Editor’s note:
China is on holiday for the Lunar New Year, or Spring Festival, for the week of Jan. 31-Feb. 6. TechNode selected past reports on the struggle of Chinese edtech companies following the sweeping crackdown six months ago on for-profit education companies.
As China celebrates the 2022 Lunar New Year, one industry is feeling particularly less festive. In late July, regulators ordered almost all private education companies to either stop making money on their most profitable offerings (classes in core curriculum subjects for K-9 students) or to shut them down completely. The rules intend to ease the financial burden of Chinese parents, who often spend tens of thousands of dollars annually on after-school classes in the hopes of getting their kids ahead in the competitive formal education system.
The impact was far-reaching: Hundreds of billions of dollars in Chinese edtech stock value was wiped out virtually overnight. Hundreds of thousands of education workers have since been laid off. To survive, education companies have embarked on some last-resort pivots: selling farmers’ goods on livesteams, investing in down-jacket companies, and teaching arts and sports.
The Background
July 26
Chinese edtech upended by sweeping regulations
Beijing unveiled new rules governing the country’s private education sector on July 24, barring after-school tutoring companies, including edtech companies, from earning profits, raising capital, or going public and imposing new limits on extracurricular study.
The new rules will end IPO hopes for online education startups like Yuanfudao and Zuoyebang, and limit fundraising for the existing listed companies. Companies that cannot comply with the new rules could be forced out of business.
August 31
Edtech will survive China’s crackdown, but it won’t be the same
On July 24, Beijing’s State Council dropped a hammer on the industry with a 15-page collection of regulations known as “The Double Reduction Opinion” (in Chinese). With stated goals of lightening students’ homework load and saving parents money, the new guidelines require tutoring schools to stop teaching core curriculum subjects or spin off such activities into nonprofit units. Foreign ownership and public listings of such companies are banned. So is providing any classes at all on weekends and holidays—thereby slashing marketable hours by 80%. For-profit education companies will be limited to extracurriculars like art and sports.
The directive triggered massive stock sell-offs in the US and Hong Kong. Three of the US-listed stars—TAL Education, Gaotu Techedu, and New Oriental Education—collectively lost $100 billion in market cap from their peaks earlier this year. It’s expected most of the $23 billion of venture capital invested in the sector in the past five years, an estimate by HolonIQ, will be vaporized.
The Fallout
August 5
ByteDance cuts edtech headcount amid private tutoring crackdown: report
ByteDance is scaling back its online education businesses and laying off half of its in-house Pre-K tutors, according to a report by Late Post (in Chinese) on Aug. 3. The layoffs affect employees of Dali Education, ByteDance’s standalone edtech brand that runs the short video giant’s education products, including Pre-K education platform Guagua Long and one-on-one English tutoring app GoGoKid.
October 21
Tutoring unicorn Yuanfudao invests in down jackets company after tutor crackdown
Yuanfudao has invested in a down jackets subsidiary as the Tencent-backed online tutor tries to diversify its businesses after the country launched a sweeping crackdown on private education in July. The company has hired five people for an outdoor down jacket brand, local media Late Post reported on Tuesday. A Yuanfudao-affiliated firm acquired a clothing retailer in late September. Yuanfudao responded to local media on Wednesday that education remains their core business.
October 26
New Oriental’s Koolearn Tech to stop tutoring services up to K-9
Koolearn Tech, the Hong Kong-listed online tutoring arm of New Oriental, announced Monday that it will stop providing a significant part of its after-school tutoring services in China by the end of November. The move applies to curriculum courses offered to grades K-9 in the mainland Chinese market. The company attributed the move to China’s new regulations on private education. The company said the move will adversely impact its revenue since K-9 business represents 58% to 73% of its core K-12 business.
November 8
Founder of Chinese private education giant New Oriental to lead new e-commerce project
Yu Minhong, founder and president of China’s leading private education company, New Oriental, said during a Nov. 7 livestream that the company plans to set up a new e-commerce platform to sell farmers’ goods. Yu will lead hundreds of teachers to help farmers sell goods through livestreaming e-commerce. Yu said the goal is to help revitalize rural areas, a central goal of the Chinese government, and to improve farmers’ professional skills.
November 15
Edtech firm TAL to stop tutoring services up to K-9 by end 2021
Chinese online education firm TAL Group announced on Nov. 12 that it will stop offering curriculum tutoring services to students from kindergarten to grade nine, or K-9, in the mainland Chinese market by the end of 2021. The service accounts for a “substantial majority” of the company’s revenue, according to the company’s Nov. 12 statement. The statement said that the decision will have a “substantial adverse impact” on its financial performance. TAL’s move followed similar announcements made by rival Koolearn Tech and the online tutoring arm of New Oriental. These companies were responding to China’s crackdown on private tutoring services in late July.
November 16
Edtech giant Gaotu to terminate curriculum tutoring services up to K-9
Gaotu Techedu, a China-based edtech company, previously known as GSX, announced on Nov. 15 that it will cease offering curriculum tutoring services up to grade nine, or K-9, in the mainland Chinese market by the end of this year. The company said it will shift its business focus towards developing courses for professional education and explore opportunities in digital products and vocational education. Gaotu joined rivals TAL Group and New Oriental-backed Koolearn Tech in making business updates in response to China’s July crackdown on private tutoring.
November 25
ByteDance begins another round of edtech layoffs: source
ByteDance had laid off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The newer round concentrated in the K-9 education units, a person with knowledge of the matter told TechNode. The person declined to be identified.
TikTok owner ByteDance is the latest Chinese tech giant to retreat from online tutoring services targeting students up to grade nine, or K-9. All are responding to China’s crackdown on private tutoring services in late July.
December 14
Chinese regulator suspends homework answer search apps
China’s Ministry of Education on Dec. 13 suspended the filing and review process for homework search apps that allow students to upload pictures of exam questions and search for related answers. The education ministry said in a statement (in Chinese) that it will suspend the filing and review process for all homework apps targeting primary and middle school curriculum courses, pausing approvals for related edtech apps. Those apps already listed on its filing platform must be taken down.
December 30
New Oriental founder makes sales of RMB 4.6 million in livestream debut
Yu Minhong, founder and president of China’s leading private education company, New Oriental, achieved sales of RMB 4.6 million ($722,000) in his e-commerce livestream debut on Dec. 28. Yu’s livestream session was broadcast on short video app Douyin and mainly focused on selling farmers’ goods such as apples and beef steaks. The US-listed firm is betting on livestreaming to generate revenue after the private education sector in China was rocked by a sweeping state crackdown in late July. The company has been forced to suspend K-9 curriculum courses, which represented from 58% to 73% of its core business.