In the middle of a crackdown on after-school tutoring companies, China's private education sector may need to boost its nonacademic services to mitigate the economic effect on their business, analysts say.
The China State Council's new guidelines had sent shares of China education companies listed in the U.S. falling. Tutoring companies that teach school subjects must now register as nonprofits. They are also barred from raising capital from foreign investors or through public listings.
Authorities will also ban allowing new tutoring organizations that want to teach China's school curriculum and will require existing ones to go through regulatory reviews and apply for licenses.
Companies found to be in violation will be rectified or eliminated in accordance with the rules, with no further elaboration.
While the companies said that the new rules would have a significant impact on their after-school tutoring services, some analysts believe that some of the top education providers will take steps to reduce the impact on their businesses.
"Tutoring companies likely have to dispose of K-9 academic tutoring businesses," China Renaissance Securities analyst Don Lau told Reuters.
To keep their companies listed, they may need to spend on nonacademic tutoring such as art, computer coding, sport, music and other extracurricular programs.
Shares of Chinese tutoring companies had earlier been raised by the pandemic, which forced many schools to close and prompted students to study online.
According to iResearch, online education startups collected 103.4 billion yuan ($16 billion) in 2020 from investors such as SoftBank, Temasek, and DST Global to compete in an industry valued at 257.3 billion yuan last year.