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China’s $ 100 billion education sector fights to survive after crackdown

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At Gaotu Techedu’s vast Beijing headquarters, one of the world’s largest online education businesses, staff are prepared for the worst after the group loses more than 90% of its market value in a few months.

“They have fired people over the last few days,” said one employee this week when he left the building after being made redundant. “Everyone is worried,” another said. “It’s not our turn yet, but I feel like we’re waiting for it.”

Engineers and teachers US listed Gaotu After regulators launched a drastic crackdown on China’s $ 100 billion education industry over the weekend.

Companies are no longer able to profit from selling core tutor services for children. This is a model that has supported and drawn in the explosive growth of many years. Billions of dollars from US investors The new rules prohibit participation in the sector.

Industry leaders, including New Oriental Education and TAL Education, have purchased tuition fees to help middle-class parents, who are the main source of income, pass their children’s competitive public exams in China. Later, I am struggling to change the direction of my business model. Goldman Sachs predicts that regulatory assault will shrink the industry to a quarter of its present value.

February, before billions of dollars The stock price was wiped out, New Oriental, TAL and Gaots have a market capitalization of over $ 110 billion. Online tutoring companies Zuoyebang and Yuanfudao each hosted a $ 1 billion funding round last year.

Gaotu, New Oriental, TAL Education and Zuoyebang did not immediately respond to requests for comment.

Groups teaching Chinese school curriculum must be registered as a non-profit organization under new rules aimed at “reducing the burden on students in compulsory education.”

In the “worst case scenario,” CCB International analyst Anita Chu suggested that companies need to spin off their after-school tutoring business. In the case of New Oriental, she estimates that this will hurt TAL’s earnings by 60-70% and 80-90%.

Venture capital firms entering the sector hope that loose language regulations that also ban IPOs and foreign investment in groups that teach school curriculum leave room for these businesses to continue operating. ..

Gaotu Techedu application on the Chinese app store page © Bloomberg

“We are considering other exit options, including M & A, as the IPO route is off limits,” said an investor in an education technology company that has raised over $ 1 billion.

At Zuo Evan with the support of Softbank $ 100 Billion Vision FundEmployees said that benefits have been reduced and the company’s future is uncertain. “Obviously, the company won’t be listed now,” said one product developer. “We know what will be allowed in the next few weeks,” another said.

Yuri Milner’s investment group, DST Global-backed education company Yuan Fudao, is trying to readjust. We are currently promoting a “practical” online learning app aimed at nurturing children’s “scientific temperament” rather than delving into the facts of the exam.

The ability of such plans to work depends on how lower-level governments implement Beijing’s orders. Jiangsu Province, near Shanghai, proposed on Wednesday to reduce the ability of educational apps to charge students and parents.

John Sant’Angelo, a consultant for the Guangzhou-based Beijing Study Abroad Services Association, who is looking for foreign teachers in collaboration with an educational technology company, said the industry is focusing on non-core subjects such as arts and physical education. He said he was likely to move.

“I don’t think the industry will be gone. Working parents need a place to take their children,” he said. “Everyone is analyzing policies to find ways to remodel.”

The owner of a tutoring company in Hangzhou, in the south, said one new business was the sale of day care services to public schools, although there were government restrictions on the amount billed.

Zhang Zhen, a Shanghai parent who buys an English tutor for second grade children from kindergarten, said her access to the service has not been affected so far. Another parent said he believed that tutoring services would not end “as long as exam-oriented education still determines the future of the child.”

“At least you can regulate and tax New Oriental. You can see what they are doing .. .. If the market doesn’t disappear completely, I’m going to make all of this. is [tutors] “Freelance,” said Julian Fisher, co-founder of Venture Education, a Beijing-based education consultancy. He added that some parents have already set up “tutor co-operatives”.

In Beijing, an employee of Gaotu’s human resources department confirmed that the company was “optimizing” the size of its employees, but said it also plans to move to education services for adults. ..

“Everything that requires a certificate or a test, from a deliveryman to a civil servant test, can be prepared for it,” he said without revealing his name.

With additional reports by Nian Liu Christian Shephard in Beijing and Wang Snow Bridge in Shanghai

China’s $ 100 billion education sector fights to survive after crackdown

Source link China’s $ 100 billion education sector fights to survive after crackdown

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