China Moves Against Education Companies, Causing Shares to Plunge
Chinese regulators on Monday banned tutoring companies from making profits, a move that saw their shares plummet, wiping out tens of billions of dollars in the value of the country’s once-booming education sector, as Beijing focuses about the growing financial burden that students – and their parents – face.
Some of China’s largest publicly traded education companies have lost a significant portion of their value as investors ditched them after rules were announced requiring all companies that offer tutoring programs to register as teachers. ‘non-profit institutions.
The rules will also restrict new foreign investment, once a key way for these companies to raise funds. It is the latest in a series of moves China has taken to curb its tech sector that has hit the shares of its largest companies, in industries as diverse as ridesharing and music licensing. Regulators say they are tackling privacy, cybersecurity and antitrust concerns, directing their crackdown on the country’s burgeoning internet industry.
Koolearn Technology, which offers online courses and test preparation courses, said it expected the rules “to have a significant negative impact” on its business. Its stock fell 33 percent on Monday. A handful of other Hong Kong-listed education companies, including New Oriental Education & Technology and Scholar Education Group, as well as US-listed companies Gaotu Techedu and TAL, have issued similar statements.
For years, China’s private education sector has been one of the most attractive to global investors, who have thrown billions of dollars into publicly traded companies that have pledged to capitalize on the hundreds of thousands of families struggling for better opportunities through education. Monday night in Asia, much of that money was gone.
Many middle-class families in China pay for after-school tutoring to help their children gain an edge in national tests that determine their future. Last week, the country’s highest administrative body issued an advisory that targeted the sector and outlined its plans to “reduce the burden of student homework and off-campus training.”
Analysts quickly recalibrated their assessment of the outlook for the industry, which was once valued at over $ 100 billion by Wall Street banks like Goldman Sachs. On Monday, the bank’s analysts estimated it would be worth $ 24 billion in the coming years.
The news spread to Chinese stock indexes. The Shanghai Composite Index closed down 2.3% and the Hong Kong Hang Seng fell 4.1%.
Separately, regulators over the weekend ordered Tencent, the Chinese tech conglomerate, to end all exclusive music licensing deals with record companies and fined it around $ 78,000 for what he called unfair practices. Shares of Tencent Music, which trades in the United States, were also down on Monday.
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