(Bloomberg) -- China’s latest campaign to rein in its $100 billion out-of-school education sector was meant to level the playing field for all. Instead, the crackdown is forcing tutors under the radar, making their services even more expensive -- and exclusive.
A sweeping overhaul announced last month bans private companies from teaching the school syllabus during weekends and vacations and from making a profit, along with a laundry list of other restrictions. The education technology industry has been left reeling, with more than $18 billion wiped off the combined market value of TAL Education Group, Gaotu Techedu Inc. and New Oriental Education & Technology Group Inc.
But the new rules also created a loophole, for now at least: private tutors and one-on-one lessons that the wealthiest families were already using to give their kids a headstart. With the companies that provided group classes to middle-class families now decimated, regulations intended to redress the balance for students could end up skewing it further, as extra assistance becomes available only to the richest.
“Eventually parents will have to find other alternatives like private tutoring,” said Shen Meng, a director of Beijing-based boutique investment bank Chanson & Co., who follows technology firms closely. “While the crackdown will inevitably increase fees for such services for everyone, less wealthy families will struggle more.”
Private tutor rates have already skyrocketed in the aftermath of the chaotic crackdown. In Shanghai, some one-on-one tutors are charging as much as 3,000 yuan ($463) an hour, said parent Zoe Li.
Jack Wang, a Beijing public-school teacher, charges as much as 500 yuan per hour for private classes at his home. He makes about 7,000 yuan per month from tutoring, roughly equivalent to his school wage, and says after-school lessons are the future.
“I only teach students at my home, but if they pay me high enough, I might consider going to their houses,” the 27-year-old said. “The demand will eventually increase.”
Private tutors -- many of whom are public school teachers offering extra tuition to students one-on-one, or in small groups -- have been a popular option for better-off families since well before the crackdown. The rules announced on July 24 specifically target education firms, but there are signs that individuals are also starting to face additional scrutiny. The Beijing Municipal Education Commission said Monday that one person, along with six institutions, had been punished for offering unlicensed lessons following a recent inspection.
The appetite for extra tuition is understandable. China’s national college admission test, the gaokao, is notoriously demanding but standardized, and a top score can win any student a place at one of the country’s best universities. It is a key opportunity for young people to move up the social ladder, and tutoring firms have been known to play on parental anxiety about underperformance.
As a result, many parents are willing to spend hundreds of thousands of yuan each year on giving their child every possible edge. Extra lessons for kids as young as five or six are not uncommon among those who can afford them.
Before Beijing’s intervention, the private education sector had become an investor darling, attracting more than $10 billion of funding from venture capital investors and technology giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. last year alone.
But firms reacted swiftly after the reforms were unveiled, along with accusations that the industry had been “severely hijacked by capital” and “broke the nature of education as welfare.” TikTok owner ByteDance Ltd. shut down a significant part of its online education business, laying off hundreds of employees in the process. Tencent-backed VIPKid said it will cease selling new classes taught by foreign-based tutors to students in China.
“After-school tutoring is completely out of control and it’s time they ought to be taught a lesson,” said Polly, a Hangzhou high school teacher who did not give her full name for fear of reprisal. As the mother of a four-year-old, she said she blamed the tutoring institutions for magnifying parental anxiety and expected the new regulations to ease that stress.
But while limiting access to out-of-school lessons may reduce some of the competitive pressure on children and parents, demand for tutors won’t be snuffed out without reforms to the university admissions system itself.
“As long as the hard demand is there -- as in the high school and college entrance exam still exist -- there’s no other way for parents,” said one mother who asked to be identified only as Huang. “They will have to find alternatives like one-on-one tutoring. All in all, the aspiration [of the crackdown] is positive, but we don’t know where it’s heading.”
Hugo Guo, a 42-year old tech worker in Shanghai, said one family in his neighborhood was already spending around 120,000 yuan over a summer holiday on their child’s private lessons.
“The rules will only push up costs for any after-school training, as the demand will always be there,” he said. “It’s just a matter of having to spend more money for the rich.”
Anyone looking to cater to that demand will certainly face heightened scrutiny from local authorities. Guangdong province pledged to curb after-school tutoring as part of their anti-mafia efforts, while Hubei deployed officials responsible for combating pornography and illegal publications. Anhui kicked off a six-month campaign targeted at public school teachers who charge for additional tutoring, after reports of a local teacher teaching private classes from their home went viral.
In its five-year blueprint released Wednesday, China called for greater regulation of numerous parts of the economy, ranging from food and drugs to big data and artificial intelligence. “The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” the document said.
Meanwhile, Beijing teacher Wang has so far managed to avoid unwanted regulatory attention by giving most of his private students a pseudonym and collecting fees via a WeChat account linked to his friend’s identification.
“There’s no way you can find and report me at my place,” he said.
(Updates with China’s five-year plan announcement. An earlier version corrected the dollar figure in second paragraph.)
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