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In the year 2021, the education and training industry in China has been faced with unprecedented regulatory pressure with uncertainty became one of the keywords.
Though the policy was announced in July, the discussion over off-campus academic tutoring ranging from tutoring in advance of students’ learning stages and teaching standards, high price, refund issues, to aggressive marketing and expansion started as early as January.
Since the beginning of the year, rumors about the coming of tough new rules have spread over the whole industry. After months of anxious waiting, the "double reduction" guideline was finally unveiled on July 24, marking a beginning of an overhaul of China’s education industry.
The Ministry of Education in China meanwhile set up an independent department to supervise off-campus tutoring. And the supervision work was also listed as the "No. 1 Project" by the authority.
As the rules take effect, China’s education companies, including giants TAL, New Oriental, Gaotu, and NetEase Youdao, all ceased providing tutoring services for K-9 students by the end of 2021.
These great changes also brought mass lay-offs, a significant change compared with the past years. According to a Chinese 4-Year College Graduates Employment Annual Report (2020), the largest percentage of graduates worked in the education industry.
In a short time, large-scale on-campus recruitment, the sharp rise of stock price, frequent financing and overwhelming advertisements all disappeared.
Despite the huge impact, companies are struggling to get rid of risks for an exit or future growth. International expansion, inquiry-based learning, quality-oriented education, intelligent hardware, adult education, smart education and on-campus tutoring services are among the roads they select. As the regulatory situation becomes clearer and more stable, they tend to focus on one or two of them.
The regulation, which mainly targets private academic tutoring for K-9 students, also sent a shockwave across quality-oriented education, which is usually deemed as non-academic tutoring in China.
The guideline said no curriculum-based training would be allowed on weekends, national holidays, or winter and summer vacations. The most direct impact is the after-school time of nearly 200 million primary and middle school students would be rearranged. At the time, quality education steps up as the first alternative for parents who prefer to help children improve well-round abilities when academic tutoring is regulated.
The area is also a way out for academic tutoring providers. New Oriental and TAL took the lead to strongly invest in businesses like science, drama, coding, lab, eloquence, hip hop, chess, and sports. Compared with booming venture capital investment in 2020, the industry rapidly cooled down in 2021 as the rules came into force. Among the total 241 funding events of the entire education industry, quality-oriented education ranks third with 50 deals.
Notably, large deals were mostly announced in the first six months, including Hetao101's $200 million Series C, Huohuasiwei’s more than $400 million Series E, as well as Broks' 600 million yuan in Series B. The second six months witnessed 14 fundings, less than the number in H1, showing a lack of confidence in the sector from venture capital.
Due to capital chain rupture, Kuaipeilian (online training platform) and Qukoucai (online personal eloquence courses provider for children) suspended operations. Huohuasiwei (online education platform for K-12 children that specializes in mathematics and science) and Eagle Educational Technology Corporation (arts learning provider) have withdrawn their application after submitting the prospectus.
After academic tutoring was clamped down, one of the questions is whether non-academic tutoring, including quality-oriented education, would also be supervised.
MOE advocated avoiding non-academic institutions providing academic tutoring in the name of well-round development and thinking training.
Similar to K-12 academic tutoring providers, quality education providers also look to partner with schools as sports, arts, and AI-related courses are introduced into the curriculum system of primary and middle schools.
And as winter sports gained much popularity partly due to Beijing 2022 Winter Olympics, providers in the category also attract investors. Wings on Ice secured Series A round from New Oriental in June, and Skinow closed 100 million yuan round in December.
Corporate training and civil servant training
In terms of obtaining VC funding, corporate training and civil servant training took the place of K-12 and quality education as the hero. The segment mainly includes providers of civil servant exam preparation, digital talent training, and upskilling.
According to Duojing Education Academy, there are 61 venture funding deals in the area, 25.3% of the total deals. And the total funding size of over 7.8 billion yuan surpassed that of the other two segments (K-12 and quality education). These deals were almost announced in H1 2021, prior to the launching of the regulation.
The sector is also no exception to the shockwave brought by strict rules unveiled in July. Funding deal numbers plowed, and large deals almost disappeared. The most eye-catching event may be Sanjieke’s two funding rounds respectively led by Owl Ventures and Udemy.
Meanwhile, the civil servant training sector, which experienced rapid expansion in 2020, stuck in trouble in 2021 after bagging large fundings at the beginning of the year. Ekeguan, Xiniao, Fenbi, and Offcn, all suffered from refunding issues.
Several founders told JMD that capital supervision will be deployed across the sector, and prepayment and agreement classes would also be strictly regulated.
At the same time, these providers also decided to expand enterprise offerings for further growth. Sanjieke pivoted to focus on corporate services, and Offcn targets governments, enterprises, and higher education institutions.
Looking back on the past 2021, the overall education industry in China has been impacted by the regulation. Companies currently seem to invest more in B2B businesses, including providing services to public schools, higher education institutions, enterprises, and governments.