Thoughts on China's Stringent Regulations on the Tutoring Industry

Why this make sense under current China and what I think on the role of basic education in a society

Sep 04, 2022

This is my first writing on Social Observation Series. Today I am writing about the regulation of China's tutoring sector. It is an issue that has been gaining attention in recent years.

On July 24th, 2021, Beijing released regulations that shook the private tutoring sector to its core. In less than a week, listed education giants such as TAL Education Group (TAL.N), New Oriental Education & Technology Group (9901.HK), and Gaotu Techedu (GOTU.N) saw a staggering 90% drop in their share prices, signaling a devastating blow to the industry. Investors who had heavily bet on this "promising sector" suffered significant losses, and millions of employees, primarily tutors and teachers, were left scrambling to find new jobs outside of the sector. You will not be surprised to find your kid’s tutor last month is working on part-time food delivery or ecommerce live-steaming now.

Below is an ecommerce livestreaming playback of Dong Yuhui, who was previously New Oriental Education Group’s best English teacher and now a Tik Tok live-streamer.

This sudden policy and drastic drop in prices came as a surprise to many, leaving investors bewildered and tutors questioning why they had lost their livelihoods overnight. "I helped my students achieve better scores and gain admission to better universities. What did I do wrong?" they asked.

It's unclear what was going through the minds of policymakers before they made this decision, but by taking a step back to examine the broader context of China at the time and delving deeper into the nature of the private tutoring business, it's possible to glean a deeper understanding of the reasons behind this regulation.

1. Bigger picture – The principal contradiction currently facing society in China

The principal contradiction 主要矛盾, or major problem, is a key decision-making framework in China's policy making. I will delve deeper into this concept in the future.

China once enjoyed a large working population and cost advantages that fueled its manufacturing industry. However, official statistics show that the birth rate in 2021 is at a historic low since 1949 and has been declining for 5 years. Additionally, the number of marriages registered has been declining severely for 9 years, and the aging population is increasing. The era of abundant labor supply seems to be behind us.

There are several reasons for the decline in birth rate and marriages, one of which is the high cost of living, particularly the cost of purchasing a property in tier-1 cities, which is a traditional requirement before getting married in China.

Another contributing factor is the high cost of education for raising a child. Estimates suggest that the cost to raise a child to 17-years-old (before college education) in China is around half a million RMB, and after-school education cost contributes to around 30%.

The child-rearing cost to GDP per capita is 6.9 in China, which is much higher than 2.1 in Australia, 4.1 in the US and 4.3 in Japan. According to a survey by Chinese Society of Education, 84% of K-12 students in Shanghai have at least one after-school tutor.

Given the broader context of a shrinking working population and the key factors behind it, it becomes clearer why there is such an aggressive policy on the private tutoring sector.

2. The purpose of basic education in society

Philosophically, the role of basic education in a society is a topic that has always intrigued me. As someone who has had my entire K-12 and university education in China, I have always been curious about how education is approached in other parts of the world. Though research and data on this subject is limited, based on my conversations with people from different countries and observations during my travels abroad, I believe that after-school tutoring is particularly popular in China and that the average hours a Chinese child spends on after-school tutoring is relatively high on a global scale.

I classify after-school tutoring, which mainly takes place before college, and K-12 school education as basic education. In my opinion, basic education serves two main roles in society:

Public welfare and compulsory education - to pass on essential values and skills for survival in society, which is crucial from a safety net perspective, but an excess of supply can lead to a loss of resource efficiency.
Talent discovery - to provide every child with sufficient opportunities to discover their strengths and to give society and humankind the chance to identify and cultivate the best talents in various dimensions for the long-term evolution of our species. These two sides are like two sides of a coin that take place simultaneously. I don't want to make this piece too long, so I won't delve deeper into this topic. However, I want to emphasize that most tutoring, and even K-12 education that I have experienced, has limited utility in terms of talent discovery and human development. The primary focus is on improving exam scores, which has little value in the long run. Additionally, a side effect is that talents may not be identified if they don't take any tutoring and thus lose the opportunity for further development, which is a loss for both the individual and society as a whole.

Ultimately, there is a reasonable intention behind regulations in both the education and technology sectors in China, which may not be materially different from other parts of the world. Hopefully what I discussed above gives your a better understanding of this. However, the approach to implementing these regulations is where the difference lies, and the underlying causes of this difference is something that I will explore in the future.

This concludes my observations behind the shocking private tutoring policy in China. As this is my first time expressing my thoughts in English, which is not my native language, I would like to extend my gratitude for your patience and understanding. Should you have any questions or feedback regarding this topic, please do not hesitate to leave a comment below.

Thanks for your reading and I hope you enjoy reading it. Stay safe and see you next time.

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