The latest victim of the Chinese Communist Party (CCP)’s crackdown spree against technology companies has been the private education sector. In its recent memo, the party hinted at banning academic tutors from making any profit.
The memo extended to home-schooling and off-campus education companies, ordering them to register for a non-profit status and also disallowing approval of any new private educators by the local authorities. Restrictions were also speculated on foreign capital investments in the sector.
The repercussions were immediate. The booming $100 billion industry, fuelled by capital and led by the three giants — TAL Education, Gaotu Techedu and New Oriental Education is set to collapse by more than 75 per cent to around $24 billion.
While the long-term sentiments for these companies may still be subject to speculation, given how the relationship between CCP and corporations in China works, the three giants are being hammered on Wall Street.
New Oriental Education’s share prices have fallen by more than 65 per cent since the announcement. TAL Education Group’s share prices have declined by more than 76 per cent, and Gaotu Techedu is now trading 73 per cent down.
Private education in China is indispensable for the ones looking to march ahead in the most competitive country of the world. The after-school tutoring industry is essential to help students perform well in entrance exams that allow admission to universities.
However, there were enough downsides to this capital fuelled industry. Firstly, it was adding to the academic burden of young students, increasing their studying hours and putting them at risk of non-communicable diseases at a very early age. Two, the expenditure warranted for private tutoring was starting to burn a hole in the pockets of the parents.
As per media reports, more than 75 per cent of the Chinese students below Class XII were attending tutoring sessions after school hours, and this was in 2016. The cost of these tutoring sessions amounted to thousands of dollars, and parents, frightened by the prospect of losing out on university admissions, paid through their nose.
Now, with capital inflow being curbed into the sector, the CCP would hope for a restoration of balance between access and affordability as more private individual tutors, and in near future, institutions for non-profit, cater to a growing market of Chinese students.
Simply put, the CCP is not killing the industry or the market, but only restructuring the entire sector.
There is another dimension to this debate, that of real estate. Panic-stricken parents were now investing in apartments closer to schools to ensure easy scheduling for the children. Some parents are going as far as investing in apartments right around their marriage, hoping that a school will come up in the area by the time the child is born.
Thus, the ones who could not afford tutoring or the million-dollar apartments feared a dismal future for their wards. As in India and the Western nations, the affordability and not access to education became a bigger metric for determining the success and failure of a student.
The CCP wants to arrest this panic in order to ensure more children are born, for the recent population numbers have triggered an important debate in the CCP circles, that of China ending up like Japan, with too many old people and not enough workers to pump the economic growth.
Earlier this year, China allowed families to have three children, given the fertility rate in China was only 1.3 per woman. For Japan, it was 1.36 in 2019, and in the United States, it was 1.7. China’s history of family-planning complements the problem of the fertility rate, for before 1971, there were no restrictions on the number of children a family could have.
Further, the fertility rate in China hovered around 6.0 during the 1960s and 1970s. Therefore, the country is set to get older before it gets richer. As per reports, the population aged 15-24 is around 72 per cent of those aged 45-54. For Japan, this percentage is 79 and for the United States it is 100. Therefore, without more children, China risks being on the wrong side of demographics a decade from now.
The booming economy has also aided the improvement in life expectancy, further complicating the fertility problem. Thus, China’s 60 and above population has from 10.45 per cent in 2005 to 14.7 per cent in 2013 to around 18 per cent in 2019. The older population warrants caring too, further forcing families to restrict the number of children they have.
As per the 2018 National Economic and Social Development Statistical Bulletin released by the National Bureau of Statistics in 2019, the total population of China was around 1.393 billion. The 0-15 age group comprised 248.6 million people while the one above 60 had close to 250 million people, proving how the young were starting to trail the old in terms of population. By 2050, China could have more than 450 million people and not enough young people to care for them.
As in India with most urban families, the education costs act as a deterrent to the choice of having more than one child. While one can confuse CCP’s crackdown against the private education sector as another propaganda or censorship move, this step is driven more out of the need to ensure affordability for Chinese parents.
While an argument can be made for allowing more migration from rural parts of China to the urban areas, that still does not solve the problem of declining young population, for the ones moving to the cities would also face the problem of high education and real estate costs, the primary deterrents against having more children.
Curbing real estate prices and the private education sector is only the first stop, for China needs to eliminate the nine-six culture that has plagued its young workforce. Frightened by increased competition, workers in China are now working nine hours a day for six days a week, adding to their stress and reasons to not have more kids.
The CCP wants families to have more kids and they are done cloaking their desperation.
For a country that risks getting old before getting rich, the Chinese have indeed a lot at stake, and therefore, the education system is not the worst place to make a start. Perhaps, ensuring affordability in private education is an idea India can ponder on.
To conclude, while CCP has managed all its challenges with brute force, unparalleled propaganda, and unquestioned censorship, pushing families to have more children will require a lot more fixes than simply taking down, overnight, a $100 billion industry.
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