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SCHOOL'S OUT?
China has added detail to its earlier warning of an impending crackdown on private tutoring platforms, and the report card makes for difficult reading.
There have already been casualties in online K-12 services as rising traffic costs turn a battle for market share into one that only the largest players can afford to contest. But regulatory intervention threatens to topple even these big beasts. At the very least, they will be cut down to a size where they lack their previous commercial viability - and cannot revisit the valuations seen in the past 18 months.
Those providing courses based on the national school curriculum will be among the hardest hit. They have been ordered to register as non-profit organizations, subject to standardized pricing. Public listings, or any other capital-raising activity, are off-limits.
Elsewhere, language tuition platforms cannot hire foreign tutors based overseas; online training is banned for pre-school children and for all other children outside of the standard working week; and previously omnipresent advertising will be curbed.
It remains to be seen how quickly and judiciously these new measures are implemented. But they have serious consequences for every major platform: Yuanfudao, Zuoyebang, VIPKid, Huohua Siwei, Zhangmen, and more. Huohua Siwei and Zhangmen filed for US IPOs earlier this year. The regulations have already crippled the share prices of listed peers in China online education.
Dozens of investors have exposure to these companies, from Hillhouse Capital and Boyu Capital to KKR and Warburg Pincus to GIC and SoftBank Vision Fund. Coming on the heels of a broader crackdown on technology companies, it serves as a reminder that China – for all its appeal as a growth market – still poses some fundamental risks.
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