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Shares of Chinese Tutoring Companies Plummet on Crackdown Fears

Concerns about a Chinese government crackdown on after-school tutoring hammered shares in Chinese education stocks.

Shares in

New Oriental Education & Technology


EDU -58.95%

Group Inc. and rival

TAL Education Group


TAL -60.82%

both traded about 58% lower in New York on Friday morning. Earlier in the day, New Oriental’s Hong Kong-listed shares fell 41%.

An unverified document, circulating among investors and seen by The Wall Street Journal, appeared to be an official communication detailing new, tougher guidelines for the sector.

New Oriental and TAL said in separate statements Friday that no regulations had been published by the government and neither company had received official notification. They said they won’t comment on market speculation.

In a worst-case scenario, if teaching on weekends and holidays were banned and after school tutoring had to be done on a nonprofit basis, market leaders could lose more than 70% of the revenue they make teaching children from kindergarten through 12th grade, analysts at Citigroup said in a report Friday.

Analysts at Jefferies said a new framework could lead to changes in corporate structures. “Based on previous examples, if an education asset is considered not-for-profit, listed companies will often strip away the asset from the listed entities,” the analysts wrote.

China has said it would take steps to ease the financial burdens associated with child-rearing, including the cost of education, seeking to encourage births as it loosens decades-old rules on family planning.

In recent months, Beijing has ramped up its rhetoric and regulatory actions on irregularities in the tutoring sector. Authorities have called for less homework and after-school tutoring for students, in a bid to ease academic pressure on children and to reduce the mounting education costs for parents.

Shares of Chinese tutoring companies have declined sharply since peaking in February. New York-listed TAL Education and New Oriental Education & Technology have lost 76% and 67% respectively, while

Gaotu Techedu,


GOTU -58.44%

previously known as GSX Techedu Inc., has plummeted 91%.

Gaotu Techedu, whose shares were also sharply lower Friday in New York, released a similar statement to the other two companies.

In May, a top-level meeting chaired by Chinese President

Xi Jinping

said that the government should step up supervision of the sector and crack down on irregularities in fee structure, strengthen regulation of prepaid tuition and ban arbitrary funding operations. “We shouldn’t let an industry with social conscience become a profit-seeking one,” said a statement released after the meeting.

Last month, the Chinese market regulator fined 15 tutoring companies a total of $5.7 million for false advertising and fraudulent pricing.  And separately, a new office was set in the Education Ministry to oversee the tutoring industry.

Write to Chong Koh Ping at chong.kohping@wsj.com

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