Multiple edtech IPO plans fall apart
The Chinese government has come out with strict measures against the rapidly growing edtech industry in the country affecting their plans for multi-billion-dollar initial public offerings this year.
China’s President Xi Jinping has shown a personal interest in regulating China’s edtech after talking about the pressure being put on children.
What’s going on in China?
EdTech start-ups pulled in funding of more than $10 billion from companies like Alibaba Group Holding Ltd., Tencent Holdings Ltd. and SoftBank Group Corp.
The competition is intense and there have been instances of fines on some companies for dubious advertising.
China’s education ministry is going to create a separate division to oversee all private education platforms. There have also been concerns over the widening gap between families who can afford extra after-school lessons for their children and those who cannot.
According to Bloomberg, the virtual learning industry is booming in China. The Pandemic did help support the growth, but even before, one of the education companies could support 50 million log-ins on its website. The education start-ups attracted funding of $10.5 billion last year.
Among these issues, the Government is also concerned about the growing influence of internet companies like Alibaba on the edtech industry. China has also banned private school centres from teaching elementary school curriculum starting this month.
How did edtech grow so fast in China?
The edtech industry has been consistently growing since the last few years. The major edtceh companies in the country are Yuanfudao, Zuoyebang, GSX techedu, among others.
Yuanfudao, which engages the K-12 age group, raised over $3.5 billion last year. Zuoyebang received a $2.35 billion funding in 2020 from investors including Alibaba. These are China’s most valuable edtech startups.
China, though, is making sure the industry is regulated. The country has imposed the maximum penalty on Zuoyebang and Yuanfudao, for unfair competition. According to the investigation, Zuoyebang made up information about its teachers’ work experience, claimed to give services it didn’t and also promoted false user reviews. Zuoyebang also claimed to be a partner of the United Nations.
While there have been reports of increased regulations on edtech in the country by the Chinese government, other countries have also been interested in the growing market in China.
The US Securities and Exchange Commission released a report on GSX Techedu, a Chinese edtech company. The report highlighted the number of unqualified teachers the company had hired, and smashed several claims that the company regularly boasts about. While this trend in edtech has been seen in other countries, India especially, the fact remains that if the Chinese Govt has decided to tighten the regulations around edtech, then the future of this business might look very different from what it is right now.