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China’s new edtech restrictions prove its regulatory crackdown has few limits

July 27, 2021, 11:32 AM UTC

China stocks plunged for a third day in Asia on Tuesday as investors grappled with the long-run implications of Beijing’s weekend crackdown on its once-booming education technology sector.

The sell-off was triggered Friday by a leaked memo suggesting Beijing would impose new restrictions on private companies offering tutoring services based on school curricula. The severity of the reforms, which the government confirmed over the weekend, stunned investors: the new rules bar edtech firms from selling shares to the public, accepting foreign capital, or even turning a profit—effectively wiping out the billions of dollars invested in edtech startups by some of the world’s largest private equity and venture funds.

In U.S. trading Monday, shares of industry leaders New Oriental Education & Technology Group, TAL Education Group, and Gaotu Techedu plunged 34%, 27%, and 29% respectively. These aren’t small companies: New Oriental Education is China’s largest education provider by market cap, valued at nearly $11 billion before the sell-off. It’s lost 70% of that value since Thursday.

In Asia trading today, the rout spread across other sectors, roiling the shares of Chinese companies like Ping An Insurance and Xiaomi that have no obvious connection to the edtech sector and aren’t in industries that had previously been considered to have high regulatory risk.

When Beijing derailed Ant Group’s planned IPO last November, many analysts dismissed the move as a one-off, meant to rebuke Ant’s billionaire co-founder Jack Ma for criticizing China’s financial regulators—and implicitly the leaders of the Communist Party—as risk-averse fuddy-duddies who were stifling innovation. As the crackdown spread to scores of other Internet companies including e-commerce giant Alibaba, food delivery upstart Meituan, and video game leader Tencent Holdings, the conventional wisdom had it that Beijing was “only” reining in the nation’s tech sector and would eventually back off.

But Beijing’s assault on China’s online tutoring industry, which comes just weeks after a similarly harsh clampdown on ride-hailing giant Didi Chuxing for alleged data security violations, has sobered even long-time China bulls.

As independent China market analyst Fraser Howie told Bloomberg: “Everybody’s in the cross-hairs…This is a very difficult environment to navigate, when over the weekend your business can basically be written down to zero by state edict, how on Earth are you to plan for that?”

“In 25 years of investing in China, I haven’t experienced anything like this,” Vivian Lin Thurston, portfolio manager at William Blair told Barron’s. “There is lots of uncertainty about what will be the next industry.”

“I am a congenital optimist when it comes to China. But I find these actions really quite disturbing,” former Morgan Stanley Asia chairman Stephen Roach told CNBC on Friday. “China is going after the core of its new entrepreneurial driven economy, and it’s going after their business models.”

Not everyone shares that sense of alarm. A trio of experts quoted by Bloomberg Businessweek‘s Austin Carr and Coco Liu make the case that China’s tech crackdown is “long overdue“—and something the U.S. should learn from. Angela Zhang, director of Hong Kong University’s Centre for Chinese Law and the author of Chinese Antitrust Exceptionalism, marvels that China’s trust-busters could bring Alibaba to heel in only four months, “whereas it will take years for U.S. and EU regulators to go after tech firms such as Facebook, Google, and Amazon, who are ready to fight tooth and nail.”

That may be so. But President Xi Jinping is tightening his grip on China’s most dynamic companies at a moment when the nation’s economy is slowing and its workforce is on the verge of contraction. That poses risks for him and the Party as well. The danger is that the state’s newly assertive regulators will not only squeeze corporate profits but choke off growth.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at



The Tokyo 2020 Olympics got underway at long last on Friday, and athletes from across Asia have had a strong showing already. China’s weightlifting team has snagged three gold medals as of Tuesday, plus one silver. The Philippines’ Hidilyn Diaz scored a gold in weightlifting, too, earning the athlete a$660,000 cash prize from her government—plus a house. Meanwhile, Cheung Ka Long won Hong Kong’s first ever gold medal in fencing, which was also the first Hong Kong gold medal win in 25 years. Japan’s 22-year old Yuto Horigome claimed the first ever Olympic gold medal in skateboarding on Monday, followed by 13 year-old Momiji Nishiya, who won gold at the women’s street skate event on Monday. CBS


U.S. Deputy Secretary of State Wendy Sherman travelled to China to meet with her counterparts Monday, in the highest-level diplomatic exchange between the two sides since President Joe Biden took office in January. But tensions between the countries have far from subsided. Before the meeting ended, China’s Foreign Ministry released six statements condemning U.S. actions, including accusing the U.S. of “inventing” coercive diplomacy. According to the Chinese side, U.S.-China relationships are at a “stalemate.” NYT

A first in national security

Tong Ying-kit, the first person charged under Hong Kong’s national security law, was found guilty of committing incitement to secession Tuesday. Tong was arrested for violations of the national security law on July 1, 2020, hours after the law was promulgated by the central government in Beijing. Tong was flying a flag emblazoned with a slogan popular during the 2019 protests. Tong’s trial, which was carried out without a jury, focused primarily on whether repeating slogans constitutes an incitement of secession. Tong, who pleaded not guilty, will be sentenced on Thursday and faces up to life in prison. HKFP

North-South divide

Leaders of North and South Korea exchanged letters and agreed to restore relations on Tuesday, reopening diplomatic hotlines that were disconnected a year ago when tensions on the peninsula flared up. The hotlines were installed in 2018 and disconnected in July last year after North Korea's Kim Jong-un blew up—literally—a shared liaison office on the North Korean side. The building was vacant, but the explosive demolition was a clear symbol of disunity between the two sides. Bloomberg

Threat dropped

The U.S. Justice Department is moving to drop cases brought against five visiting researchers accused of hiding ties to the Chinese military. The cases were filed last summer, during the Trump Administration’s sprawling crackdown on entities and people it considered threats to U.S. national security. The Justice Department hasn’t explained why it is now dropping the cases, apart to saying that it is “now in the interest of justice to dismiss them.” NYT


Korea trajectory — South Korea’s economy grew 5.9% in the second quarter of 2021, compared to the same period last year, logging the country’s fastest GDP growth rate in a decade. Increased consumer and government spending drove the spike in GDP. 

Myanmar contracts — The World Bank estimates Myanmar’s economy will contract 18% this year, as an oppressive military coup has compounded the economic fallout of COVID-19. The dual crises could double the number of Burmese people living in poverty by next year, the World Bank says.

Nium — Singapore-based business-to-business payments service Nium entered unicorn territory Monday, raising $200 million in series D funding to reach a valuation over $1 billion. The company claims it is the first B2B payments unicorn from Southeast Asia, but it is shifting its headquarters to California’s Bay Area.

SK Hynix — South Korea chipmaker SK Hynix said quarterly operating profit doubled in the second quarter, jumping 103% to $2.3 billion, buoyed by strong demand for memory chips. In terms of annual growth, SK Hynix’s second quarter profit rose 38%.

Evergrande — The world’s most indebted developer, China Evergrande, decided to cancel a special dividend to shareholders Tuesday, less than two weeks after it first proposed the payout. Shares in Evergrande fell 18% Tuesday, dragging the group’s annual share price decline to over 60%.

ShareChat — India social media platform ShareChat raised $145 million on Tuesday, in a round led by Singapore’s Temasek, boosting the startup’s valuation to roughly $3 billion. Only three months ago, the Bangalore-based messaging app was valued at just $2.1 billion.

Starbucks, to go — Starbucks is exiting its South Korean joint venture, valued at $2 billion, which it formed with local retailer E-Mart in 1999. South Korea is Starbuck’s fifth largest market. E-mart’s share in the JV will increase from 50% to 67.5%, after Starbucks sells its shares, giving Singapore sovereign wealth fund GIC Private a 32.5% stake.


$2.6 billion

Chinese overseas acquisitions have been in a steep decline since Beijing began cracking down on the practice in 2016. The government worried the debt-fueled acquisitions risked destabilizing China’s domestic economy. According to Bloomberg, Chinese companies raised $27.5 billion worth of debt in 2016, to fund overseas shopping sprees. In the first half of 2021, loans for outbound M&A activity have totaled only $2.6 billion. This year might mark China’s lowest level of debt-funded overseas M&A since 2013, when companies raised $7 billion for international purchases.

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