Beijing Moves Quickly to Apply New National Tutoring Rules

The Beijing municipal education authority plans to require after-school tutoring companies in the city to revamp their business and become nonprofits by the end of this year in accordance with a sweeping new national regulation targeting the industry, Caixin learned from government sources.

Beijing’s education commission told executives of leading tutoring companies to overhaul their operations and suggested shifting to senior high school tutoring, vocational training, lifelong education and other areas, sources said.

The State Council, China’s cabinet, issued new rules last month requiring sweeping changes to the after-school tutoring industry to reduce burdens on students. Under the new regulations, after-school tutoring companies must become nonprofit institutions and will be barred from public market financing and the creation of new businesses providing school curriculum subjects. The rules affect education enterprises that offer curriculum-based tutoring for students undergoing the nine years of free, compulsory education, which includes six years of elementary school and three years of middle school.

The changes led to sharp drops in shares of China’s major education companies, including New Oriental Education & Technology Group Inc. and TAL Education Group, wiping out more than $100 billion in market value of Chinese education stocks.

The move plunged China’s freewheeling private tuition industry into turmoil, with some companies responding by laying off staff and frantically expanding services that are likely to be unaffected by the changes. Most of the biggest tutoring companies are based in Beijing.

Beijing authorities ordered companies to immediately stop offering curriculum-based tutoring for the compulsory education period, revamp their businesses before launching new classes and strictly follow rules to stop offering tutoring on curriculum subjects on public holidays, people close to the matter said.

The Beijing education authority is drafting detailed rules to guide affected companies to transform into nonprofit institutions, Caixin learned. Other local authorities are also working on plans to implement the cabinet’s rules, and some sent officials to Beijing to learn more about the policy changes.

How companies can comply with the new business rules remains a big question. A person familiar with Beijing’s plan said the city government will encourage after-school tutoring companies to explore new businesses and diversify their course offerings.

Under the regulations, all curriculum-based tutoring institutions are banned from raising capital through initial public offerings, and publicly traded companies will not be allowed to invest in these institutions through stock market financing or by acquiring their assets by issuing shares or paying cash. Foreign capital will also be barred from such institutions.

That means traded businesses such as TAL Education and New Oriental must restructure their businesses and add new revenue sources to remain listed. Otherwise, companies that fail to make a transition within the regulatory timeline will face delisting, experts said.

Authors: Wang Bowen and Han Wei, Caixin Global

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