China’s education and training industry ushered in “Black Friday”. Reuters quoted three sources on the same day (July 23) that China issued a document requesting that “capitalization” operations of education and training institutions are prohibited, and subject training institutions are not allowed to go public for financing, etc. measure.
Some financial sources said that the new regulations have “one step in place” on the education and training industry, making “this track basically abolished at the capital level.”
Educational stocks listed overseas in China fell. On the 23rd, New Oriental’s stock price on the Hong Kong Stock Exchange was once “halved”. The US stocks closed down by 54.22%, Gaotu fell by 63.26%, and the future fell by more than 70%.
A day later, Chinese officials announced the document on the evening of July 24, which completely confirmed the rumors.
Training institution listing ban
The titled “Opinions on Further Reducing the Burden of Students’ Homework and Off-campus Training in Compulsory Education” has strict wording and strict policies, exceeding market expectations.
For example, “Strictly investigate and deal with off-campus training institutions that do not possess the corresponding qualifications and conduct training in multiple locations without approval in accordance with laws and regulations.”
For example, “disciplinary training institutions are not allowed to go public for financing, and capitalized operations are strictly prohibited… Foreign capitals are not allowed to control or participate in academic training institutions through mergers and acquisitions… etc.. Those that have violated regulations must be cleaned up and rectified.”
For another example, “re-examine and register existing training institutions for disciplines, and gradually reduce them and solve excessive and excessive problems; strictly investigate and deal with non-qualification, management confusion, take advantage of opportunities to earn money, false propaganda, and collusion with schools in accordance with laws and regulations. Organizations with serious problems such as profit-making.”
According to the document, the purpose of the above-mentioned policy is to “effectively reduce the burden of excessive homework and off-campus training for students in compulsory education,” and summarize it as a “double-burden reduction policy.” This work will also be included in the key tasks of the local government.
“This track is basically abandoned”
“I didn’t expect (the regulatory policy) to be so unambiguous and one size fits all. Only a few public offerings reduced their holdings earlier,” a person engaged in Internet venture capital investment in Shanghai told BBC Chinese. “I don’t look at all the terms, just look at one. No financing for listing’, this track is basically abandoned.”
“Moreover, these companies, regardless of whether they are listed on the market, have had multiple rounds of financing. Many investors have blocked the way to cash out and exit through the listing, and a large amount of venture capital funds have been trapped.”
“21st Century Business Review” quoted Ge Wenwei, a partner of Whale Capital, to estimate that about 200 billion yuan of funds were forced to settle in the education and training industry and could not get out for the time being.
Training institutions such as Good Future, New Oriental, Gaotu, etc., which have been listed in the United States and Hong Kong, are not only experiencing the share price “diving”, but also face the pressure of compliance operations, need to adjust their business composition in depth, and even face the issue of whether to delist .
For the future, the in-depth adjustment of China’s education and training industry has just begun. The “Double Burden Reduction Policy” requires that all existing education and training companies be registered as profit-making enterprises, and very strict restrictions are imposed on the training time, duration, scope, and tuition fees. As a result, the operating space of training companies has been greatly compressed.
The Citi report pointed out, “We believe that the biggest negative surprise comes from the ban on weekend and holiday tutoring, all institutions have become non-profit organizations (not free to adjust tuition fees, distribute dividends, or free mergers) and capital market bans.”
CICC, an investment bank with a background in China’s state-owned assets, stated in a research report that “the strictness of standard management in the education and training industry is unprecedented in history.”
The above-mentioned financial figures believe that this time the supervision is far beyond market expectations, superimposed on the deterioration of Sino-US relations, Luckin’s fraud, and the drop of Didi. For foreign capital, the increasing uncertainty of Chinese Internet companies may affect these companies. Overall valuation.