Impact of China’s EdTech Ban on Emerging Economies 🇮🇳🇮🇩🇻🇳
Ministry of Education, China released official policy- Double Reduction to strictly regulate the K12 private tutoring market. This has triggered anxiety across emerging markets- India, Indonesia, etc.
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China’s $100B K12 EdTech industry is going through an existential crisis due to the latest regulations by the Ministry of Education. It’s no surprise since there have been rumours about this for a while. Many investors and founders have reached out to me for comments for its implications for India and emerging markets, hence I decided to write this piece and share my personal opinion.
MOE’s Double Reduction Policy Outlook (双减政策)⚖️
Education Companies can’t be for profit organisations 🚫
Local governments shall stop approving establishment of new off-campus curriculum subject-tutoring institutions for students in compulsory education, and existing institutions shall be registered as non-profit institutions.
Curriculum subject-tutoring institutions are not allowed to go public for financing; listed companies should not invest in the institutions, and foreign capital is barred from such institutions.
Reduction of Pressure 🧯
Off-campus training institutions shall not occupy holidays, weekends and winter and summer vacations to organize subject training and the training time shall not be later than 21:00.
No Overseas Education Courses 🛫
Off-campus tutoring shall include no overseas education courses. It is strictly prohibited to employ foreigners who are living abroad to engage in training activities.
Physical and mental health 👀
Online tutoring should pay attention to protecting students' eyesight. Each class hour should not exceed 30 minutes, the course interval should not be less than 10 minutes, and the tutoring shall end no later than 9:00 p.m.
Source 1, Source 2
Understand China’s Education- A love for dilemma/ 小舍得
For people who are curious about Education environment in China, ‘A love for dilemma/ 小舍得’ is the perfect show to watch and understand the pressure parents and children go through to compete with their peers. This show summarizes the much needed ‘double reduction policy’. Watch here
Impact on the public companies 📉
Key trigger- declining birth rate 👶
Although public education in China is highly accessible, however due to various nodes of competitive exams in the school life of students, they are exposed to after school classes to stand out and get admission in better schools and universities.
After school tutoring is expensive and impedes equality; it provides better opportunities to the rich to access these platforms and perform well to gain admission in better schools and universities. And this leads to a vicious loop….
Every parent can’t afford to send their children for after school tutoring at par with others, which creates economic pressure in the society. This has ultimately led to reduction of the birth rate.
In 2020, China reported a birth rate of 11.4 per 1000 people, a 2.2% decline from 2019. This also indicates that the average age of the population in China is increasing, which is decreasing the labour force.
South Korea’s ban on after school tutoring
China’s crackdown on Education is nothing new! South Korea’s private tutoring industry went through this a decade back.
The crackdown on South Korea’s “cram schools” is part of President Lee Myung-bak’s effort to wrest control back from a frenzied private tutoring industry that enrolls three-quarters of Korean students, the highest rate in the world. He hopes to restore confidence in the country’s education system and reduce the financial and emotional burden on families. Source: Washington Post
Has time come for K12 Education in China? Will investors and founders be able to exit? Will the after school tutors receive high salaries? Near future seems dark!
One could argue that the government should have never let the market develop in the first place, but policy making in China as well as other emerging economies follow – ‘push comes to shove’ style.
Implications for EdTech in Emerging Economies 🇮🇳🇮🇩🇻🇳
Schooling System- Private or Public?
Chinese education system is predominantly public, which sets the precedent that education should not operate as private businesses. Whereas in India, the schooling system has been predominantly private. Government has encouraged privatisation for development of the education system and it can’t retract into a ‘not for profit’ system since it is not feasible for the government to support public education.
Business- Domestic or International?
China’s EdTech companies have focused on domestic markets and mostly on the K12 market. Whereas in India, EdTech has been emerging strongly as an export service. Apart from the domestic market, Indian EdTech companies have built a presence globally, with focus beyond K12 (vocational education).
India’s birth rate in 2020 was 1.7, whereas China’s birth rate in 2020 was 1.1, so India is still not facing a population crisis like China. Although, parents in cities are used to having fewer children, overall the situation is not that bad and students are not under immense pressure.
Hence, in my opinion, startups and investors in founders in other emerging markets should watch out for the above trends and prepare accordingly. EdTech opportunity is still exciting, but it’s important to ensure inclusivity!
Earlier in June, I wrote about the learnings for policy makers from China’s education crackdown for KrAsia.