Can China’s Edtech Stocks Bounce Back After the Clampdown?
yu wei on Unsplash

Can China’s Edtech Stocks Bounce Back After the Clampdown?

1st December 2021 | 9 min read

China’s once soaring private education stocks turned into some of the world’s worst performing stocks amid a series of government crackdown over the past year. The hottest education technology, or edtech, stocks like New Oriental, TAL and Gaotu have all suffered devastating losses, with no clear outlook for the industry. 

Before the surprising turn of events, the USD 100 billion edtech sector was anticipating huge potential and market opportunities due to the country’s fierce competition among its youth at all levels, from studying to securing an ideal job. 

The COVID-19 pandemic even boosted the growth of online education platforms equipped with live-streaming, large-sized online classes and dual-teacher teaching models. New Oriental became the first Chinese education company to complete its Hong Kong IPO in 2019 and its online education company Koolearn completed a secondary listing last year. TAL Education was reportedly seeking a Hong Kong dual listing after its New York listing. 

After losing control of their core K-12 education businesses, these edtech giants are shifting their focus into new battlegrounds such as vocational education and non-curriculum education services recently.

China’s competitive education scene

The world’s first standardised tests, called keju, were actually created in ancient China during the Han Dynasty, in which candidates needed to go through a multi-tier civil service exam system consisting of local, provincial and final court exams. During exams, candidates had to sit inside a single cell all day for three days. 

With the traces of keju, China’s current education system is said to be the most competitive in the world, with nearly 10 million students taking the gaokao (National College Entrance Examination) every year. The exhausting two to three day exam determines the universities students can enter, and the direction of their career and future. 

The gruelling education landscape, accompanied with the rising need for high quality education and insufficient public resources, gave rise to the private tutoring sector. Analysts even anticipated the huge potential for the development of online education companies in lower-tier cities after the outbreak of the pandemic.

A report from Chinese Academy of Sciences published in January said with the application of artificial intelligence and big data technology, and the increasing acceptance of online education by parents, the online education industry would face a shift towards third and fourth-tier cities, intensified competition for high quality teachers, and a wave of mergers. 

The downfall of private education

But some industry players took the step too far by exploiting the already aggravating parental anxiety. The Education Ministry said the private tutoring sector has been “severely hijacked by capital”. Chinese president Xi Jinping described the country’s school tutoring sector as “a chronic disease”, and parents were facing a dilemma in balancing the health and happiness of their children with the demands of a competitive system.

Some tutoring centres even designed threatening slogans like ‘If you don’t come to train, I will train your opponent’ to stimulate the parental pursuit of their children’s academic performance. In April, Beijing city fined GSX Techedu, TAL Education Group, Koolearn Technology, and Gaosi RMB 500,000 (USD 78,320) each for misleading customers with false advertising. 

Coincidentally, such a negative and stressful education environment was formed when the country’s leaders were already faced with declining birth rates and the emerging “lying flat” lifestyle. Chinese leaders were also working towards the goal of common prosperity, which means they do not want higher earning families to have an advantage in terms of private educational resources.

Image credit: Rice Media

Then Chinese regulations reversed course on big tech to take its grip back. The Evergrande crisis also reminded China not to let another industry be built on a thin base such as P2P lending or improperly licensed wealth management products.

As a result, the state enforced a strict set of regulations on the private education sector in July this year, which included a ban on private education companies from making profits, raising capital or going public.

Teaching at weekends and during public or school holidays are also prohibited. Online lessons should be no longer than 30 minutes with at least a 10 minute interval between lessons, and should end by 9 pm, according to the new rules.

All of these contributed to the downfall of edtech stocks, but some are showing signs that they are finding a new way out after the unprecedented harsh crackdown.

New Oriental Education

New Oriental Education & Technology Group Inc. is the largest comprehensive private education company in China. It provides a wide range of services including pre-school education, overseas study consulting, textbook publishing, and most recently expanded into online education in 2015.

As of May this year, New Oriental had a network of 122 schools, 1,669 learning centers, 11 bookstores and over 54,200 teachers in 108 cities. It was the first Chinese educational institution to enter the New York Stock Exchange in 2006 and the Hong Kong stock market in 2019. 

After the clampdown on edtech firms, New Oriental shares dropped 54% in the US (NYSE: EDU) and 41% in Hong Kong (SEHK: 9901). Its online tech company Koolearn (SEHK: 1797) also recorded its biggest one-day loss of 39% at the time. The group’s score was downgraded to the lowest investment grade rating Baa3 from Baa1 by Moody’s Investors Service in July.

New Oriental announced in October that the group would close 1,500 schools amid Beijing’s tightening grip and donate some 80,000 sets of desks and chairs to rural public schools. Its subsidiary Koolearn Technology will also close its K-9 education business by the end of November. 

The group is ceasing its K-9 tutoring services at all learning centers by year-end, a move that is said to have a “substantial adverse impact” on the company’s revenues for the fiscal year ending 31 May 2022. The related service accounted for at least 50% of its revenues in the previous two financial years.

Instead, the group set up a new subsidiary focusing on extra-curriculum services in July called Yunnan New Oriental Education & Technology Group Education and Training School. It covers campsite services, sports competition organisations, retail rental of sporting goods and equipment, and off-campus trusteeship services in primary and secondary schools.

It is also shifting into quality education by providing services in art creation, humanities, language, natural science, innovation, smart sports training and quality parenting. Quality education generally means focusing on the social, emotional, mental, physical, and cognitive development of a child.  

For adult training services, it will continue to provide adult training services including language classes, test preparation courses and overseas study consultation. 

The group will also start selling farm produce by setting up an agricultural e-commerce platform and utilising the abundant human resources. Such a business strategy received wide appreciation from social media users as the founder fulfilled the company’s financial obligation amid its hardest times.


Gaotu Techedu Inc. (NYSE: GOTU), formerly GSX Techedu, is an education tech company founded in 2014.   It offers similar services including K-12 online tutoring via its online platform Genshuixue and other foreign language and professional training courses for adults. 

Gaotu might be the most worrying stock among the three because its company performance was already challenged in the US stock market before the crackdown. 

Listed in 2019, the company’s explosive growth rates quickly caught the market attention and was doubted for creating fake statistics. For instance, Muddy Waters accused GSX of boosting fake student enrolments with robot accounts.

In September 2020, the US Securities and Exchange Commission initiated a probe into GSX Techedu for fraud alleged by well-known short-sellers including Muddy Waters, Citron Capital and Scorpio Capital. 

On July 23, Gaotu’s shares further slumped 63%. Like New Oriental, Gaotu announced this month that it will cease its K-9 tutoring services by year-end.

It will shift its business focus towards professional education and vocational education courses, and explore opportunities in digital products. It is expected to bring a substantial adverse impact on the company’s revenues for the fiscal year ending 31 December 2021 and afterwards. 

The company now offers adult training classes in aspects such as practical English, Japanese, accounting, civil servants, teachers, medical examinations, postgraduate entrance exams, CET-4, CET-6 and IELTS.


TAL Education Group, which means “Tomorrow Advancing Life”, a leading K-12 after-school tutoring services provider in China. It provides tutoring, consultation and personalized premium services primarily through small-class services. 

The company operates the online education platform, and other websites. It also runs and the Mama Bang app, an online platform focusing on children, infants, and the maternity market.

TAL’s shares plunged 71% on 23 July. Like the other two edtech giants, TAL plans to cease offering K-9 academic services by year-end. The company expects that the cessation will have an adverse impact on the revenues for the fiscal year ending February 28, 2022 and afterwards.

It was reported that the group is shifting towards high-quality education courses covering science, programming, eloquence, traditional culture, aesthetic education and Weiqi etc. It is also operating the Bixin after-school custody business and provides after-school pick-up, meals, homework tutoring and other services from Monday to Friday.

It also integrated three sub-brands into Qingzhou as an effort to enter the field of vocational education. The brand would focus on postgraduate entrance examination, language training and overseas study support.

New strategy for edtech

The earning prospect for edtech stocks looks dim for this year because China has officially closed the gate for K-12 academic business, but it simultaneously opened a new door — vocational education. 

On October 12, China issued the “Guidelines on Promoting the High-Quality Development of Modern Vocational Education”, which sets clear goals such as the enrollment of vocational colleges should be no less than 10% of higher education institutions rate. It also explicitly welcomes foreign investment into the vocational education sector in 12 provinces.

Earlier in November, Bloomberg reported that Beijing plans to issue more than a dozen licenses that allows companies to offer after-school tutoring on a nonprofit basis and make a profit on other businesses, such as tutoring for professional exams. Investors should see this as a sign of a more stable national education policy.

As China’s economy is shifting to more advanced and tech-led industries, upgrading its workforce’s skill set is essential to achieve continuous economic growth. 

For example, if rural workers can be trained and educated to work in value-added sectors like chip manufacturing or modern agriculture, they can help sustain China’s ambitious economic goals. This hints that vocational education could be the new focus of China’s education landscape in the long term.

Also, while the country still has high demand for high-quality and non-academic education, the private education sector can target subjects like music, arts or physical education. 

Whether edtech companies can successfully reposition themselves is yet to be seen, but at least some top-tier institutions are optimistic about the future of edtech stocks. 

Morgan Stanley analysts forecasted that Chinese education stocks can recover in the double-digits as it expects further government support for vocational training. It are eyeing New Oriental and TAL Education as they have “ample cash” to operate new businesses like non-academic tutoring. 

Goldman Sachs and Greenwoods Asset Management are also reportedly buying large quantities of education stocks amid the adversity in 3Q 2021.

At this time, it is assured that the transformation of edtech firms is inevitable. Whether the leaders can avail themselves of opportunities brought about by new national policies will only only be seen in next year’s financial reports, or even later. 

Moreover, if China’s fundamental education problems are not fully eradicated, whether private education institutes will be reopened profitably to a limited extent is worth observing. Therefore, edtech stocks may still have a bright future, but investors need to cautiously wait and see.

Written by Lawati Ning Sang

Ning Sang previously worked as a business news reporter in Apple Daily with experience in feature writing, video production and news anchoring. Her past news coverage included stocks, real estates and immigration policies. She is currently interested in writing about the opportunities and challenges in Asian markets.

Newsletter subscription graphic

Get news and insights on the Asian markets that matter.

View our past Newsletter