China

China’s edtech crackdown isn’t what you think. Here’s why.

It's part of an attempt to fix education inequality and address a looming demographic crisis.

Child on laptop

In the past decade, China's private tutoring market has expanded rapidly as it's been digitized and bolstered by capital.

Photo: Getty Images

Beijing's strike against the private tutoring and ed tech industry has rattled the market and led observers to try to answer one big question: What is Beijing trying to achieve?

Sweeping policy guidelines issued by the Central Committee of the Chinese Communist Party on July 24 and the State Council now mandate that existing private tutoring companies register as nonprofit organizations. Extracurricular tutoring companies will be banned from going public. Online tutoring agencies will be subject to regulatory approval.

Much of the coverage around the latest crackdown has linked it with Beijing's war on Big Tech or focused on ideological control, which has been a major aspect of Beijing's handling of the state-run school system. But when it comes to the sprawling ed tech industry, experts say what's happening looks more like an attempt to cure tech-enabled ills that have exacerbated nationwide educational — and thus social — inequality.

The confusion stems from the overlapping timelines of two regulatory trends: The first is far tighter regulations on the private education market, which were handed down last Saturday but have been bubbling up since earlier this year. The second is Beijing's increasingly widening crackdown on Big Tech generally. But "the crackdown on private tutoring is a crackdown on tech-mediated harm, not part of the crackdown on Big Tech," Michael Norris, head of China Consumer & Tech Research at AgencyChina, a global marketing agency, told Protocol.

Beijing, or at least one of its major regulators, appears to agree. To calm spooked investors, China's securities regulator reportedly held a call Wednesday night Beijing time with major investment banks. On the call, senior officials at the China Securities Regulatory Commission stressed that the curtailing of private education is a targeted crackdown on problematic practices that occur in the particular market, not a blanket move that targets other industries, according to Bloomberg.

Moves against tech titans like Alibaba, DiDi and Ant Financial are aimed at addressing genuine problems in China's tech industry including unfair competition, lax cybersecurity and predatory lending. By contrast, the latest ed tech rules are intended to rectify unscrupulous practices like false advertising and VC capital-induced pricing wars that have disrupted the market and are increasingly excluding underprivileged children. Tencent-backed Yuanfudao, one of China's largest ed-tech unicorns that had been rumored for an IPO, is already transitioning away from K-12 after-school tutoring. It launched a new product on Wednesday, Pumpkin Science, which will instead focus on a so called "well-rounded education" (素质教育), not (banned) subject-specific training.

Sociologists and political economists believe that while Beijing's tightened grip on the private education sector might hamper the growing wealth and power of the online-learning companies, it is ultimately an attempt to avoid massive social unrest.

"Education has been crucial to [the] CCP's legitimacy as a people's party," Ye Liu, a sociologist at King's College London who studies education inequality in China, told Protocol. "The recent crackdown on ed tech and private tutoring can be seen as an attempt to respond to the concerns of the poor."

China is home to one of the world's largest learning-technology markets, powered by its 240 million K-12 students and eager families willing to shell out an average of 11% of annual family expenses for their children's future success. The state is the dominant education provider, but deep-seated anxiety over education inequality and the highly competitive nature of the gaokao has fueled a private tutoring bonanza. Many companies offer services online and tools that are equipped with deep learning technology that helps solve questions for students. These startups are backed by behemoths like Baidu, Tencent and Alibaba and have adopted the same cash-burning strategy — grab market share, at virtually any cost — that has given rise to the tech giants. Buoyed by the pandemic, China's ed tech industry once enjoyed exponential growth. Online education startups raised over $10 billion in 2020, about two-thirds of the world's total venture capital investments that went into this sector, according to HolonIQ, a market intelligence firm.

The staggering amount of money pumped into China's private tutoring market has led to shady practices, such as misleading advertising and use of fraud, that have disrupted the market and, in the eyes of the government, exacerbated education inequality, a huge pain point for hundreds of millions of Chinese families, even though some ed tech companies claim they try to tackle the exact same problem.

One common practice private ed tech companies have adopted is to attract new user subscriptions with cheap, heavily subsidized trial classes. Once the trial period is over, families have found themselves on the hook for significant upfront course fees, which have proven budget-busting for even members of the relatively wealthy urban middle-class. "I believe this use of subsidies to attract new parents, and make them pay upfront, was one reason that this sector was targeted," Norris said.

Why private education?

Insiders in the private education sector had long anticipated heightened restrictions, and they'd gotten advance word of the new policy guidelines that came down last weekend, according to Rui Ma, a China tech investor and analyst who hosts the podcast and newsletter Tech Buzz China. Ma told Protocol that tech entrepreneurs she talked to last week, when rumors about upcoming sweeping rules were widely circulating, "basically all said that they felt like this is clearly to address the demographic crisis."

The latest Chinese census, released on May 11, showed the slowest population growth in decades, and plummeting birth rates since 2011. To address it, Beijing announced a three-child policy on May 31. Yang Wenzhuang, director of the Department of Population Monitoring and Family Development at China's National Health Commission, said in July that economic and social policies related to education, housing and employment have become key factors "influencing families' fertility choices." To encourage families to have more babies, Yang said, the government will roll out supplemental policies to make life easier for parents. And that could include reduced education costs and Ministry of Education-led support for after-school services and summer care services in order to reduce the burden of education for schoolchildren.

"The demographic crisis is exacerbated by social inequality," Ma said. "[If] I am struggling to see any future for my kids without spending a ton of time and resources on it ... I'm gonna not have kids."

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