Why has China introduced these reforms?
On September 18, 2021, China’s Ministry of Education clarified the registration guidelines for online education platforms, providing a legal way forward for the sector to develop. The guidelines mark the latest and most aggressive Chinese effort to rein in the country’s private education industry.
This change reasserts the role of government-run schooling in order to improve school-life balance for families. The move aims, in part, to alleviate the rising costs of raising children for families, thereby encouraging future birthrate, as well as to reduce stress on the students themselves.
It comes after the government released its census results in May of 2021 showing that the China’s population is ageing more rapidly than previously thought.
China’s education system is exceptionally competitive, a problem exacerbated by previous instated one-child and two-child policies. According to the Chinese Society of Education, over 75 percent of students aged 6-18 years attended after-school tutoring in 2016.
This percentage is said to have risen in recent years. The new reforms come on the heels of a new education law released in March, which limits the private sector’s role in core education and bans the use of foreign education materials.
How Matters Went Down
On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education. The document was leaked and circulated a day earlier, on July 23, causing panic in the billion dollar industry and sent shares of education companies crashing.
The guidelines include 30 measures on education sector reforms designed to improve education quality, ease homework burdens for students, and restrict both domestic and foreign investments in the industry.
On September 18, 2021, the Ministry of Education (MoE) released a notice clarifying the registration process for online education platforms. This notice is one of the first sets of regulations since the release of the guidelines that sheds light on how the government intends to regulate this section.
The new reforms overhaul the structure of China’s for-profit tutoring industry. In order to operate, tutoring centers in China will need to quickly adapt to the new regulatory standards.
So what are the changes?
According to the guidelines, the reforms aim to:
- promote the healthy development of students,
- improve education quality,
- alleviate financial burdens on parents,
- and institute law-based governance of the education sector.
They concentrate on education in core subjects, or compulsory education, which refers to grades K-9, covering the ages of approximately 6-15 years.
The Guidelines
The guidelines contain measures on the regulation of off-campus tutoring and training centers.
1. New Rules for Regional Authorization
Regional governments are no longer permitted to approve new off-campus tutoring centers providing core/compulsory education. Existing ones must register as non-profit institutions.
Local governments must distinguish between training centers in sports, culture and art, and science and technology, and consult “relevant departments” to set standards for each category.
Additionally, the guidelines prohibit tutoring on weekends, public holidays, and summer/winter vacations.
Potential Impact on Foreign Investors
The guidelines call for the “excessive” capital in training centers to be controlled, and to ensure that financing is primarily used for operational costs.
Tutoring centers in core education cannot go public or be listed for financing.
The guidelines specifically ban foreign investment via mergers and acquisitions, franchise development, and variable interest entities (VIEs), investment vehicles frequently used by foreign investors to bypass restrictions in China’s education sector.
Accordingly, hiring of foreign teachers and staff must be compliant to relevant regulations, and companies cannot hire staff based outside the country to carry out tutoring activities.
Impact on Online Education
The guidelines further instruct regional governments to scrutinize existing online tutoring centers and re-approve them according to the new measures.
Online lessons should be no more than 30 minutes, with intervals between lessons of at least 10 minutes, and should end by 9 pm. If they do not meet the updated standards, the tutoring centers’ registration and Internet Information Service Business License will be revoked.
2. How Online Education Platforms Can Continue to Operate
About two months after the release of the initial document, the Ministry of Education released a notice stating that all current online education platforms must suspend all new enrollments and payments until they have obtained the requisite permits and licenses.
The registration assessment and approval process of online training institutions must be completed and a supervision and management system established by the end of 2021.
Platforms must register either as a non-profit or for-profit legal entity. Those offering classes in core education are required to register as non-profit entities. To register, platforms must meet logistical requirements such as having a physical office or training center at its registered address as well as building or leasing a data server that is based in China.
There are also requirements for both domestic and foreign staff. The main person in charge of the platform now must be a Chinese national living in China. Platforms must also comply with China’s new cybersecurity and data security laws – creating mechanisms for personal information protection and undergo personal information impact assessments.
Platforms offering classes within the scope of core education are NOT permitted to use any international course textbooks. The taught materials must be suitable for the grade level of the student and must not be harder than that of the national curriculum.
The notice explicitly prohibits the publishing, printing, reproduction, or distribution of illegal publications, copyright infringement, and piracy.
All educational content must adhere to the party’s educational policies: ensuring the separation of religion and must not contain obscenities, references to violence, terror, and gambling, or use any online games that are unrelated to education.
3. Institutional Management Regulations
- Formulate articles of association, which clarify the institution’s training objectives, scope of business, decision-making mechanisms, funding management, guarantee conditions, and service commitments.
- Clarify the management procedures for the collection and refund of tuition fees.
- Standardize contract formats and ensuring the stipulations are fair to all parties involved and don’t infringe upon consumer rights or shirk the institution’s obligations toward the consumer. The draft standard contract must be submitted when setting up the institution.
- Standardize marketing and promotion and ensuring promotional materials don’t violate the guidelines on easing the burdens of homework and off-campus tutoring on students.
Online platforms that pass the initial approval will be granted a school license from the relevant education administration departments, after which they can register as a legal entity.
Platforms that fail the initial assessment and approval process will be given the opportunity to rectify errors or missing information and apply for re-approval within a given time frame.
In terms of content, the guidelines call for greater supervision and management of tutoring centers and to promulgate teaching materials.
4. Regulating Student Homework
The guidelines instruct schools to set up management structures to coordinate homework assignments, conform to national standards, and create evidence-based homework strategies according to age and learning goals.
Additionally, schools cannot assign homework to students in grades one and two, aim for average maximum of 60 minutes of homework for grades 3-6, and average maximum of 90 minutes for junior high school students.
5. Promote Physical & Mental Health of Students
The guidelines encourage schools and parents to ensure students use their spare time responsibly. They recommend students to complete homework they were unable to finish at school, get physical activity, read, moderate their use of electronics, and go to bed on time. They further encourage parents to communicate with their children and pay attention to their mental health, while boarding schools should take responsibility for students’ after-school spare time.
6. Improve After-school Services for Students
Schools are to provide after-school services, encourage students to voluntarily participate in them, and create plans to improve their quality. After-school services are to be run by teachers, retired teachers, social workers, or volunteers.
The guidelines also instruct schools and local education departments to develop free-to-use online learning platforms and encourage students to use them.
7. Other Notable Measures
Besides re-evaluating existing tutoring centers, the guidelines also call for decreasing their quantity over time, particularly shutting those with low operational standards. While the centers concentrate on ages 6-15, the guidelines state that the government should coordinate the management of students ages 3-6 and high school students as well.
Specifically, tutoring centers cannot hold online or offline training for preschool students, including foreign language education. Local governments are no longer able to approve new licenses for subject-based education for preschool students.
Finally, the guidelines heavily restrict tutoring centers from advertising, including banning media, new media, public spaces, and billboards from displaying advertisements. Further, advertisements cannot be “hidden” in the form of textbooks, stationery, uniforms, etc.
How can education companies adapt?
As a politically sensitive area, education in China has long been a lucrative but precarious industry for foreign investments. While the new regulations have dampened the growth of many private tutoring companies, foreign-owned educational institutions were already banned from teaching core education.
Many foreign companies, operating through VIE vehicles, and accustomed to hiring foreign teachers who may not meet professional visa requirements will need to recruit more professional teaching talent that meets more formal standards.
Despite the new restrictions, foreign-run education institutions can still participate in vocational education – a sector explicitly encouraged to take on foreign investment – as well as language training and university partnerships.
Immediately after these guidelines were issued, the government also placed further restrictions on video and computer game use for minors, limiting minors to three hours of gaming per week.
ByteDance, the operator of the popular short video app Douyin, has begun restricting the amount of time users under the age of 14 can spend on the app to less than 40 minutes per day in response to government pressure on internet platforms to reduce the amount of time children spend online.
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With caps placed on after-school tutoring, homework, and entertainment, traditional recreational activities that are also deemed educational in nature may become the answer to filling children’s free time. Therefore, companies can consider pivoting to provide non-core subject education such as trade skills, IT, creative arts, drama, music, and sports.