China’s crackdown on tutoring firms raise costs for parents

The latest news shows that the Chinese authorities’ sudden crackdown on after-school education companies is raising costs for many parents. Moreover, it is throwing millions of jobs into uncertainty. The Authorities unveiled a new set of sweeping regulations that bans the companies from making profits and raising capital from overseas markets.

In Beijing, where parents prize a good education, tens of millions of students across the country engage in after-school tutoring courses every year. Here much like in most other places, good grades play a huge role in determining career opportunities.

However, this is the last summer for educational institutions to sell such tutoring programs legally. Remarkably, tutoring firms that teach school subjects are now required to register as non-profits.

China will require existing institutions to apply for licenses

Authorities will stop allowing new tutoring organisations seeking to teach China’s school syllabus. China will also require existing ones to undergo regulatory reviews and apply for licenses.

Last month, local authorities in Shanxi and Hunan, have ordered private companies to suspend online and offline teaching classes for children from kindergarten to 9th grade.

The policy declares that the step aims to ease the burden and anxiety for Chinese parents wanting to give their kids a good education.

Moreover, it also prohibits those companies from offering classes on weekends, holidays, summer and winter breaks. The policy allows tutoring only on weekdays for a limited number of hours.

According to Alan Wang, an analyst covering education at Chinese asset manager Harvest Fund Management, some parents will still pay up for teaching courses they can find, raising costs.

The pandemic previously supported the shares of Chinese tutoring companies. The COVID-19 pandemic shut down many schools and forced students to go online for their studies. Online education institutions raised a combined 103.4bn yuan in 2020 from SoftBank, Temasek and DST Global.

News of regulatory crackdown hit China’s education sector

News of regulatory crackdown already sent shockwaves through China’s education sector. Shares of three U.S.-listed Chinese education firms witnessed declines. Gaotu Techedu, New Oriental Education & Technology, and TAL Education Group all fell by more than 50% on Friday after reports of the planned restrictions started circulating. All three firms announced that they will seek government guidance proactively and comply with the new rules.

The new regulations were surprising for parents. It left companies struggling, as millions of workers braced for job losses.