China Bars For-Profit Tutoring In Core School Subjects

China is barring tutoring for profit in core school subjects to ease financial pressures on families that have contributed to low birth rates.

The news sent shockwaves through its vast private education sector and saw share prices plunging.

The policy change, which also restricts foreign investment in a sector that had become essential to success in Chinese school exams, was contained in a government document widely circulated on Friday and verified by sources.

The move threatens to decimate China’s US$120 billion private tutoring industry and triggered a heavy selloff in shares of tutoring firms traded in Hong Kong and New York including New Oriental Education & Technology and Koolearn Technology Holding.

All institutions offering tutoring on the school curriculum will be registered as non-profit organisations, and no new licences will be granted, according to the document, which says it was distributed by China’s State Council, or cabinet, to local governments and is dated Jul 19.

According to the most recent figures from the Chinese Society of Education, more than 75 per cent of students aged from around 6 to 18 in China attended after-school tutoring classes in 2016 and anecdotal evidence suggests that percentage has risen.

China International Capital said the rules are “tougher than market expectations, and we expect material impact on future business and capital market activities.”

The pressure for children to succeed in an increasingly competitive society has given rise to the term Jiwa, or “chicken baby”, which refers to children pumped with extracurricular classes and energy-boosting “chicken blood” by anxious parents.