US-listed Chinese education stocks nosedived 70pc in one day. Will it impact ASX edtech stocks?
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Chinese education stocks listed in the US nosedived on Friday, after reports the Chinese government may force them to convert to non-profits.
Tal Group (NYSE:TAL) was the hardest hit, dropping by 70% in just one session.
Gaotu Techedu (NYSE:GOTU) also plunged 63%, and New Oriental Education (NYSE:EDU) fell by 54% on the same day.
According to China’s Ministry of Education website, the government is considering rule changes to suppress the exorbitantly expensive after-school tutoring fees faced by Chinese parents domestically.
Experts say the move coincides with and aims to support the shift to a three-child per family policy the government had announced earlier this year.
The new rules may also prohibit education companies from raising investment capital, or acquiring other educational companies.
The Ministry was blunt in its announcement, saying “the after-school tutoring industry has been severely hijacked by capital, and in recent years this has led to money-burning wars and excessive advertising.”
This, according to statement, “runs against the nature of education as welfare, and harms the normal education ecosystem.”
The unexpected announcement is the latest crackdown by the Communist government that has affected Chinese companies listed in the US.
In April, Alibaba (NYSE:BABA) was ordered to pay 18.2 billion yuan (around A$3.6 billion) to settle an antitrust fine imposed by the Chinese government. Curiously, Alibaba’s outspoken founder Jack Ma has only appeared only once or twice in public since October 2020.
Last month, ride-hailing giant Didi Global (NYSE:DIDI) plunged a week after making its NYSE IPO debut, when the Chinese government blocked its apps from being downloaded in China, citing cyber security concerns.
Many believe that Didi was punished after its decision to go ahead with the IPO had defied advice from the Cyberspace Administration of China.
The company will now most likely be facing huge fines, or in the worst case, forced to delist.
Its share price has plunged by 50% since the IPO.
In general, Chinese companies listed in the US are in danger of bieng delisted, after former President Donald Trump signed the Holding Foreign Companies Accountable Act into law in 2020 – which requires publicly traded foreign firms to comply with US auditing rules within three years.
The Act includes the requirement for companies to declare they are not owned or controlled by any foreign government.
Currently, more than 200 Chinese firms with a combined market capitalisation of US$2 trillion are listed on major stock exchanges in the US.
Although details of the new law are still sketchy, it could potentially have an impact on ASX edtech stocks that are pursuing market share in China.
Here’s a few edtech companies that might come under that category:
In April, 3PL announced a merger with Australia-based Blake eLearning, after acquiring 100% of Blake from Pascal Educational Services.
Blake’s products are marketed directly to parents in the business-to-customer channel, and the company has offices located in China.
The merger will be subject to approval from Blake China shareholders, which is a 15% subsidiary of the Blake group.
This is a Shanghai-based edtech company that was listed on the ASX in 2017, and provides multi-platform e-learning services on the internet, mobile phones and social media.
It has big clients in China including corporate giants Huawei and Bank of China, and is also targeting markets all over Asia.
The ASX listing of Retech was controversial, and only became possible after the banning of the ‘variable interest entity’ (VIE) structure in 2016 by the ASX.
The VIE structure was where an ASX-listed listed company was able to control overseas entities through a complex structure instead of direct equity ownership.
In May 2020, Janison acquired UNSW Global’s Educational Assessments (EA) business, which provides university pathway courses, and distributes assessment products for school Years 2 to 12.
EA’s flagship formative assessment product, ICAS, is a recognised international skills-based competition which runs in 15 countries, including China.