The education industry in China has undergone huge development during the past few years. The market has grown rapidly, and its value is estimated to reach US$572.51 billion by the end of 2023, with a CAGR of 11.3% for the 2018-2023 period. Factors such as increasing urban population, growing educational spending and rising household wealth are factors driving the market1. However, in a series of regulations on the education industry, the Chinese government has smashed the unstoppable growth of the market, especially the test-prep track. The most impactful policy, named “Opinions on Further Reducing the Workload of Students in Compulsory Education and the Burden of Off-campus Tutoring” (also known as the “Double Reduction” policy), was announced in July 2021, which includes a ban on for-profit education services focusing on the compulsory education curriculum2. It has had a fatal attack on Chinese education companies, which can be seen from the example of 86% down of the stock of New Oriental Education and Technology after the policy was introduced. The government’s action is possibly due to the accelerated slowdown of the birth rate of China, which was shown in the 2020 census data. By carrying out the “Double Reduction” policy, the government is trying to ease the pressure of children’s education expenses on families and therefore encourage a baby boom.
However, the policy has made some companies and employees have a hard time. For the education companies which failed to reach a liquidity lifeline, especially those whose revenue relied on tutoring, bankruptcy has been unavoidable. For example, Wall Street English, a famous high-end English training centre providing English courses taught by native English speakers, went into a complicated situation during COVID-19 as there was travel restriction and offline activity restriction. The “Double Reduction” policy became “the last straw that killed the camel”, forcing the company to close its doors. This has further led to a difficult time for employees, who, under China’s labor laws, can only receive a monetary compensation equal to one month’s salary plus a month’s salary for each year that the employee worked for the company3.
Leading Chinese educational companies are seeking alternative pathways to survive under such policies. The possible ways of transformation are divided into 5 main categories: quality education, vocational education, adult education, summer custody class, and educational technology (EdTech). Currently, with the rise of AI technology and the maturation of the EdTech market, big education companies are investing more in EdTech products and services. Stimulated by the lockdowns during the COVID-19 pandemic, China’s EdTech market has grown 118% from US$22 billion in 2018 to US$48 billion in 20204. The Statistical Report on Internet Development in China points out that the number of online educational users in China reached 423 million by March 2020, an increase of 82.3% from June 2019. Having more than 400 million students, China is the largest EdTech market globally. Although the market has room for improvement, many education companies have grabbed the opportunities to gain market size. Currently, EdTech in China mainly focuses on virtual tutoring and smart hardware, but there are also some other tracks5.
The leading companies in the industry have shown their ability to transform. For example, Yuanfudao is the unicorn in the K-12 education industry. It provides products including AI-based virtual classes, live tutoring, and apps for studying support. The company raised US$1 billion in its funding round in April 2020, raising its valuation to around US$7.5 billion and positioning itself as one of the most valuable EdTech companies in China. The company has launched a STEAM education product "Pumpkin Science" that combines AI interaction and hands-on exploration with teenagers as its main customer group, filling the gaps in STEAM education products and opening the way for Yuanfudao's transformation. Since the trial operation in May 2020, the user growth rate of Pumpkin Science has continued to grow. In addition to the “in-screen + off-screen” scene-based teaching, Pumpkin Science also provides personalized and exclusive services. While helping children solve any learning problems, they also provide targeted guidance on the parents’ awareness of science education to ensure the children’s learning result6.
NetEase Youdao is another example. The company successfully learns from its own gaming IP experience and introduces online courses through gamification learning functions and product internal drainage. At present, NetEase Youdao has formed a closed loop with online courses, interactive learning software, online learning tools, and smart hardware as the main four sectors, and started with online learning tools to create a series of comprehensive learning products. In the online education "TEACH" model announced by Youdao, three aspects are related to technology, namely learning tool APP, artificial intelligence and intelligent hardware. NetEase continues to launch new products and content in response to the learning needs of different user groups, to effectively solve the problems of students in the learning process, and to provide differentiated services for students of different ages in the form of learning tools APPs. Strong technical integration capabilities and a highly sticky customer base are NetEase Youdao's strong competitive advantages in the educational technology track7.
In a nutshell, the crackdown on the education industry in China has forced relevant companies to seek new paths forward. With the aid of AI technology and the need from the large student base, EdTech is one bright choice for the future success of Chinese education companies under the tightened education policies.
1. Business Wire. (2019, December 13). China Education Market is Expected to generate US $572.51 Billion by the End of the Forecast Period, 2018-2023. https://www.businesswire.com/news/home/20191213005139/en/China-Education-Market-is-Expected-to-Generate-US-572.51-Billion-by-the-End-of-the-Foercast-Period-2018-2023---ResearchAndMarkets.com
2. Xinhua News Agency. (2021, July 24). The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Opinions on Further Reducing the Burden of Students' Homework and Off-campus Training in Compulsory Education". China Government Network.http://www.gov.cn/xinwen/2021-07/24/content_5627132.htm
3. Zaagman, E. (2021, September 23). The Casualties of China’s Education Crackdown. TechCrunch. https://techcrunch.com/2021/09/22/the-casualties-of-chinas-education-crackdown/
4. Shleifer, E. & Kologrivaya, K. (2021, June 29). Out of Lockdown: China’s EdTech Market Confronts the Post-pandemic World. South China Morning Post. https://www.scmp.com/tech/tech-trends/article/3139056/out-lockdown-chinas-edtech-market-confronts-post-pandemic-world
5. Qi, J. (2020, June 23). 8 Chinese EdTech Start-ups Leading the Global Educational Technology Industry. Daxue Consulting. https://daxueconsulting.com/china-edtech-educational-technology-market/
6. Oriental Fortune Network. (2021, July 28). Ape tutoring transforms quality education and launches STEAM science education brand pumpkin science. https://baijiahao.baidu.com/s?id=1706516237667643654&wfr=spider&for=pc
7. Tianfeng Securities. (2021, March 3). Equity Research: NetEase-S (09999): Ingenuity to create high-quality goods, innovation and ecology.https://www.fxbaogao.com/pdf?id=2458070&query=%7B%22keywords%22%3A%22