China to issue licenses to education companies to resume tuition after school

Gaotu Techedu Inc., formerly GSX Techedu Inc. Tuition companies, including Tencent Holdings Ltd.-backed Yuanfudao, have been in discussions with regulators in recent weeks about an arrangement that would allow them to resume offering tutoring services to students. . In ninth grade and below, people familiar with the conversation said.

Under the new licensing regime, tutoring companies would be required to operate after-school tutoring on a non-profit basis, while allowing other businesses to make a profit, such as teaching adults for professional exams, the people said. Some said the government is even ready to put a cap on the price companies can charge for each after-school tutoring class.

Each licensed company will need to set up and manage a non-profit foundation to collect income from after-school tuition, according to the people, who said the decision is likely to be announced later this month. One of the people said that such a foundation, which is prohibited by law from soliciting public contributions, would need to be registered as a separate entity under the Ministry of Civil Affairs.

It could not be determined how many companies would be given licenses.

China’s education ministry did not immediately respond to requests for comment. Gaotu and Yuanfudao did not respond to requests for comment.

The decision to offer the license brings clarity to an area of ​​China’s economy that has been particularly affected by Chinese leader Xi Jinping’s campaign that he sees as capitalist excesses.

Concerned that skyrocketing educational costs were widening wealth inequality and discouraging families from having more children, Chinese leaders in July issued rules that restricted after-school benefits, tuition Prohibit companies from raising capital, and forbid teaching during weekends and holidays.

Sanctions rattled markets, wiping away tens of billions of dollars from the value of listed Chinese education companies. American depository receipts from Gotu and other Chinese education companies have lost nearly 90% of their value since May.

The rules also sparked massive layoffs, including by ByteDance Ltd., the Chinese owner of the popular short-video app TikTok, which announced internally in August that it had closed its education business targeting preschoolers and school-aged children. There is a plan to let the employees go.

The country’s education ministry said at the time that the industry needed to be regulated because it would otherwise “create another education system outside the national education system.”

Yuanfudao, backed by investors such as IDG Capital in addition to Tencent, was valued at $15.5 billion in October 2020 after a fundraising of $2.2 billion, making it the most valuable “unicorn” among education tech companies globally – at $1 billion or more Value’s startup. The company said at the time.

Some of the biggest names in the industry have announced significant changes to bring themselves into compliance with the new regulations.

New Oriental Education and Technology Group Inc., a Beijing-based private-education titan, said in October that it would stop providing after-school classes to students below 10th grade by the end of this month.

Most of the new restrictions apply to compulsory education, which in China extends to ninth grade, leaving tuition in the gray area for older high-school students.

As part of its effort to reshape the education sector and reduce the financial burden on parents, China’s government continues to target so-called school district housing-in-demand apartments near schools, which are designed to provide accommodations for children living there. We guarantee prestigious placements for a long time.

Over the past few months, Beijing and other cities have begun to exclude apartment locations from school placement guarantees. In some cases, they have even begun moving teachers and other staff from school to school to ensure that students have greater access to the best learning.