China Cracks Down on Education Industry in Effort to Increase Birthrate

The three-child policy, raising China’s birth cap from two children per mother to three and encouraging Chinese couples to have more children, sparked widespread societal pushback when it was unveiled in May. Young urbanites argued that the current cost of child-rearing makes having one child seem impossible, let alone three. These costs are intensified, they say, by things like skyrocketing real estate prices in major cities and expectations of providing extensive extracurricular and enrichment activities for children, aimed at ensuring a coveted college acceptance and a pathway to upward mobility.

Rising costs of living, a winner-takes-all college entrance system, and largely entrenched gender roles that place the burden on women to juggle work and family all play into Chinese millennials’ apathy toward having bigger families. In response to these multipronged factors, the government has recently turned its focus to the industries that it sees as adding to the pressures and expenses of raising children. 

The education industry stands to lose the most from the government’s current approach, through impacts on personnel, direct restrictions on certain services, and potentially permanent limitations on consumption that could cripple the industry, especially foreign players.

Why did the Chinese government increase the birth cap?

Much of China’s population anxiety is driven by the fear that China will “grow old before it grows rich.” According to the 2020 National Bureau of Statistics Census, from 2010 to 2020, China’s population grew at its slowing pace since China began taking a census in the 1950s. Even more worrisome, the working age population is shrinking while the population of senior citizens is growing, resulting in there being fewer workers to support the social security system that China’s increasingly elderly  population relies upon. 

Over that period, the number of children only grew by 1.35 percent, while the working age population fell by 6.79 percent and those over 60 increased by 5.44 percent. 

China’s economic growth for the last several years has relied on a large and growing labor force, and the looming demographic crisis puts that model in jeopardy. In response, the central government is encouraging people to have larger families, with little success so far. 

The solution? Rein in the education industry.

China’s after-school tutoring and extracurricular market is a large and growing sector, viewed by many as crucial to ensuring children’s long-term educational and career success. A study of China’s tutoring market estimates that the sector had more than doubled from 2011 to 2021, from RMB 203.2 billion to a projected RMB 564 billion by the end of the year. As of 2017, over 50 percent of middle and high school students enroll in after school tutoring, with 21.9 percent of elementary schoolers and 12.7 percent of kindergarten students enrolled. 

In recent months, regulators have focused on means of restricting educational expenses, viewing them as key contributors to citizens’ hesitancy toward having more children. China’s after-school tutoring and extracurricular market is a large and growing sector, viewed as crucial to ensuring children’s long-term educational and career success. 

So far, the government is focusing its efforts on:

• Creating new oversight bodies: The newly created Department of Supervision of Off-Campus Education (校外教育培训监管司) under the Ministry of Education is intended to regulate private tutoring services. Its announced remit includes regulating services for middle and elementary school children, implementing Party principles within education companies, and regulating market fluctuations. 

• Implementing partial bans on tutoring: Perhaps most significantly, new trial rules in major cities ban online and offline tutoring over school holidays, a move that companies report would put them out of business. At present, the trial ban impacts cities and provinces including Beijing, Shanghai, Jiangsu, and Shandong, but some version of the policy is anticipated to be rolled out nationwide. 

• Limiting the cost and length of instruction: Limiting tutoring tuition fees and standardizing teaching materials is intended to reduce costs for cash-strapped parents. Beijing is leading the charge, with the recent release of guidelines that require tutoring companies to limit the number of lessons per billing package. 

• Fines: Regulators have also fined education companies for deceptive pricing and reviews. In May, the State Administration of Market Regulation fined both Tencent-owned Yuanfudao and the Alibaba-owned Zuoyebang RMB 2.5 million for reportedly doctoring teacher qualifications and reviews, as well as advertising misleading pricing.

In the short term, after school tutoring businesses will either need to rapidly adjust service offerings or close. Over the long-term, this change could usher in a major shift in the way that the industry operates, or even permanently limit prospects for sector growth. 

Foreign firms could disproportionately face negative consequences.

These efforts aimed at curbing costs for parents could pose an uphill battle for foreign firms, who are already facing opposition l in the education sector. In May, China’s State Council released draft amendments intended to restrict the use of foreign capital and foreign curriculum in private tutoring. The Regulations for the Implementation of the Private Education Promotion Law, which will go into effect on September 1, requires Party representation within private schools and will prohibit foreign entities from operating private schools with compulsory curriculum rather than tutoring or solely supplementary subjects. It will also limit the board of directors of all private schools solely to Chinese nationals. These amendments, plus a stricter regulatory environment, directly impact the capacity of foreign educational firms to operate in China, cutting off access to a large and growing marketplace. 

There is clearly less willingness to allow foreign investors to set the terms of China’s K-12 education, as well as a desire to limit additional tutoring services more generally. Given the size and growth of this sector, it is unclear for how long or how thoroughly these moves will be implemented. The crackdown on the education and tutoring industry is just one prong of China’s push to increase its birthrate.

It is likely that the industry will see consolidation in the near term as smaller firms struggle to adjust to rapid policy changes.