What Happened: China has announced a set of regulations that effectively ban the operation of for-profit education companies in the country. The new rules will no longer allow companies that teach school subjects to accept overseas investment, which could include capital from offshore registered entities of Chinese firms, according to a notice released by the State Council of China.
Bloomberg reports that firms will not be allowed to raise capital via stock markets to invest in for-profit education businesses and outright acquisitions are forbidden.
Why It's Important: The move is expected to cause a massive dissruption to China’s $100 billion education sector. Threatening companies like TAL Education Group (NYSE: TAL), New Oriental Education & Technology Group (NYSE: EDU) and Gaotu Techedu Inc.(NYSE: GOTU). Among the big investors in the sectors are Alibaba (NYSE: BABA), Tencent Holdings Ltd. (OTC: TCEHY) and ByteDance Ltd. The for-profit education sector had been expected to generate 491 billion yuan ($76 billion) in revenue by 2024.
What's Next: The new regulations are focused on compulsory subjects, like math, science and history. While art or music classes mostly would not fall under the new restrictions. Online tutoring agencies will also be forbidden from accepting pupils under the age of six.
China plans to improve the quality of state-run online education services to make up for the shortfall, and will make them free of charge, the State Council said.
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