Management at China’s leading tutoring and ed-tech firms has been racking brains in an effort to pivot away from the once-lucrative but now moribund K-9 tutoring business. Pivoting has become a necessity ever since Beijing delivered a devastating blow to the private tutoring industry this past summer by banning many types of after-school tutoring outright.
The Wall Street Journal in November reported that several major Chinese tutoring and ed-tech companies were in discussions with China's government to resume K-9 tutoring, under the condition they run their businesses as nonprofits. But some companies have decided to sever their K-9 operations altogether, exploring completely different businesses: agriculture ecommerce, garment-making and even coffee houses. Others will stay in the business of teaching but place their bets on professional education and “well-rounded education”(素质教育), which is not schoolwork-oriented and instead involves extracurricular activities such as arts, sports, science, technology, engineering and civics.
Here’s a roundup of the major pivots by major Chinese private tutoring firms and ed-tech unicorns:
Agriculture and Chinese-language education
New Oriental Education & Technology has garnered the most attention after it took a sharp turn last month. Its CEO Yu Minhong announced in early November the company would fully exit K-9 tutoring to move into agriculture ecommerce, peddling ag products via livestreaming.
Last week, the NYSE-listed Chinese tutoring company raised yet more eyebrows on social media after announcing its plans to teach Chinese to kids overseas, primarily students of Chinese descent. According to New Oriental’s official Weibo account, the company set up a separate project called Bingo back in August, shortly after Beijing banned after-school tutoring to students below 10th grade.
New Oriental is one of the most recognizable tutoring brands in China. Since its founding in 1993, hundreds of thousands of Chinese youth have taken its English classes. Now that it wants to teach kids with Chinese heritage the Chinese language, many of whom might well be the children of Chinese immigrants who used to learn English with New Oriental, some Chinese immigrants joked: “New Oriental just won’t leave us alone.”
Garment and hardware ed tech
In November, Yuanfudao announced a new hardware ed-tech brand called Flying Elephant Planet (飞象星球). The brand was built to sell learning technologies and hardware to public schools and governments. And news had it in October that Yuanfudao was preparing to enter the garment industry, setting up a designer team to make down jackets. Chinese media found that Yuanfudao’s parent company, Yuanli Weilai Tech Company, had acquired a clothing company and hired fashion designers on job-ad websites.
Yuanfudao is backed by Tencent and is one of China's largest ed-tech unicorns, with a splashy IPO rumored before the tutoring crackdown devastated its core business.
Beijing-based Xueda Education is keeping its non-K-9 education business while also exploring something novel. The 21st Century Business Herald reported in July that Xueda had set up a new coffeehouse company.
Young, bourgeois Chinese coffee aficionados have contributed to a specialty coffee boom in the ecommerce era, with specialty coffee startups attracting billions of dollars in funding over the past two years. Xueda is not even the first internet company to pivot to coffee: Zhihu, the Quora-like social media platform, started selling coffee beans online as early as August.
This is a market that most online learning companies are trying to tap.
Yuanfudao was one of the first ed-tech companies that made the move. It launched a new product, Pumpkin Science, shortly after the tutoring ban, which will focus on so-called "well-rounded education,” not (banned) subject-specific tutoring.
Yuanfudao’s nemesis Zuoyebang also introduced its “well-rounded education” offerings in August. Chinese publication Jiemian reported that the Baidu-backed ed-tech unicorn launched five courses teaching science, arts, language skills and logical thinking under a new brand called Little Deer.
Another online learning firm that’s investing in “well-rounded education” is the U.S.-listed TAL Education Group. In mid-November, CEO Zhang Bangxin announced in an internal letter the company would continue catering its main service to minors starting at age 2, but instead of subject-based tutoring, the company will shift its focus to offering courses helping build a “well-rounded education,” including humanities and aesthetics as well as science and programming.
It makes financial sense to transition from subject-based tutoring to “well-rounded education.” China's “well-rounded education” market reached $83 billion in 2020, making up 21% of the entire private tutoring market. It was the second-largest tutoring sector after the $126 billion K-12 after-school tutoring market, according to an industry report.
The NYSE-listed Gaotu Techedu is also sticking with education, but besides “well-rounded education,” it’s going to have a go at adult education and professional training, its founder and CEO Chen Xiangdong said back in September.
It’s not going to be an easy pivot for Gaotu in the near term. The company reported $22 million in revenue from professional and foreign language courses in its second-quarter earnings, down 46.9% from the same period last year, and far less than revenue from K-12 courses.
But the adult and vocational training market will grow because of favorable national policies.
The Party and the state have been trying to ramp up China’s vocational education in recent years in order to diversify its labor force. People’s Daily, the Party mouthpiece, published several opinion pieces in 2021 that urge vocational schools and programs to expand recruiting.