Mainland China-listed education companies submitted exchange filings Monday in response to the imposition of new laws on after-school tutoring. The companies outlined the possible effects of the sweeping rules on their businesses and the industry as a whole.
China unveiled the new rules governing the nation's $125 billion education technology sector Sunday. The overhaul is part of the government's crackdown on unregulated off-campus tutoring services. The largest overhaul of the education sector sent major education-related stocks down in Shanghai and Hong Kong.
Under the new rules, companies that operate "Edtech platforms" or education applications, software and systems will be barred from raising capital through initial public offerings. Investors will also be barred from investing or acquiring stakes in education companies that teach school curriculum.
Shenzhen-listed Doushen Beijing Education & Technology Inc. and Dongguan Kingsun Optoelectronic Co. said the new rules will have a major negative effect on their businesses. Two other companies said the new rules will have little to no effect on their profits.
All of the companies that submitted exchange filings said they would comply with the new regulations and support the government's decision.
According to sources familiar with the matter, the new rules were formally released July 24. The State Council then released it as a policy document.
The implementation of the new rules is part of China President Xi Jinping's order for officials to rein in runaway investments in the education industry and to ease the burden of homework and training for primary and secondary school students.
Last year, more than $10 billion of venture capital was invested in China-based education technology companies. This includes major investments in technology startups and app developers that provide tutoring systems and educational mobile applications for topics such as math, language and music.
According to Frost & Sullivan, China's after-school tutoring industry is estimated to be worth around $125 billion. A listing prospectus submitted by New Oriental Education estimated that the number of students enrolled in after-school tutoring services could reach more than 650 million by 2024.
Analysts said that apart from controlling runaway investment in the sector, the government wants to ease the financial burden for parents to encourage them to have more children.
"The motivation behind the government's move to ease the burden for students is that many people are not willing to have children due to the huge cost of raising children. There are fewer and fewer newborns in recent years. And that's the problem the government needs to solve as the top priority," analysts at Equal Ocean said.