China announces ban on $100 billion for-profit education sector

What happened: China has announced a series of regulations effectively banning the operation of for-profit education companies in the country. The new rules will no longer allow companies teaching school subjects to accept foreign investment, including capital from offshore registered entities of Chinese companies, according to a statement released by the State Council of China.

Bloomberg reports that companies are not allowed to raise capital through stock markets to invest in for-profit educational companies and that direct acquisitions are prohibited.
Why it’s important: The move is expected to cause a massive disruption in China’s $100 billion education sector. Threatening companies such as TAL Education Group (NYSE: TAL), New Eastern Education and Technology Group (NYSE:EDU) and Gaotu Techedu Inc.(NYSE: GOTU). Major investors in the sectors include: Alibaba (NYSE: BABA), Tencent Holdings Ltd. (OTC: TCEHY) and ByteDance Ltd. The profitable education sector was expected to generate 491 billion yuan ($76 billion) in revenue by 2024.
What’s next: The new regulations focus on compulsory subjects, such as mathematics, natural sciences and history. While art or music classes would usually not fall under the new restrictions. Online tutoring agencies are also prohibited from taking on students 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, the State Council said.

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