Chinese Stocks Tumble, Education Providers Warn of Regulatory Impact

Now that new measures are set in stone, Chinese tutoring stocks are hitting new lows.
Aug. 19, 2021 22:56
Chinese Stocks Tumble, Education Providers Warn of Regulatory Impact

Chinese stocks took a hit across the board on Thursday, with tech giants and education leaders tumbling to new lows on regulatory impact. For the education companies, the slump followed updates on the new policies titled "Beijing Municipality's Measures to Further Reduce the Burden of Homework and After-School Tutoring on Students in Compulsory Education in Beijing."

Stocks in Red

Private education giant New Oriental Education & Technology Group Inc. (NYSE: EDU; HKEX: 9901) ended 8% lower, at $1.81 per share. It's down 90% year-to-date from its January level of $17.40 per share. Rival TAL Education Group (NYSE: TAL) closed at $5.07 per share, down 4% on the day and 93% since January.

A smaller Chinese tutoring provider, Puxin Ltd. (NYSE: NEW), announced today that it has received a non-compliance notice from the stock exchange regarding the minimum trading price. That means, its ADSs have been trading below $1 per share for 30 consecutive days. The company has six months to regain compliance or may face delisting. Puxin is down 91% year-to-date; in January, its stock traded above $6 a share, today it closed at 57 cents.

Another education player, OneSmart International Education Group Ltd. (NYSE: ONE), announced the receipt of a similar notice of non-compliance in early August. OneSmart is down 85% year-to-date, ending the day at 54 cents today.

E-learning provider Gaotu Techedu (NYSE: GOTU), formerly known as GSX Techedu Inc., tumbled 15% today, to $2.38 a share. GOTU stock is down 95% from its January level of $48.75.

Notably, two e-learning platforms, Youdao Inc. (NYSE: DAO) and China Online Education Group (NYSE: COE), stood out today. DAO shares ended flat, at $9.68 per share, and COE shares closed 5% in the green, at $2.20 a share. Still, both are also significantly lower than traded in early 2021 – Youdao down 62% and 51Talk down 92% – and undoubtedly likewise suffering from the new regulations.

New Measures

Beijing's new measures forbid new companies to enter the market of after-school tutoring services on academic subjects in China's compulsory education system. Existing registered providers of the services must come under review and re-register; some must restructure as non-profit.

As previously announced, after-school tutoring on academic subjects is prohibited during national holidays, weekends, and winter and summer breaks. On weekdays, online tutoring time will be limited to before 9 p.m.

Academic tutoring providers are banned from offering classes outside of or in advance of school curriculum, foreign curriculum, offering excessive pay to teachers, and employing foreign teachers to train from overseas. Non-academic tutoring providers are banned from offering academic classes.

Prices for academic tutoring classes will be capped as decided by the authorities. In addition, schools are prohibited from raising capital by listing their securities. Listed companies may not invest into academic tutoring providers, and foreign investors may not become a controlling party through mergers and acquisitions and by other means. Advertising in the tutoring space will also be capped.

Lastly, after-school tutoring providers on academic subjects in high schools (not included in China's compulsory education system) will be supervised in accordance with local regulations.

As TAL Education and New Oriental said in separate statements today, their "compliance with these measures will have a material adverse impact on its existing [afterschool tutoring] business, results of operations and financial condition." So far, TAL has discontinued its weekend and holiday tutoring of academic classes, which has traditionally accounted for the majority of the company's revenues in the past.

Some other education providers issued similar statements.