Investors who didn’t do their homework on Beijing’s educational revision plans have been schooled by volatility in Chinese education stocks.
Shares of Chinese tutoring companies took a dive after Reuters reported Thursday that China may introduce tough rules in June on the country’s private tutoring sector, which could include banning weekend classes. Shares of New York listed TAL Education dropped 11% on Thursday, while New Oriental Education fell 14% the same day. Shares of TAL and New Oriental have now lost around 40% from their February peaks.
Policy has always been a risk for investors in China’s education sector. According to a separate set of new rules officially released Friday, school operators for grades one through nine, which are compulsory in China, won’t be allowed to expand through mergers. The rules have been in discussion for years. Schools during these mandatory years are supposed to be not for profit, though privateand funnel money out through contractual agreements.
On the one hand, the demand for cram schools won’t fade, as the root cause is anxiety created by the narrow funnel of the education system: a focus on examinations and strong competition for places. But more regulations could still add costs and slow growth. Restrictions on taking fees in advance will hurt cash flow for companies, in particular the smaller operators. Firms may also face tighter regulations on advertising, fees and setting up new schools.
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It’s unwise to invest in any financial instrument issued by Chinese entities at all.There’s terrible political environment of dictatorship, rule by police, by gangs, by cheating and by corruption and lack of free speech in China because of CCP rule.