Lesson for market, hope for society

A supplementary guideline issued later by the Ministry of Education turned the spotlight on nine years of compulsory education before high school－from elementary to middle school.

In China, school curriculum typically includes subjects like Chinese language, mathematics, foreign languages (English, Japanese and Russian), ethics, chemistry, history, geography, physics and biology.

Data from analytics firm Tianyancha showed most of the 4.12 million education firms in China focused on K12, or kindergarten to 12th grade, last year.

Industry insiders said the new guidelines represent the hardest crackdown ever on the education sector. The aim, they said, is to delink education from industrial-scale financial capital and to significantly reduce excessive intellectual as well as financial burden on students.

The new guideline also states that edtech companies will no longer be allowed to raise capital through IPOs. Listed companies and overseas investors are barred from investing, or acquiring stakes, in education firms that teach school curricula.

This immediately forced Yuanfudao, an online education startup that boasts a market valuation of around $15.5 billion, and Zuoyebang, another startup whose market valuation is estimated at $11 billion, to pause their IPO plans.

And those already invested in profitable education firms cannot cash out and exit in a hurry either. An investor who sought anonymity said: "We admit in internal meetings that we will lose a big sum in this round. We won't make any education investment at least this year."

But some investors with fine market nous may have already cashed out. For instance, in the first quarter of this year, Hillhouse Capital sold out all of its 4.05 million shares of TAL Education Group and 4.64 million shares of 17 Education and Technology Group Inc, a Nasdaq-listed online education company.

Gu Mingyuan, professor of Beijing Normal University, said, "All these developments seem to signal that after-school tutoring will become a supplement to school education, offering services related to students' interests in certain areas like sports, music, dance, art and technology."

Agreed CITIC Securities analysts Jiang and Feng. Existing education companies may have to transform their business and become quality education firms with focus on art, music, vocational education and education technology, they said.

Since the new rules prohibit foreign firms from acquiring or holding shares in school curriculum tutoring institutions, and also from using the route of variable interest entities, or VIEs, listed companies may face the risk of delisting or may have to spin off curriculum-related businesses, they said.

A reliable and knowledgeable source said internet major Bytedance has already scaled down its curricula education businesses Qingbei Online School and Guagualong, but the company has not confirmed this.

Since Bytedance is a listed company, it can no longer include education in its portfolio, so that part of its overall business has to be spun off inevitably, the source said.

But not everyone is pressing the panic button. In fact, some entrepreneurs seem to believe it is always the darkest before the dawn, so are quickly evolving future moves, not only to reduce potential losses but to explore potential new opportunities.

They are seeking to expand their user group from primary school students to college students and even adults. Signs of this potential trend appeared even before the guideline was announced formally.

For instance, in July, TAL Education Group launched its new brand of service called Qingzhou, which focuses on tutoring for postgraduate examinations and qualifying exams for studying abroad, including TOEFL and IELTS.

Wang Lei, who heads Qingzhou, said TAL is also mulling new vocational skill improvement training.