The Hindu Profiles | Dholavira, Basavaraj Bommai, and China’s New Oriental group

New Oriental | Class dismissed

Students and parents walk after attending a private after-school education in Haidan district of Beijing on July 29, 2021.   | Photo Credit: AFP

The 2013 film American Dreams in China tells the extraordinary rags-to-riches story of Yu Minhong and the New Oriental Education and Technology Group. The film, released in China in May that year, two months into Xi Jinping’s tenure as China’s President, is closely based on Mr. Yu’s life, telling the story of three friends in Beijing and their attempt to secure an American visa in search of prosperity. Two are rejected, and instead turn their efforts into starting a language school to help millions of others secure their American dream.

The film’s resounding commercial success underlined how Mr. Yu and his company are seen by many in China — as a poster-child of the reform era. For a whole generation of Chinese, New Oriental became synonymous with learning English, and for many, with moving abroad and seeking their fortunes.

According to the company, it has trained 65 million students, including 10 million last year, a reflection of the recent boom in China’s private education industry. It currently has a network of 118 schools, 1,625 learning stores and 48,300 teachers on its rolls spread across 104 cities in China. It is by some distance the biggest provider of private education services in the country.

A 2006 profile in the official China Daily hailed Mr. Yu as “the “godfather for overseas study”, as it narrated how the son of a farmer from Jiangsu province failed the national college entrance exams two times because of his poor English. Indeed, Mr. Yu’s was a success story emblematic of China in its age of opening up — an age of unabashed ambition, aspiration and achievement — a success story, it appeared, that the government was happy to celebrate as well.


No longer, it appears. On July 25, Mr. Xi’s government dealt what the Chinese media described as “a death blow” to New Oriental and the wider private education industry, introducing sweeping regulations that are likely to bring a booming industry to a screeching halt.

The new regulations, industry experts say, may go as far as turning all private education companies into non-profits, as well as barring them from going to the stock market (Mr. Yu’s was the first Chinese educational company to list on the New York Stock Exchange in 2006.) Foreign capital will largely not be allowed to participate in the private education sector, said the document issued by China’s State Council, or Cabinet.

The cited reasons were understandable, aimed at “easing the burden on Chinese students and their families” amid the hugely escalating costs of private tuition. Chu Zhaohui, a research fellow at the National Institute of Education Sciences, told the Party-run Global Times the problem was many tutoring firms had “shifted from teaching to profit”.

In 2020, when education shifted online amid the pandemic, the industry raised $18 billion with the surge in online services, according to the South China Morning Post. With the intensely competitive education space in China — both to prepare students for the bruising national college entrance exam or “gaokao” as well as for overseas admissions — after-school education services boomed, with the market growing from 5.8 billion yuan ($900 million) in 2016 to 85.5 billion yuan ($13.3 billion) in 2020, the paper reported citing data from Frost & Sullivan. The paper noted 11 Chinese private education firms raised $2.3 billion through listings in Hong Kong and New York last year, the biggest of which was New Oriental, which raised $1.5 billion through a secondary listing in Hong Kong.

Those days are now over. With the new regulations, shares of New Oriental and TAL Education, the other major player, crashed last week. Both are now down by a whopping 70% in the past month, reeling from the new regulations as well as earlier anti-trust moves that rattled the entire tech sector in China. Completing its fall from glory, New Oriental last week suffered a ratings downgrade, down to the lowest investment-grade rating from Moody’s and a step away from junk.

The moves didn’t come out of the blue. Mr. Xi has on several occasions highlighted high education costs as a bane. Chinese authorities are also aware that it is the reason most often cited in surveys of families explaining why China’s population growth rate is falling despite relaxing family planning measures.

The moves have, however, divided opinion. It has been welcomed by many who are shelling out huge amounts for after-school study. Yet many parents, currently in the throes of preparing their children for college exams, are now left unsure where to turn to.

The latest government intervention has also alarmed investors, especially those abroad, about how the Xi government is running the economy. Following the anti-trust investigations into tech giants, including Alibaba and Tencent last year, and the more recent moves against the ride-sharing giant Didi Chuxing, the latest regulations have now dealt a hammer blow to a third thriving industry and left investors shell-shocked.

On July 28, China’s securities regulators convened a meeting with major investment banks to address their concerns, attempting to convey a message that the measures were industry specific and not a broader tech crackdown. They will take convincing after the latest bloodbath. Regulators’ moves have wiped out a combined $800 billion in value for China’s tech companies since February, according to Bloomberg data.

If it is true the education regulations were to some extent a long-time coming and had their own sector-specific logic, they will inevitably be seen outside China as part of a broader effort by the Communist Party to tame companies and industries that its regulators see as having grown too big to control. “Unregulated”, is how authorities have described them — or in other words, more under the control of the market than the state.

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Printable version | Sep 26, 2021 1:07:05 AM |

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