Chinese education stocks plunge as Beijing reportedly wants to turn tutoring companies into non-profits

students in china
Primary school students attend a class in Beijing.

  • Shares of Chinese tutoring companies are crashing Friday after Bloomberg reported that Beijing is targeting the sector.
  • China is considering asking education tech companies in the $100 billion sector to turn into non-profits.
  • Shares of Tal Education Group and Gaotu Education were among those being hammered in the US market.
  • See more stories on Insider’s business page.

Shares of Chinese education companies sank Friday, losing more than half their value following a Bloomberg report that China may ask companies that offer school curriculum tutoring to become non-profits, a move that could severely damage the country’s $100 billion education technology industry.

Beijing is considering rule changes that could lead to platforms being blocked from raising capital or going public, the report said, citing unnamed sources. Listed firms will likely no longer be allowed to invest in or acquire education firms teaching school subjects and foreign capital investment into the sector may be banned, according to the report which also said an education ministry spokesman said relevant policies are still being formulated.

NYSE-listed shares of Tal Education Group, which runs after-school tutoring programs for primary and secondary school students, tumbled by 55% in premarket trade and New Oriental Education & Technology Group slid 62%. Gaotu Techedu, formally known as GSX Techedu, dropped 59%. In Hong Kong, Koolearn Technology sank 28%.

NYSE-listed shares of Alibaba fell 3% as the e-commerce heavyweight has invested in the online education industry.

The report said China is taking aim at the sector in part because parents pay expensive fees for tutoring and the country, in serving a top priority of lifting the birth rate, last month released measures aimed at encouraging births and lowering child-related expenses. China in June said couples will be allowed to have three children.

The potential threat to the education tech sector also comes as China has been cracking down on companies with listings in the US and foreign equity markets, with Beijing’s concerns ranging from data security and disclosure requirements. Investment banks are moving to steer Chinese IPOs away from the US market and into Hong Kong, according to a Financial Times report.

Ride-hailing giant Didi Global is among Beijing’s targets, with regulators launching a cybersecurity review just days after the company’s shares began trading in the US on June 30. Didi shares fell 13% early Friday, extending losses from Thursday on news that China is considering serious penalties for the company following its IPO.

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China is considering a rule change that would close a loophole allowing domestic firms to IPO overseas, report says

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  • Chinese regulators are mulling rule changes that would block offshore listings by domestic companies, Bloomberg reported Wednesday.
  • The rule changes would close a loophole used by Chinese tech companies to launch IPOs in the US.
  • The report follows data security reviews on ride-hailing service Didi whose shares began trading in the US last week.
  • See more stories on Insider’s business page.

Authorities in China are considering a rule change that would allow them to stop domestic firms from listing publicly in overseas markets, according to a Bloomberg report. The loophole has previously been used by Chinese giants like Alibaba and Tencent to IPO in the US.

The report arrives after Chinese regulators initiated a data security review on ride-hailing service Didi and on two other companies after their shares recently began trading in the US equity market. China has been clamping down on technology companies over issues ranging from security to privacy to anti-competitive behavior.

The China Securities Regulatory Commission is spearheading the revisions. Once changed, the rules would require companies that are structured using a so-called Variable Interest Entity model to seek approval before going public in Hong Kong or the US. The overseas listings rules have been in place since 1994 and do not reference companies registered in places like the Cayman Islands, sources told Bloomberg.

The proposed rule changes in China could dent the business prospects of the Wall Street banks who work on the stock offerings. Chinese companies over the past 10 years have raised about $76 billion through first-time share sales in the US, the report said.

Didi shares that began trading in the US last week have plunged since China said it would conduct a cybersecurity review on the company. The stock on Tuesday dropped below the IPO price of $14 after Chinese authorities ordered app stores to remove Didi from their platforms after the Cyberspace Administration of China alleged violations in the collection and use of personal data.

Read more: Goldman Sachs names 30 stocks to buy for double-digit revenue growth in 2022 – and 4 sectors expected to beat the S&P 500’s sales growth

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