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Chinese edtech companies trim headcount and develop new business verticals after intense clampdown

Written by Mengyuan Ge Published on     3 mins read

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Chinese regulators have severely limited for-profit education services.

China’s edtech companies are developing new lines of business after a sector-wide crackdown took place in July. Now that edtech companies and after-school tutoring services must operate on a not-for-profit basis, and be registered as nonprofit entities if they host classes that cover the nation’s core curriculum, edtech providers are opting to offer extracurricular courses, professional training, and classes for university students.

The nonprofit mandate applies to any education service provider that organizes classes for compulsory subjects like mathematics, physics, and history. Classes for art, music, and sports are not covered by the new regulation.

These new rules have fundamentally changed the business model of the private education sector, forcing firms to make extensive changes. In one dramatic shift, New Oriental Education, one of China’s largest private education providers, announced that the company will upgrade its existing offerings targeting college students, including courses for CET4 and CET6 English language certification, postgraduate entrance exams, exams for overseas studies, and professional certification of teachers and accountants. It will also set up new training programs for professional coding exams and judicial exams.

Speaking at a press conference on September 25, New Oriental Education founder Yu Minhong said, “I believe that in the future, New Oriental will still do a great job in terms of providing instrumental help and guidance to college students on their paths to career development. I participate in this with great pleasure.”

New Oriental Education will lay off more than 40,000 staff members by the end of this year, according to LatePost. It will no longer provide school subject tutoring services for primary and middle school students. The company will also shut down a number of its tutoring centers across the country in the next few months, based on announcements made during an internal meeting in mid-September.

At the meeting, Yu encouraged management to try new forms of business. He was quoted as saying, “Don’t worry about failure, we will just have a drink and disband if we run out of money.”

New Oriental is in survival mode. According to the company’s 2o20 fiscal year results ending May 31, 2021, 6.7 million middle and high school students and 5.3 million K–12 students were enrolled in New Oriental’s tutoring classes, while total enrollment for test preparation and other courses was a mere 395,000. That means New Oriental may have lost most of its existing customers.

Over the past five years, primary and secondary students have been the company’s major source of income. Since 2017, primary and secondary school business have accounted for more than 50% of New Oriental’s total revenue. In 2020, the share was 90.7%.

New Oriental is listed on the New York Stock Exchange. Its shares were trading above USD 19 apiece in February, but have since dived below USD 2.

Similarly, TAL Education, another company listed on the NYSE, is busy with its own pivot and business reorganization. In August, the company launched a new offline learning space called Lead Space to offer new classes for drama, elocution, aesthetic education, calligraphy, and chess. Through a variety of extracurricular activities, the company aims to provide parents with quality-oriented educational experiences for their children.

Check this out: China Cracks Down on Big Tech

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