China may ask tutoring firms to be non-profits

July 23: China is considering asking companies that offer tutoring on the school curriculum to go non-profit, according to people familiar with the matter, as part of a sweeping set of constraints that could decimate the country's $100 billion education tech industry.

In rules currently being mulled, the platforms will likely no longer be allowed to raise capital or go public, the people said. Listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects while foreign capital will also be barred.

Local regulators will stop approving new afterschool education firms seeking to offer tutoring on China's compulsory syllabus and require extra scrutiny of existing online platforms, the people said. Vacation and weekend tutoring on school subjects will also be banned, they said. Changes may still occur as the rules haven't been published.

The new set of regulations, devised and overseen by a dedicated branch set up just last month to regulate the industry, could wipe out the enormous growth that made stock market darlings of TAL Education Group and Gaotu Techedu Inc. The regulatory assault mirrors a broader campaign against the growing heft of Chinese internet companies from Didi Global Inc to Alibaba Group Holding Ltd.

"Making the sector nonprofit is just as good as eradicating the industry all together," said Wu Yuefeng, a fund manager at Funding Capital Management (Beijing) Co. "The regulations on financing are a major surprise,” said Wu.