In recent years, there have been suggestions circulated by the government to regulate subject training and to reduce the study load of school children. Since earlier this year, education companies and tutoring schools in China have been experiencing the most significant policy blow, known as double reduction. What is double reduction? Are there regulation changes to the other segments in education? What are the impacts and opportunities of this new policy? We have put together this helpful guide of the policy updates in the education market, with the aim of helping education companies and institutions to better navigate the Chinese education market. 

Double reduction

On the 15th June, the Ministry of Education of China established a new department, to implement the new double reduction policy and regulate tutoring schools. This new regulation will be implemented from July for a twelve month trial period across nine regions and provinces in China, including Beijing, Shanghai, Jiangsu etc, before it is rolled out across the country. The terms of the policy are:

• After-school institutions are forbidden to offer teaching programs outside of school term times including weekends and holidays. Weekday tutoring, which typically runs in the evenings, will also be restricted.
• Education companies and training centers with principal business focus on academic subjects and personal development are forbidden to go public.
• Both online and offline advertisements of after-school programs, in the mainstream media and public places, will be banned.

Why is China posing such strict restrictions on its $120 billion private tutoring sector?

Since 2014, China’s education companies have received tens of billions in investment each year. K12 afterschool education is a key investment area. As of August 2020, the average amount of a single investment event has increased to over 170 million yuan (according to iResearch). The current education policies may lead to reduced investment and a reduced number of IPOs in the short term.

On the other hand, over the past 2 to 3 year, in order to stand out from fierce competition, education companies have excessively invested in marketing to gain attention, through social media, KOLs, live streaming etc, thus putting comparatively less focus on the quality of their teaching.

According to the government, the new regulation aims to ease the pressure on school children and lower family living costs, whilst simultaneously calming down the hot investment in the sector. The Ministry of Education is also trying to correct a misconceived phenomenon, meaning schools start to be considered as the bodies responsible for student learning, not the tutoring companies.

With these anticipated changes happening very soon, schools in some regions of China have started to allow students to stay at school after teaching hours to complete their homework and wait for their parents to finish work. We are also seeing in Shanghai and other trial regions that local governments are organising summer schools and childcare centers to ease pressure on parents when after-school tutoring is no longer permitted. Education companies have already started to adapt, developing non-academic programmes to overcome the barriers enforced by the new policy.

Vocational education

China has recently been promoting National industrial upgrading, and for this reason, skilled talents in China are in high demand. China strongly advocates the integration of production with education by encouraging universities and enterprises to work together to develop training plans, and by establishing a number of high-level training centers.

(Source: Deliotte)

In 2019, the government issued a framework, “Implementation plan on National Vocational Education Reform”, to reform China’s vocational education system, and allocated 100 billion yuan (about $15 billion) to develop a vocational training system. This May, China announced a budget of 27 billion yuan for this year’s vocational training. This framework has also started piloting a program of academic certificates plus skill level certificates in a “1+X” model. Non-academic training at skill and practice level, is the emerging trend.

Non-state education

This May the government also announced a newly revised version of regulations on private education:

• Tough new rules on school curricula and ownership of private schools have been announced. The new law restricts the teaching of foreign curricula in Chinese private schools from kindergarten to grade 9, and prohibits the ownership or control of any private K9 schools by foreign entities.
• State-run schools are now prohibited from using government funds to operate or participate in the operation of private schools, or generating profit through any means, such as charging management fees.
• The K9 schools will no longer be able to organise entrance tests or recruit in advance or outside of their catchment area.
• The president/chair of the board of directors or any other decision-making body at a private K9 school must be a Chinese national and the board must include representatives from the regulators.

However, China’s private education sector has also been extended to a much wider scope, ranging from pre-school education to higher education, from degree programs to non-degree programs. The government aims to strengthen supervision in non-state schools, and avoid the sector becoming overly commercialised, whilst at the same time, promoting not-for-profit private education beyond the compulsory years, such as vocational training.

Unchanged fundamentals and opportunities

Despite the changes in regulation and policies, China’s national policy of reform in education remains unchanged; during the process of opening up and reform, there are obvious challenges, but there are also opportunities that must not be overlooked:

• China represents one of the largest education technology markets worldwide because of its large student population and a growing middle class that places great importance on education. Favourable policies towards the adoption of technology and digitisation in education are driving the market.
• China is a big market with many layers and tiers. As a foreign education company you can seek growth opportunities with a combined segment focus and a regional strategy.
• With the fiercer competition in first and second-tier cities, the market in lower-tier cities/regions is becoming a new focus.
• Families and individuals have a strong desire for an education with an international outlook and to prepare children for further study internationally.
• The double reduction policy is more focused on academic subject programmes. The development of an all-round education is expected to be the main contributor to the growth of the K12 segment, developing subjects such as drama, sports, environmental education etc.
• Vocational education has been generating supply and demand as well. Impacted by the pandemic in 2020, the development of online vocational education is accelerating. It is estimated that an all-round education and vocational training will account for a high percentage of the total education market.
• Online and offline businesses are merging – whilst traditional offline education is actively embracing technology and developing online businesses, online education is evolving to offline. Driven by favourable policies and increasingly mature technology, AI+education is becoming a focus of investments, though China is still at the initial stage in the application of this learning technology. Domestic AI+education requires collaborative efforts across different dimensions from foreign countries.

Opportunities in any market come with challenges, and any Asia strategy is incomplete without a presence in China. Whilst the new government policies do pose a significant challenge to education companies and their Asia strategy, China remains a fruitful market to enter into and should not be neglected. Understanding the local market, keeping up to date with the trends and changes in policy, as well as having a trustworthy local partner are the first steps to take in order to succeed in China.

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