The author is a friend who has built and sold multiple tech businesses in China. He has been a full time investor since 2017.  

China’s latest crackdown on the tutoring industry is fast and brutal.

Funny that a few years ago I was discussing with a friend on the booming sector, and our conclusion was the government will need to deal with it eventually.

I did not, however, expect the measures to come so quickly, and with such determination and ferocity.

The problem

The Chinese society has evolved a lot over the last twenty years – many higher paying, and even prestigious, jobs were created, which did not existed when my generation entered the workforce in 1990s.

That rapid exchange creates expectations – especially on parents. In East Asian societies, every parent would hope that their kids eventually become somebody.

The trouble is, even with the rapid development, there are just not enough good jobs to satisfy all these expectations. Worse, as the growth is gradually slowing down, the imbalance will become more apparent.

Seemingly, you have universities in China expanding enrolment, and more graduates entering the society every year. That is simply lowering the standard – it does not change the fundamentals in the society.

More PhDs do not improve the creativity of the society – but it creates unrealistic expectations. Chinese parents will not accept their college-educated kids becoming shop assistants, for example.

Talent is often innate

Another thing people tend to forget is talent, which often is innate (I know people do not like to hear this). Capital can help you accelerate your practice, but it does not transform an average person into a genius.

Just think about the millions of kids across China who are forced by their parents to study piano. How many of them will eventually find this skill useful after they become adults? How many will become pianists?

It simply does not work that way. And when every kid spends all his/her time in tuition, it does not fundamentally change anything, but a lot of resources are wasted. Worse, because of all those costs and anxiety, parents in China are hesitant to give more births.

Big societal experiment

The government recognises this. To solve the problem, it uses forceful measures to stop excessive tuition. As a result, the kids will naturally fall into their respective paths as they grow up. Geniuses will be geniuses, ordinary people will be ordinary people.

If you think from the benefits of the majority of the population, as well as of the society, you will reach the same conclusion.

Personally, I think this measure can only be implemented in China. In any other country, the lengthy debate will prevent the government from doing the right, albeit painful, thing.

It is a big societal change. The education demand will be reduced, the market will be reduced – but it will still exist, and winners will still win.

I think, tuition moving online will be accelerated as a result.

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.