New Oriental and TAL EducationOne of the most famous rock songs in the English language is Pink Floyd’s 1979 classic Another Brick in the Wall. “We don’t need no education,” it warns. “Teacher, leave them kids alone”.
The song would leave many in China flummoxed, given the national obsession with schooling. Students are subjected to intense educational pressure and a barrage of high-stakes examinations.
Unquestionably a cultural trait, the focus on getting good grades has a long pedigree – embedded into more than a thousand years of extremely difficult examinations for a job in the nation’s civil service, which was one of very few means of social mobility in imperial China. Competition was insanely intense. In more than a millennium only 100,000 or so jinshi, or scholars, aced the notoriously tough exam, and became senior officials at the royal court (see WiC193).
That exam was abolished in 1905 (blamed at the time for stifling interest in science and technology). But the abrupt change shook up the political landscape too. Aspiring students, many of whom had spent years studying classical texts, were furious. Teachers and private tutors lost their jobs as well. Many of these malcontents would join the rebel forces that upended the Qing Dynasty and closed the curtain on thousands of years of imperial rule.
Might that be food for thought for the Chinese government, which is introducing some drastic changes to the modern-day private tutoring industry? The crackdown has different motivations but one of the main objectives is to reverse a trend that threatens to unsettle the country’s simple but brutal talent screening process, aka the college entrance exam known as the gaokao. The new campaign is an extensive one, threatening the profits of some of the country’s largest online education brands too.
What are the new rules?
The Ministry of Education (MoE) last week launchd a new unit that will oversee the private tutoring firms that target middle and primary school students and bring in new guidelines on tuition fees and teaching materials. The new body is yet to be named but its core mission is “strengthening care for the next generation”, the MoE said.
On Tuesday the ministry said that it also wants schedules at regular schools to last longer – until at least 30 minutes after most parents get off work – with after-hours services that are accessible to all.
High school students usually need to stay on for extra classes to prepare for the gaokao. Yet for junior and primary school pupils, classes often finish several hours before the end of the parental workday, meaning arrangements must be made to take care of their children. The situation is worse if both parents work in the so-called ‘996 culture’, or a 9am to 9pm working day, six days a week, which is common among tech firms (see WiC449).
The goal of filling those hours productively partly explains the proliferation of privately-run after-school tutoring and online education providers. However, the government has made plain that it wants the state education system to shoulder more of these duties. According to Xinhua, this is just one of many proposals (more are to come) to ease the financial burdens of parenting, following the introduction of the Three-Child Policy last month (see WiC543).
Besides giving more guidance to students on their homework and studies, schools have been ordered to arrange sports and cultural activities, as well as other hobby groups. This extra workload will be overseen by teachers but schools can ask for help from “volunteers and outside professionals,” the state news agency says.
The planned changes mean longer working hours for teachers in the public education system, with some taking to social media to voice their discontent. “How are we going to help parents working 996? We need to work 776 [7am to 7pm, six days a week]. And we are paid nowhere near as much as those in the private sector,” one complained online.
What are the other changes?
“Pushing education out of the school to training centres is putting the cart before the horse. The Ministry of Education is working to correct this phenomenon,” Chinese President Xi Jinping explained during a tour of Qinghai last month.
His remarks were followed by a new directive from the Central Commission for Comprehensively Deepening Reform, which called for further efforts to reduce school students’ homework and after-school tutoring.
China is said to be home to nearly a million privately-run training schools. Many of the largest are ‘edtech’ companies providing online tuition. These private sector firms and their investors are now pondering what might come next in regulatory terms, following a number of reforms in recent months (see WiC534).
The State Administration for Market Regulation (SAMR), the regulator that has been targeting monopolistic behaviour at some of the larger internet platforms (WiC538), is already part of the enforcement action. In May it gave the maximum possible fine of Rmb2.5 million ($390,000) to each of the two biggest online educators Zuoyebang and Yuanfudao for improper marketing of their platforms (the two are backed by Alibaba and Tencent respectively).
Zuoyebang was accused of misleading customers, including claims that it was partnering with the United Nations. Yuanfudao was punished for overstating the teaching experience of some of its tutors. Another 15 private education providers, including New Oriental and TAL Education, were given a combined Rmb36.5 million fine earlier this month for similar offences.
The fines may be small but the greater risk to the platforms is restrictions on the numbers of hours they are allowed to give tuition. Some provincial governments are starting to roll out their own guidelines, banning evening courses online that reduce students’ rest hours.
Headlines about the government crackdown have hit stocks. For instance, the market capitalisation of New York-listed New Oriental plunged from its record high in February to $14 billion this week, a drop of around 60%. TAL fell over 70% during the same period.
In equity research published this month, HSBC analysts Charlotte Wei and Charlene Liu reckon that investors are still underestimating the risks faced by China’s education sector. They point out that the ongoing policy crackdown – in the worst case scenario – could see after-school tutoring banned during the summer holidays and even during the weekends. The summer break is typically a golden period for sales in the sector. But companies have already started laying off teaching staff in expectation of the new measures. According to Tencent News, up to 100,000 tutors at edtech firms, many of whom were fresh graduates from college, are now on the brink of unemployment.
How quickly has the sector been growing?
According to the prospectus of New Oriental, which completed a secondary listing in Hong Kong in November, the number of enrolments in after-school tutoring grew from 203 million in 2015 to 325 million in 2019, and could further increase to 659 million by 2024. The market, including English language training, was expected to grow from Rmb61.9 billion in sales in 2019 to Rmb117 billion in 2024.
The market share of the online service providers (in terms of student enrolments) had also surged from 2.4% in 2015 to nearly 45% last year. The spike has been spurred in large part by the Covid-19 outbreak, which disrupted school schedules for much of the early part of last year. That triggered a massive influx of private equity investment into the edtech sector. Financial data aggregator 100EC.cn claims that fundraising for Chinese edtech increased 267% to Rmb53.9 billion last year – more than the fundraising of the previous four years combined.
Why is Beijing taking aim at edtech?
The sector’s breakneck growth mirrors that of other emerging industries powered by the internet, such as peer-to-peer lending and consumer finance, both of which have resulted in intervention by regulators. But because of the paramount importance of education for parents, the central authorities are worried that after-school tutoring could destabilise the formal education sector, fomenting complaints of an unfair system that could lead to social unrest. Policymakers are also perturbed at the behaviour of some of the biggest players, which have been spending huge amounts on marketing. The platforms have pumped the proceeds of their capital raisings into a flurry of advertising across multiple channels in a bid to capture new users and convert them into paying customers. They all have a common goal to capture the largest market share in a winner-takes-all model that promises pricing power to the victors.
Yuanfudao, one of the leading online platforms, reportedly pulled in Rmb20 billion in investment in 2020. Valued at about $15 billion, the unicorn had been preparing for a lucrative IPO in the United States. But Bloomberg reports that the listing plan has just been shelved – as have those of rivals VIPKid and Huohua Siwei – because of headlines about how the government has grown concerned about the sector.
More than that, the clamour for new customers from the leading platforms is being blamed for intensifying other trends, such as the spread of ‘chicken children’.
Described more often from the angle of ‘tiger parenting’ in the West, the local labelling comes from an expression that translates as to “inject chicken blood”. Treatments of this type were a fad in the 1960s, when people were injected with rooster blood as a remedy for various health ills. But the saying has lived on as slang for efforts to stimulate a person into a ‘heightened state’ – in this case in the demand that children sit through extra classes.
“Anxiety is what they [edtech firms] are really selling,” China News Weekly also points out, highlighting how the platforms are profiting from parental fears about losing out in the education ‘arms race’ and paying ever-greater sums to private tutors in a bid to give their children an edge.
“The sad part is that once you start ‘chickening’ your children, it’s hardly possible to stop,” a high school teacher told SupChina this week.
At the core of the collective anxiety is intense competition for a place in higher education. In 2019, of the 17 million children eligible for the high-school entrance test (known as the zhongkao), 60% went on to take the college entry exam, the much-feared gaokao. But only 4.3% of this group will get an undergraduate degree. And only 0.2% of the cohort of students will get the chance to study at one of China’s top 39 universities.
Historically, parents from some of the country’s poorest regions have believed that their kids have a chance of getting into a leading college (and thus an opportunity to climb the social ladder) if they are smart enough or work hard enough to score top marks in the gaokao.
However, the surge in private tutoring has clouded the competitive simplicity of the gaokao system. With a new range of options to hone their exam-taking knowhow, better-off students have a greater chance of outscoring kids who lack the same opportunity to get private tutoring.
In fact the pressure to perform is reinforcing a vicious cycle as parents spend more of their incomes on education for their offspring (see WiC524). As we reported last month, when the government introduced new rules allowing families to have three children the decision was met with much ridicule online. One reason for the derision: young couples are put off having children by the financial pressures of improving the educational chances for a single child, never mind the expense of supporting two more (see WiC543).
The way ahead?
In announcing the Three-Child Policy, the government promised other changes including a “universal childcare system” and subsidies for spending on education. These will take time to take shape but the efforts to scale back the tutoring sector seem to be a supporting step. More changes are ahead, says China News Weekly, but the ultimate goal is to bring education back to basics and prevent it from being “overly capitalised”.
“Those expecting to create companies with Rmb100 billion worth of market value or bigger should abandon their plans altogether,” the Xinhua-affiliated magazine noted, in a thinly-veiled warning to venture capital investors and the private sector education giants.
That sound like a major threat to the new breed of educators, who might be wondering if Pink Floyd’s lyrics should be recast as “Private tutors, leave them kids alone”. Yet with these services now so ingrained in daily life, it’s going to be a major test for the government to take back control of the nation’s schooling.
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