China suddenly allows off-campus tutoring again, after months of crackdown?

A Wall Street Journal article entitled “China to Issue Licenses for Education Companies to Resume After-School Tutoring” yesterday excited the markets. After months of crackdown, are things turning around?

Share prices of Gaotu (NYSE: GOTU), one of China’s largest edutech companies which lost more than 90% of market cap this year, briefly rose sharply at the opening yesterday:

However, the reality might not be as exciting as it sounds. Here are some of our thoughts:

1. The companies’ tutoring businesses will still need to be run as non-profits, as previously indicated at the start of the crackdown;
2. The licensing requirement just puts the tutoring part into a more predictable framework, not a more profitable or growth centric one;
3. Many of the edu-tech companies under the crackdown have already started other business units in order to survive:
   for example, New Oriental (HKG: 9901) has pivoted to vocational education, while Yuanfudao is starting a down jacket brand (literally and figuratively for Winter);
4. Xi’s government has a track record of delivering very-carefully prepared and well studied policy changes, and sticking with them;
5. President Xi wrote about his intentions to reform this industry as early as in 2014;

On the other hand, Biyu’s, the leading ed-tech player in the (also very competitive) Indian market, raised $1.2 billion debt to fund its acquisitions, much more than initial target of US$500 million.

This is the world we are living in.