Shares plunge as Beijing pushes ahead with new rules for education and tech companies

On Friday, Beijing released a draft policy that could turn its $100 billion tutoring industry into a nonprofit sector. The decision knee-capped shares of China’s largest education companies: New Oriental Education & Technology Group, for example, lost $38 billion that day.

• On Saturday, state media confirmed that authorities would be barring tutoring for profit in core school subjects, citing the need to “ease financial pressures on families that have contributed to low birth rates,” Reuters reports.
• Today, Hong Kong-listed New Oriental continued its free fall, with it and two of China’s other largest education companies, New York–listed Gaotu Techedu and TAL Education, each dropping by at least 26%, per Bloomberg.

The action against tutoring companies added to a regulatory storm that Beijing has ramped up since late last year, from antitrust action against Alibaba and others to the probe of Didi early this month.

• Investors are pricing in the risk of further action by newly emboldened Chinese regulators, with hundreds of billions on the line.
• A total of “$769 billion in value from U.S.-listed Chinese stocks” has been erased over the past five months, Bloomberg reports, and an index of 98 of China’s biggest U.S.-listed firms dropped by 15% over the past two trading days — the largest drop since 2008.
• Hong Kong’s Hang Seng Index fell by 4.1% today, its biggest drop since May 2020, according to the South China Morning Post.

The regulatory storm rumbled on in several other developments over the weekend:

• On Saturday, China’s antitrust watchdog ordered Tencent to terminate its exclusivity agreements with its music producers, per 36Kr (in Chinese). The decision, a culmination of a six-month investigation into whether Tencent was a monopoly in the music market, led to the biggest sell-off in Tencent Holdings in a decade.
• A new sixth-month rectification campaign for the internet industry was kicked off on Friday, Caixin reported, targeting “areas including disturbing market order, violating users’ rights and interests, and endangering data security.”
• Regulators posted a notice today asking meal delivery operators to ensure delivery workers earn at least the local minimum wage. Shares of Meituan, the largest delivery platform in China, plunged 15%, its worst on record. Meituan is already being investigated for alleged monopolistic behavior, as are many of its peer platform businesses.
• “Chinese property management stocks tumbled on Monday, after Beijing vowed to ‘notably improve order’ in the market and regulate a wide range of industry activities,” Bloomberg reports.

See also:

• China to overhaul education sector ‘hijacked by capital’ / Bloomberg (paywall)
• China crackdown rocks investors: ‘Everybody’s in the crosshairs’ / Bloomberg (paywall)
• Education companies knew sweeping rules were in the pipeline / Caixin (paywall)
  “Senior executives at top firms were aware of looming policy change since at least the start of July, Caixin has learned.”
• Out-of-favor Jack Ma tops Forbes China Philanthropy List with $494 million in donations / Caixin