China to Issue Licenses for Education Companies to Resume After-School Tutoring
China’s government plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring, according to people familiar with the matter, capping months of turbulence for a once-flourishing industry devastated by new restrictions.
Tutoring companies including Gaotu Techedu Inc., previously known as GSX Techedu Inc., and Tencent Holdings Ltd. -backed Yuanfudao, have engaged in discussions with regulators in recent weeks about an arrangement that would allow them to resume offering tutoring services to students in the ninth grade and below, said people familiar with the talks.
Under the new licensing arrangement, tutoring companies will be required to operate after-school tutoring on a nonprofit basis while being allowed to make a profit on other businesses, such as tutoring adults for professional exams, the people said. The government is also set to place a cap on the price companies can charge for each after-school tutoring class, some of the people said.
Each licensed company will be required to set up and manage a nonprofit foundation to collect proceeds from after-school tutoring, according to the people, who said the decision is likely to be announced later this month. Such a foundation, which is prohibited by law from soliciting public contributions, will likely need to be registered as a separate entity under the Ministry of Civil Affairs, one of the people said.
It couldn’t be determined exactly how many companies would be granted licenses.
China’s Ministry of Education didn’t immediately respond to requests for comment. Gaotu and Yuanfudao didn’t respond to requests for comment.
The decision to offer the licenses brings a measure of clarity to a sector of China’s economy that has been hit particularly hard by Chinese leader Xi Jinping’s drive to rein in what he sees as capitalist excesses.
Concerned that skyrocketing educational costs were exacerbating wealth disparities and discouraging families from having more children, Chinese leaders in July issued rules that banned for-profit after-school tutoring, restricted tutoring companies from raising capital, and forbid teaching during weekends and holidays.
The restrictions shocked markets, wiping tens of billions of dollars off the value of listed Chinese education companies. The American depositary receipts of Gaotu and other Chinese education companies have lost around 90% of their value since May.
The rules also led to mass layoffs, including at ByteDance Ltd., the Chinese owner of popular short-video app TikTok, which announced internally in August that it planned to let go of employees in its education business targeting preschoolers and school-aged children.
The country’s Education Ministry said at the time that industry needed to be regulated because it would otherwise “form another education system outside the national education system.”
Yuanfudao, backed by investors like IDG Capital in addition to Tencent, was valued at $15.5 billion after a $2.2 billion fundraising in October 2020, making it the most valuable “unicorn”—startups valued at $1 billion or more—among education tech companies globally, 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 & Technology Group Inc., a Beijing-based private-education titan, said in October 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 through grade nine, leaving tutoring for older high-school students in a gray area.
As part of its effort to reshuffle the education sector and ease the financial burden on parents, China’s government has also continued to target so-called school district housing—apartments near in-demand schools that long guaranteed coveted placements for children living there.
Over the past few months, Beijing and other cities have begun delinking apartment locations from school placement guarantees. In some cases, they have also begun to rotate teachers and other staff from one school to another to ensure that students have more even access to the best teaching.
Author: Keith Zhai, The Wall Street Journal