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The Chinese state and families spend a lot on education. Governments spent about 4% of the country’s GDP on schools in 2019 (compared to 3.2% in the United States in 2017). Private lessons and tutoring is a US$120 billion industry in China. As technology has improved and with the shift to online learning during the COVID-19 pandemic (which we covered in May 2020), the online education market has grown to nearly $40 billion. US dollars in 2020. That same year, investors invested US$8 billion. in online education companies in China. One startup, Yuanfudao, was valued at $1.5 billion.
Over 75% of 6-18 year olds took after-school tutoring in 2016 and it’s not cheap. Parents spend an average of US$17,400 per year on tutoring six hours a week—some parents spending US$43,500 a year. This disadvantages children in rural areas where the average annual income is only $2,635.
In an effort to ease the pressures of increasingly competitive educations on children, Chinese regulators have prohibits for-profit tutoring in core subjects. They also banned tutoring for children under six and on weekends, public holidays and school vacations. In addition to spending less time in front of textbooks, it will also ease the financial pressures children have on families and encourage a higher birth rate.—which is needed to support China’s aging population.
The restrictions have stopped the flow of money to these businesses. The news caused the stock prices of publicly traded tutoring companies to plummet by more than 50%. New Oriental, an English tutoring and exam company, saw stocks fall from a high of $19.68 in February to a low of $2.18 last Friday. While this will bring immediate changes to the education sector, it may take a few years before we see the effects on test scores, student quality of life, and family finances. Along with the measures towards tech companies, investors are reminded that party-state priorities will come first.