China politics and policy updates
Sign up for myFT Daily Digest and become the first person to learn about Chinese politics and policy news.
When Chinese President Xi Jinping told a group of educators in March, the country’s school tutoring department was “a chronic disease”, which seemed to be just another warning of inequality and other social ills as the celebration was approaching. . Centennial Of the Chinese Communist Party.
However, this industry with an annual output value of 100 billion U.S. dollars does not know that the treatments that the Chinese President has thought of will far exceed the existing efforts to control the country’s largest economy. Technology Company It is equivalent to what some analysts call the “death penalty.”
The education industry has previously flourished under the support of the needs of increasingly wealthy Chinese parents, who hope to improve their children, who are usually only children, their chances of winning in the fierce competition to enter a top university.
However, former government officials, industry executives, and analysts said that Xi Jinping’s sudden suppression is also fully in line with his ideological determination, that is, “the government, the army, the society, and the school—the party is Leader of all“.
“The core of the suppression is to strengthen ideological control,” said a former government official who asked not to be named, who now works for a large technology company.They added that the immediate trigger for Xi Jinping’s move was related to growing concerns about long-term social pressures, such as parents’ education costs and birth rate decreases.
Since news of strict new restrictions on tutoring companies was leaked on Friday and confirmed over the weekend, the share prices of US-listed industry leaders Good Future Education, New Oriental Education and Gaotu Technology have risen. collapse The average is about 60%. Goldman Sachs estimates that these restrictions may reduce the industry’s annual revenue from 100 billion U.S. dollars to less than 25 billion U.S. dollars.
According to the new regulations issued by the General Office of the Party and the State Council or the Cabinet of Ministers of China, the core part of the tutoring company’s business can only be conducted on a “non-profit” basis. They also stated that companies in this industry will no longer be allowed to use a corporate structure called a variable interest entity or VIE, which is used by many Chinese companies in sensitive industries to sell shares to foreign investors.
These measures are much stricter than any measures taken by the Xi Jinping government against China’s largest technology companies. These companies also accept VIEs, but mainly for antitrust and data security considerations. Chen Long, a partner at the Beijing-based consulting firm Plenum, said that they “are tantamount to the death penalty for companies that make money through extracurricular tutoring.”
The broader “rectification” of the technology industry has already put Ma’s ants, Alibaba Group and online car-hailing companies in trouble Didi ChuxingIn December, after the Politburo of the CPC Central Committee expressed its determination to “prevent the disorderly expansion of capital,” it officially began.
According to Ernan Cui, an analyst at Gavekal Dragonomics, the crackdown in the education industry shows that the government is “not afraid to simply close a large and profitable industry in order to achieve its social and political goals.”
“Xi Jinping’s newly proposed agenda for social goals falls under the heading of’common prosperity’, which more directly opposes the trend of increasing inequality in the market,” she added. “A series of crackdowns on well-known companies such as Ant, Alibaba, Didi and now Education are trying to make the market understand who is ultimately in power.”
“For the past 20 years, the government has focused on growth and efficiency,” adds Ming Liao of Prospect Avenue Capital, a Beijing investment company. “But now they are rebalancing economic equality. They want to ensure that the pie is more evenly distributed.”
The blow to the tutoring industry also coincides with the party’s greater interest in education. Police EducationThe Ministry of Education of China issued guidelines to primary and secondary schools in April, warning them not to store any books that “violate the party’s line, guidelines, and policies” or “promote individualism, neoliberalism and other wrong views” in the library. .. And worship foreign ideologies”.
But despite the party’s determination to keep technology and education companies up to date, Beijing must also adjust to the possible negative economic impact of its campaign against the private sector.
Larry Hu, chief China economist at Macquarie, the Australian bank, noted that Xi Jinping used the country’s recovery from the Covid-19 pandemic at the end of last year to launch a “regulatory storm”.After worrying quarter-on-quarter growth in the first three months of 2021, the economy began to accelerate Second quarter, Giving regulators more confidence to take over private sector companies that have previously been valued for their huge contributions to economic growth, employment and taxation.
“The inherent tension between promoting growth and containing risk means [the government] This short window must be seized to do as many things as possible,” Hu said. “The duration and intensity of the regulatory storm depends on the economic situation. “
Additional reporting by Xinning Liu in Beijing