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Chinese edtech firms downsize amid regulatory uncertainty

Written by Song Jingli Published on   2 mins read

Regulators are voicing concerns that students may be under too much pressure.

China’s edtech sector is slowly deflating as regulators are becoming more assertive. GSX Techedu has decided to lay off 30% of its employees, 36Kr reported on Friday, citing founder Chen Xiangdong’s remarks at a corporate meeting. Users of the career network Maimai shared how GSX withdrew the employment offers they had received.

A person with knowledge of the matter also told 36Kr that ByteDance plans to reshuffle and trim its Dali Education unit, which Dali denies. Online school Xueersi, meanwhile, suspended hiring in Zhenjiang and Nanjing.

Last month, VIPKid closed its Dami Wangxiao business and merged its services Qimeng English and Math Thinking, resulting in layoffs for half of the combined workforce. The company later denied the number of reported layoffs.

Chinese regulators are intensifying their crackdown on the internet economy, this time with their focus set on the online education sector. Startups, including VIPKid, Huohua Siwei, Yuanfudao, and Zuoyebang, have suspended their IPO plans, according to Bloomberg. The industry is putting too much pressure on kids and widening the gap between rich and poor, with children from privileged families spending far more time with instructors than those who can’t afford to.

One tutor promoted Yuanfudao’s courses on her WeChat account, encouraging students to take classes even during weekends. “What’s 520?” her ad read. “Five days of learning at school and two days at Yuanfudao equals zero mistakes on school tests.” The tutor said her ad did not imply that learning should take place “all day for an entire week.”

GSX said on Friday that it has stopped recruiting students for its Xiaozao Qimeng business as the new Minors Protection Law, which will take effect on June 1, is set to ban private cram schools from providing services to kids aged six and below, and thus GSX needed to lay off employees, China News Service reported.

Shenzhen-based Zhangmen, which is heading for a US IPO, said in its filing on May 19 that legal risks may significantly affect the sector. In addition to the Minors Protection Law, the company also mentioned further regulations that will become effective on September 1, requiring private online education services to obtain private school operating permits.

“If platforms spend a huge amount of time and money getting a permit, will their classes continue to be cheap?” a user posted on Q&A portal Zhihu on Saturday. The government’s intention to close the gap between the rich and poor might just have the opposite effect.

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