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Recent rules change on China's private after-school tutoring sector has sent shockwaves through China's edtech industry. K-12 players, including New Oriental, TAL Education Group, Gaotu Techedu, Yuanfudao, and Zhangmen, have to abandon tutoring on academic subjects.
When there is no possibility in the area, it’s time for a change. Quality-oriented education is one of the roads that lie ahead for these companies.
What is quality-oriented education?
Quality-oriented education in China includes categories such as art, mathematical thinking, science, and sports training that aim to foster all-round youths and are usually not exam-oriented. Expressions including well-round or aptitude-based education are often used to replace the term.
According to the strict regulations that landed on July 24, tutoring on academic subjects during the compulsory education period and tutoring for preschool children would be under strict scrutiny.
Existing education companies providing tutoring on academic subjects will have to register as nonprofit organizations and cannot be listed on the public market. No curriculum-based tutoring will be allowed on weekends, national holidays, or during winter and summer vacations.
Online tutoring for preschool children is prohibited, and in-person tutoring on academic subjects (including foreign language) for them is also prohibited.
These regulations mean that K-12 companies focusing on help students get a higher score in Chinese, math, English, and other curriculum exams have to turn themselves around for survival. But they at first need to be clear about what academic subjects are.
China's Ministry of Education explained on July 30 that based on the curriculum design in compulsory education for grades from 1 to 9, ethics and rule of law, Chinese, history, math, foreign languages (English, Japanese and Russian), as well as physics, chemistry, and biology are all counted as academic subjects.
PE (or sports and health), arts (or music and fine arts), and all-around practice activities (including information technology, labor, and technology education) are in the scope of non-academic subjects.
We can find that some quality-oriented education categories are overlapped with non-academic subjects that the government has not yet banned from providing tutoring. The former can even be viewed as a synonym to the latter in China.
Even though not as large as K-12 tutoring, the industry still has great potential. 2021 Development Trends in China’s Well-Rounded Education Industry by iResearch shows that the market in China is valued at RMB505 billion in 2021, and the number will jump to RMB715 billion by 2023.
The regulatory tightening and the potential to tap into another market have pushed K-12 players to find an exit.
Scramble to pivot
RISE Education, a US-listed English language learning services provider for kids, took the lead in May to expand into the sector by announcing three new products focusing on social interaction and emotion, STEAM education, and comprehensive practical aptitude development for students.
First Leap English, an English learning product for kids acquired by TAL Education Group in 2015, rebranded itself to First Leap in June. At the same time, it announced offline children's growth center Leap Space and aptitude development products to improve students' opera, eloquence, art education, and chess abilities.
Yuanfudao, a Tencent-backed homework tutoring app, officially unveiled a new product called Pumpkin Science in July, pivoting to STEAM education for children from K-12 online tutoring.
New Oriental’s center in Nanjing also launched art and eloquence training classes for children in July. Its center in Beijing announced opening up an aptitude development center to provide art, science, literacy, and sports learning services.
Will they succeed?
In addition to the above two reasons, other factors lead to the sudden influx of K-12 tutoring providers into the area.
K-12 tutoring and quality-oriented education providers face the same target group—parents, who are always the decision-maker of whether to pay for a class for their children.
Moreover, as K-12 tutoring is the most popular sector among others in China before the implementation of the current policy, these institutions have established advanced abilities in technology, management, and organization over these years, which can also be applied to other areas including well-round education.
They also share a common instruction process from teaching, learning, exercise, test, and assessment, and they need to measure metrics including customer acquisition cost, retention rate, and course consumption.
However, the industry that K-12 tutoring companies view as an exit is fragmented and diversified, meaning providers need to make differentiated product development and business operation plan.
Further, parents do not have a rigid demand for tutoring on these non-academic subjects compared with exam-oriented subjects. Those in first and second-tier cities are prone to pay for these courses to help their children cultivate an interest, but those living in towns are more focused on improving exam scores to help children be admitted to a selective high school or university.
These differences make it more difficult for a company to scale and standardize its business in the area than it does in K-12 after-school tutoring.
Many experts in the industry expect that as almost all K-12 entrepreneurs pack in, the space with the fierce competition will become more competitive. However, they think it is unlikely to disrupt the whole landscape in the short term.