Chinese edtech stocks crashed on worries over new regulations

July 24, 2021 0:12 am

Shares of Chinese online education companies were hit hard on Friday due to media reported that the government is considering formulating new regulations on after-school tutoring services.

Details: An unverified document that claims to be issued by the central government aimed at the after-school tutoring industry has been widely spread on social media, triggering panic in the secondary market.

K-12 education platforms will no longer be allowed to raise funds or go public, listed companies may no longer be allowed to invest in or acquire education companies that teach school subjects, and foreign investment will also be prohibited from entering the industry, the document wrote.

Although edtech firms declared that they have not yet received such documents from Chinese authorities, their stocks were collectively suffered heavy blows. Shares of New Oriental Education Group, TAL Education Group, and Gaotu Techedu, three major US-listed Chinese online education companies, fell more than 50%.

The panic also affected the other US-listed Chinese companies. E-commerce giant Alibaba fell more than 4%, video platform Bilibili dove more than 14%, and Agora, the real-time communication provider behind Clubhouse, plummeted more than 21%.

Context: Excessive tutoring is regarded as one of the reasons for the decline in birth rate because it increases the burden on families and students. Beijing has ramped up its crackdown on the industry and established a dedicated division under the Ministry of Education last month to oversee all private education platforms.

Several high-profile startups in the sector, including Tencent-backed Yuanfudao and Alibaba-backed Zuoyebang, are likely to have to put initial public offering plans on hold because of the crackdown.