12 months after China implemented stringent policies to regulate the after-school tutoring market, what are the trends, challenges, and business opportunities in China’s education sector? Jane Ru, our Education & Publishing Sector Lead, shares her observations and views.
The context –what’s happened in the past 12 months?
Regulatory restrictions are one of the most challenging issues faced by education companies in China. Last year marked the start of a new era in the country’s education reform, particularly in after-school tutoring – a US$112 billion industry. The so-called “Double reduction” policy caused a tsunami in the capital markets as far as New York, and its wide-reaching effects occupied headlines throughout 2021 , with many of the tutoring companies struggling to survive.
Also in 2021, the Ministry of Education introduced several new measures, including the new standard for Chinese proficiency in language education, teaching reform guidelines for PE and health education, and further promotion of vocational education.
In short, reconfiguration has been ongoing in China’s education sector.
The impact of policy changes in after-school tutoring
Education in China is managed by the state-run public education system and regulated under the Ministry of Education. Until 2021, after-school tutoring was the most active and lucrative segment, attracting capital investment and involving numerous private companies. The private education providers, such as TAL, Gaotu and New Oriental, had more than 80% revenue from K9/K12 academic subject tuitions in 2020. These well-known players saw their share prices drop significantly in 2021 due to a plunge in revenue and profit.
Strategic business transformation in all Chinese companies in this sector is an ongoing challenge. And while some have failed and had to close the door with hundreds of staff redundancies, a few of them have embraced the new opportunities successfully.
A new driving force – vocational education
Vocational training has become an important driving force for stabilising the education sector in recent years. Favourable policies are boosting further development in this area, which in turn will provide opportunities for fast growing companies which can participate in activities such as training for skilled work in new materials development and advanced manufacturing.
In April this year, the revised Vocational Education Law upgraded the status of this segment:
- The law now encourages traditional secondary schools to offer courses on vocational education subjects. Consequently, vocational education graduates should enjoy equal education and career opportunities.
- The revision states that China should have a modern vocational education system by 2025, and by 2035 it should have a world-leading vocational education system. As a result, the social status of technical and skilled workers should be greatly improved.
- The law also contains multiple provisions encouraging international cooperation, including to establish Sino-foreign cooperative education projects and expand exchange platforms. These provisions encourage Chinese vocational education schools to go abroad alongside the globalization of Chinese companies.
The rapid growth of vocational training has led to thousands of new market entrants, most of them domestic players. While prospects for commercial collaboration can be plenty, foreign companies and investors need to invest in finding the right partners and carrying out stringent due diligence prior to entering any new partnership.
Trends – what to watch for in the long term?
China’s Education Modernisation 2035 reform focuses on “quality”. It sets the goal of establishing a system of lifelong learning, including universal attendance to pre-school education, balanced quality compulsory education, as well as enhanced vocational education and more competitive higher education. To achieve these goals, besides regulation changes, implementation plans are rolling out, including improving teacher quality, updating the qualifications framework, providing equal access to basic public education, and modernizing all education segments with a focus on vocational education and training.
Quality education and vocational education are by the policies, which have also become potential transformation paths for training companies previously focusing on after-school tutoring. Education hardware – combined with data and software services – continues to expand to provide accurate learning analysis and personalized teaching design functions. Some transformations go far beyond education to influence other industries.
Counterstrategies – re-evaluation and steering forward
For foreign companies which already have a presence in China or which had tapped into the market before 2021, it’s an unexpectedly difficult situation, being caught up in the regulatory changes. That makes it critical to devise a plan to cope with the changes and to improve business resilience should China still be a huge potential market for your business.
The number one principle remains a focus on core competencies with market repositioning. To achieve this, companies must adhere to strategy and adapt tactically. The best advice is to re-evaluate the market and adapt your China strategy. Compared to wait-and-see, proactive approaches are the only way for sustainable growth.
Check out how Crayfish.io helped Ludo Tutors – a British education company providing online classes for students around the world – to adapt its China market strategy and establish connections with local partners and schools.
For companies to reshape and succeed in China’s education market, it’s important to stay informed of provincial governments’ action plans and to understand how international education is changing in the country. In the meantime, with the right support and handholding, it could also be the best time to restructure your business in the Chinese market for future export wins.
We are currently helping several British and American education companies lead the way in China’s evolving education market, aiming to achieve sustainable growth in the country.
Jane Ru is our Education & Publishing Sector Lead. She can be contacted at email@example.com for an exploratory discussion on how Crayfish can help your business in China.