Recently, our CEO Ting Zhang was joined by Qin Li of QED Education, UK and SPGS International Shengbo China to share their insights in a business briefing session organised by the British Educational Suppliers Association. Ting and Qin shared their insights on the education sector as a whole, the importance of EdTech, and what to consider when doing business with China.
Qin started by talking about things to consider when doing business with China. To start with, it is extremely important to acknowledge China’s differences in culture: from all aspects of social behaviour, to the political system, to society, to history.
Secondly, you should ask yourself some questions. What will make your business successful? Rather than simply focusing on their EdTech and its economic implications per se, businesses should consider what value their products will bring to China in order to successfully appeal to Chinese audiences. Furthermore, why do you want to go to China? Is it because your business needs to expand to somewhere like China? Be mindful of reasoning for going to China; whether it be for short-term financial gain, or cultivating a long term establishment.
Qin went on to give an overview of China’s education system.
The decision-making power has experienced a shift over the last few years. Recently, more and more so-called ‘grassroots’ government departments are focused on education within wide political discussions. This has been encouraged even more by China’s latest Five Year Plan. With 2021 marking the start of the fourteenth Five Year Plan, there are several education-specific aspects included. It is clear that the Chinese government is encouraging EdTech and the wider provision of educational opportunities. Furthermore, despite a drop in nursery and early-years education investments, there is still evident growth in the education sector, with a focus on state-owned businesses and universities. Capital market investment in the sector has, in fact, slowed since 2018.
With regard to China’s Edtech value chain, basic service providers lie at the infrastructure foundation, followed by software and hardware. The system integrators themselves are, at this time, very regionally focused; in China there rarely exists national players as integrators are based on relationships with local governments which control school budgets and users. Schools are not budget holders or decision-makers in the state system, governments are.
Ting Zhang then explained how the edTech ecosystem works in China especially AI-powered apps and curriculum, and what Opportunities and Challenges lie for Western companies.
Traditional Companies, such as Oriental and TAL, play a large role in understanding the foundations of education. Technology companies, such as Huawei and Tencent, expand traditional services to serve the education sectors through content, online learning, and facial recognition. Many schools now rely on innovation to aid teaching. Similarly, startups use technology to provide new services and disrupt the existing markets in China.
Over the past five years, EdTech companies in China have benefited from increased government encouragement and financial support for EdTech. This includes government policies, including the Next Generation AI development plan (2017) and AI innovation action plan in colleges and universities (2018). These policies were implemented to encourage the development of AI in Education and foster more AI talents and research. In 2018, EdTech investments totaled 3.3 billion dollars: twice as much as the USA, and four times as much as in Europe. In 2020, online investment grew even further, with over 50% for both early years and K-12 students. Over the pandemic, this has increased greatly: with children out of school for several months, EdTech became an essential part of the fabric of Chinese education in 2020.
In the UK, EduTech is a sector, but there is a much smaller community than in China, where EduTech is seen as one of the core government-supported industries. Edutech is a ‘buzz word’ in China: There is a very active community in China working to provide educational content and services. For example, Zhongguancun in Beijing’s Haidian district is China’s version of Silicon Valley, and there are over 70 EdTech companies just in the MOOC Times Building that provides educational content and services as part of China’s booming online education economy. Many events and conferences have been hosted by the Zhongguancun Internet Institute innovation hub to bring together investors, founders and educators.
Compared with the UK, China is more boldly embracing AI in its education curriculum: with a focus on enabling schools and universities in all regions to learn across China through big data and blockchains in education. The UK has more concerns with regard to ethics and privacy, so are more conservative on AI’s use in education, so it is more difficult to test AI in real-life school settings. In China, most conversations are focused on how AI can be used to enhance the quality of teaching, improve learning, and increase national equality of opportunity. Examples include apps for language learning and homework, as well as facial recognition in the classroom. There is already a well-defined curriculum and emphasis on teaching to create an environment where AI applications are easier to implement. Companies such as Squirrel AI, iFLYTEK, and Netdragon provide personalised education, advancing interactive learning to new and higher levels.
There is no doubt that technology plays a vital role in modernising the Chinese education system. China has the world’s largest digital learning market with 172 million online learners and 142 million mobile learners even before the pandemic hit in 2020. As a result of Covid19, the Chinese government adopted the slogan “Stop Class, But Don’t Stop Studying” along with the heavy encouragement of online education. Since there was already an environment of heavy investment before the pandemic, China was quickly able to utilise and combine existing resources to provide a sustainable online education environment.
Though schools were only stopped for around three to five months, it allowed more money to enter the EdTech market. Online education has surged past 58 billion dollars in 2020; an increase of 20 billion from 2019 (over 50% growth). Furthermore, two of the leading Beijing-based EdTech firms, Zuoyebang and Yuanfudao, earned profits worth 750 million and 1 billion US dollars respectively this year. Zuoyebang has picked up around 50 million users over 2020, and raised $1.6 billion from investors including Alibaba Group.
In the K-12 market, the after-school tutoring market alone is worth about RMB 600 billion. Within this, popular education programmes include English language learning, preparation for national examinations and tutoring in related STEM topics. One challenge, however, is that there is already a high level of local competition; the market is already saturated. Existing Chinese companies are already very skilled at developing education apps with great success. The top five education companies own just 5% of the national market share, as there are still many local players in the field. Additionally, In many cases, government regulations with regard to state schools and investment opportunities are unclear and difficult to understand. Most school purchases at the local level require local affiliations/currencies, which discourages foreign company entry. Finally, most EdTech companies lack sufficient resources, local teams and distributors. Having an on-the-ground team is often essential for setting up companies in China, which can prove challenging for foreign companies.