China has imposed stricter regulations on the education sector, extending the regulatory reach that had focused on e-commerce and internet companies as the authorities seek to prevent market abuse and improve oversight. The move caused education stocks to plunge and hit broader investor sentiment towards Chinese stocks (including large-cap internet companies).
The action bans after-school tutoring during weekends and holidays and reclassifies academic tutoring as ‘non-profit’. Companies will no longer be allowed to raise capital or accept foreign investment.
The move could spell the end of the sector. In our view, however, these measures are unlikely to work. Demand will likely encourage informal one-to-one classes, boost costs and lower quality.
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