China outlaws for-profit school tutoring in sweeping overhaul

Barred from raising capital or floating shares

China unveiled a sweeping overhaul of its $100 billion education tech sector, banning companies that teach the school curriculum from making profits, raising capital or going public.

Beijing on Saturday published a plethora of regulations that together threaten to up-end the sector and jeopardise billions of dollars in foreign investment. Companies that teach school subjects can no longer accept overseas investment, which could include capital from the offshore registered entities of Chinese firms, according to a notice released by the State Council. Those now in violation of that rule must take steps to rectify the situation, the country’s most powerful administrative authority said, without elaborating.

In addition, listed firms will no longer be allowed to raise capital via stock markets to invest in businesses that teach classroom subjects. Outright acquisitions are forbidden. And all vacation and weekend tutoring related to the school syllabus is now off-limits.

The regulations threaten to obliterate the outsized growth that made stock market darlings of TAL Education Group, New Oriental Education & Technology Group and Gaotu Techedu Inc. They could also put the market largely out of reach of global investors. Education technology had emerged as one of the hottest investment plays in China in recent years, attracting billions from the likes of Tiger Global Management, Temasek Holdings Pte and Softbank Group Corp.

In a series of statements over the weekend, all the major education companies said they would comply with the new rules and support the decisions of the party.

In a post on its official Weibo account, TAL said it would “fully implement the party’s education policy” and “strive to cultivate people’s talents with all-around development of morality, intelligence and physical health.”

The regulatory assault mirrors Beijing’s broader campaign against the growing heft of Chinese internet companies from Didi Global Inc. to Alibaba Group Holding Ltd. It stems from a deeper backlash against the industry, as excessive tutoring torments youths, burdens parents with expensive fees and exacerbates inequalities in society.

The out-of-school education industry has been “severely hijacked by capital,” according to a separate article posted on the site of the Ministry of Education. “That broke the nature of education as welfare.”

Once regarded as a sure-fire way for aspiring children (and parents) to get ahead, after-school tutoring is now viewed as an impediment to one of Xi Jinping’s top priorities: boosting a declining birth rate.