China Threatens to Make $100 Billion Tutoring Industry “Non-Profit”

China’s $100 billion a year tutoring industry may soon be forced to go “non-profit” amid growing concerns about escalating costs.

Bloomberg writes that the CCP is now targeting expensive, in-demand private tutors that have become increasingly popular, in part, due to the country’s “one-child” policy.

Since 1980, authorities have used drastic means to limit its population. Under the “one-child policy,” many couples were only allowed one child and those found in violation often faced enormous fines, forced abortion and sterilization. (Story continues below.)

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The education industry has exploded, in part, because families have focused all their energy and resources on one child…with the Chinese tutoring industry now worth an estimated $100 billion.

A $100 Billion Chinese Tutoring Industry

After-school tutoring is an integral part of middle-class life in China. Parents spend thousands of dollars per year to ensure that their children have the best shot at success.

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The push for excellent grades and outstanding test scores is done to help ensure access to elite universities. Many families see tutoring as a way to gain an edge in the ultra-competitive race for university admission.

As a result, tutoring has become a booming business with some couples spending up to $16,000 per year on various tutoring programs, foreign language and music lessons for their children.

Taken at face value, these services make the cost associated with raising children substantially higher — which is what concerns the Chinese government, especially in light of its efforts to improve its gender demographics and encourage families to have more than one child.

Correcting a Gender Imbalance

After a massive cultural campaign to promote small families, China is struggling with low birth rates. The country is facing a labor shortage, a gender imbalance, and a collapsing social security system.

In 2020, there were 35 million more males than females in China. The gender imbalance will worsen the catastrophic demographic outlook. Meanwhile, according to a 2019 study, the largest Chinese pension fund is set to collapse in 2035.

The problem is so evident that alarms were set even among the officials of the Chinese Communist Party. The ruling party has since reversed course, making a u-turn on population control.

However, decades of social engineering can’t be undone in an instance.

Now, Chinese authorities are using the same authoritarian means to promote more births. Currently, they have set their sights on private tutors.

Private Tutoring Singled Out, Investors Panic

In June, Chinese authorities imposed a $390,000 fine against Yuanfudao (backed by Tencent) and Zuoyebang (backed by Alibaba). The companies were accused of misleading advertisements and falsifying teacher’s credentials.

Now, regulators have gone a step further. According to Bloomberg, China is considering “asking” tutoring companies to turn non-profit, in an effort to lower costs and curb the growth of the industry.

The measure is a part of a series of rules that include barring tutoring platforms from going public or raising capital, as well as prohibiting the acquisition of educational firms. Foreign capital would also be barred from the sector.

The move has decimated the stock valuations of education tech firms. New Oriental Education, GSX Techedu and TAL Education have all lost value since the news broke.

Many more education companies saw their shares drop as investors abandoned ship. Chinese education stocks were by far the biggest losers in Friday’s trading. (Story continues below.)

The Real Problem? Authoritarianism.

China really has only one response to its social problem. More government control.

Too many births? Implement a one-child policy.

Too few births? Provide financial incentives and crack down on tutoring costs.

But the real question is, will any of these policy controls make a difference? It’s questionable whether the availability of tutoring services makes couples more or less likely to have children.

Financial incentives are not the only factor behind the decision to have children. Consider that Chinese birth rates are still falling even after the repeal of the infamous “one-child policy.”

From that perspective, it appears as though the one-child policy has merely compounded the effects of an underlying social trend towards fewer births. That same trend is present in Korea or Japan, and in most Western countries.

Decades of social engineering, compounded by underlying social factors cannot just be undone by force. That is something that China will have to come to terms with in the coming years.

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