference to the weekend’s general ban.

Yuanfudao declined to comment, while Zuoyebang and Huohua Siwei did not respond to requests for comment.

A VIPKid spokesman declined to comment on any IPO plans, but said the company is closely following updates from the education sector.

Home tutoring was growing in popularity around the world, especially in Asia, even before Covid 19 stopped taking face-to-face classes. But it is in China that the industry has taken on a life of its own. On any given day, at least 50 million students (the equivalent of the entire Spanish population) could use the Zuoyebang platform, the company said.

This large scale is why the country’s online education startups have become some of the most valuable in the world after securing $ 10.5 billion in funding last year, more than collected in total over the previous three years, according to research firm Preqin. China’s e-learning market was expected to reach 315 billion yuan ($ 49.5 billion) by 2020, nearly three times as many as five years ago, according to global market data tracker Statista.

It also helps explain why the Xi administration is taking unusually direct measures to influence the evolution of the industry in China. His government, in general, is willing to reduce the growing influence of Internet giants like Tencent and Alibaba, among the industry’s main sponsors, through a series of regulatory probes and record fines.

Officials are also concerned about the hundreds of millions of parents who dedicate their savings to online classes, while subjecting children to heavier workloads. As in past growths built on unstable terrain (e.g., on peer-to-peer lending or on poorly licensed wealth management products), Beijing quickly intervened to deactivate what it perceived as a potential relief bomb.

The consequences were swift. GSX Techedu Inc., New Oriental Education & Technology Group Inc. and TAL Education Group, which operate primarily physical schools but serve as barometers of industry sentiment, have launched $ 55 billion since early March. SoftBank and Sequoia investors in Hillhouse Capital and Tiger Global, among the largest proselytizers in recent years, have been dodged by the fierce regulatory downturn and in many cases have been forced to withdraw from lucrative outflows.

Others, however, remain impassive for now. Zhangmen Education Inc., which applied for a IPO in the United States on May 19, plans to test investor confidence despite regulatory uncertainties. According to someone familiar with the matter, the e-learning start supported by Warburg Pincus and SoftBank has not yet been removed from the listings plan. And on May 25, Jiayi, a Beijing-based company that operates online and offline tutoring centers, also applied for a IPO in Hong Kong. However, both cite the intensification of competition and new regulatory requirements among their risk factors.

Zhangmen did not comment immediately.

This fierce rivalry occurs in unexpected, occasionally disastrous ways.

In January, a rage erupted on social media after companies such as Yuanfudao, Zuoyebang and ByteDance Ltd.’s educational unit. they hired the same actress to act as a teacher on their platforms, local media reported. The same woman with glasses introduced herself as English and math teachers in different promotional materials.

In one of the promotional videos posted online, he pointed directly to parental paranoia, precisely against what regulators insisted. The actress, whipping up a 33-hour live course package that cost just $ 8, warned that getting lost has consequences.

“It could be the parents themselves who ruin their children,” he said.

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