China’s move to ban private tutoring firms from making a profit from teaching core school subjects and raising capital is set to trigger a scramble among venture and private equity investors to find an exit after pouring billions of dollars into the sector.
While stricter regulations were expected with China looking to ease pressure on children and the cost burden on parents that has contributed to lower birth rates, private equity industry sources say they were surprised by the severity of the rules that could kill many companies and block their exits.
“Every company is going to take a hit with large layoffs coming,” said a Shanghai-based private equity (PE) investor whose firm invested in a number of online education apps targeting school-aged children. “There is zero VC (venture capital) and PE investors can do at the moment.
“We are all waiting for death.”
Under the new rules, which have triggered a massive fall in the shares of Chinese private education firms, all institutions offering tutoring on the school curriculum will be registered as non-profit organisations, and no new licences will be granted.
The rules ban these firms from raising money via listings or other capital-related activities, and also bar listed Chinese companies from investing in such private tutorial institutions, an official document shows. Foreign investments too are disallowed in such companies.
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