Thousands of Chinese Education Companies Shut Down in Industry Reshuffle

Under tighter regulatory environment, many small-scale schools have collapsed, leaving the market open for large players to take over.

Selina Cheng
    Dec 24, 2019 10:05 AM  PT
Thousands of Chinese Education Companies Shut Down in Industry Reshuffle
author: Selina Cheng   

More than 12,000 Chinese education centers troubled with financial difficulties had to shut down in 2019.

The closures ensued after regulatory changes imposed in the sector last year significantly cut private schools' cash flow. 

"If a company's advance payment is stopped or reduced, more than 80% of the education companies in China will not have enough cash flow to survive," head of an undisclosed educational institution told Chinese news medium Pedaily last week. 

And he was right. In August 2018, the State Council rolled out a policy limiting private education institutions from collecting tuition fees more than three month in advance. 

Under tighter regulatory environment, many small-scale schools have reported financial problems and many of them collapsed over the past 12 months.

Reports have circulated on major Chinese social media platforms focusing on parents losing thousands of dollars because a school they paid was shut down overnight. 

As parents became more cautious in selecting education providers, bigger names with a longer operating history and stronger cash flow strived thanks to the industry reshuffle.

New Oriental Education & Technology Group Inc. (NYSE: EDU) for example, announced a 25% revenue increase and strong student enrollment in the quarter ended August 2019.

The company, China's largest provider of private education services, said its revenue reached $1.1 billion. The improvement was fueled by a 51% increase in student enrollments, specifically, K-12 after-school tutoring courses, which reached 2.6 million, according to the earnings report posted in late October.

As a result, shares of New Oriental skyrocketed from trading near $91 per share in June to today's intraday level of $124.95 in New York, up more than 35%.

Another top player, TAL Education Group (NYSE: TAL) also witnessed a stock jump after posting better-than-expected revenue in its latest financials.

TAL's revenue in the three months through August reached $936.6 million, up 34% year-over-year, thanks to the growing student base. 

TAL reported the student enrollments of regularly priced long-term courses in the trimester through August reached 3.4 million, up 55% year-over-year.

The tutoring services TAL offers include K-12 studies in mathematics, English, Chinese and three core science subjects. On Tuesday morning, the stock in TAL was trading at $47.60 per American depositary share compared with the $32 per share it was trading at in August.