Double Reduction: insights sharing

By Francesca Lewis, BritCham Shanghai Policy Team

On the 5^th August 2021, BritCham Shanghai and its Education Committee invited EY Consulting to deliver an update on “Double Reduction” (双减), the new policy that will regulate the for-profit education institutions and resources in China. The webinar was hosted by Sherry Fu, the Vice-Chair of the Chamber’s Education Committee.

Background information emphasised the huge importance to the government of this new policy, of which discussions were initiated in 2019, with the central government itself approving and issuing its opinion paper in May 2021. Trials of the new policy will be run in 9 pilot cities and a nominated city in additional provinces by a special department led by the Ministry of Education (MOE). Implementation of the policy is expected to start to be reviewed in December.

Key reasons behind the policy

These are fourfold.

• To improve the quality and equality of mainstream education.
• To reduce the excessive burden on students and
• To tackle one of the “three heavy mountains” on Chinese citizens backs (housing, education, and healthcare).
• To improve society and the economy by reducing the market disorder caused by the rapid expansion of online tutoring.

Off-campus rule interpretation

Core curriculum subject-tutoring institutions will be prohibited for students in compulsory education and applications for new licences will be banned. Existing institutions must re-register as non-profit organisations (NPOs) and online institutions must register for licences. Non-core curriculum subject tutoring will be under strict supervision.

This means overseas off-campus core curriculum subject-tutoring institutions and foreign tutors working from abroad will be banned whilst approved institutions will have to navigate new restrictions on marketing, pricing courses, and salaries. Classes will be limited, running for no more than 30 minutes, only until 9 pm and stopped during legal holidays and weekends.

On-campus rule interpretation

The off-campus rules will seek to improve teaching quality and increase the free resources of on-campus institutions under government supervision. Parents’ burden to check their children’s homework will be relieved, with homework now reduced to one hour a day and marked only by teachers. Competition between schools will lead to better opportunities for all students. These rules affect both public and private schools.

Market response

The market response has been strained, with 78% of listed education companies suffering a sharp decline in stock prices and 87% of top core curriculum subject-tutoring institutions facing high levels of attrition and cancelled contracts.

Challenges include new market entry barriers and restrictions on business models, with core curriculum subject institutions losing capital and resources. Schools will have to take on new costs to improve standards and convince parents they can meet new requirements.

Opportunities include more support and resources for schools from the government, a reset of the market order, and industry vitality brought forward by new talent flows. Non-core curriculum subject tutoring is likely to see a rise in students and their place in the market too with big education groups forming.

Current uncertainties remain around how local governments will implement requirements, how feedback from the pilot performance will impact regulations, how authorities will address the rising costs for private schools and definitions for phrases such as ‘overseas education courses’.

Key take-aways:

1. The policy is about increasing quality and equality in public schools for students.
2. Foreign capital will not be allowed to participate in core-curriculum subject-tutoring institutions through any structures, include M&A, entrusted operations and franchises etc. IPOs will be banned.
3. The time frame is 1 year for ‘effective reduction’ and 3 years for ‘significant reduction’ of burden, leading to education satisfaction.
4. Positive expectations for children include more time for hobbies and sleep with reduced stress, whilst negative expectations foresee workload will remain high, with school hours and fees possibly increasing.
5. On campus institutes have the opportunity to review strategy and operating models, whilst digitalising homework management and shaping a new relationship with parents
6. Existing assets for off-campus institutions can be adapted to serve broader groups of customers whilst business models can be innovated to meet new requirements and identify new opportunities.
7. Government supervision will be present in all institutions moving forward and needs to be taken into consideration when making decisions.

Information Presented by:

• Ronan Williams, Partner, EY Consulting
• Tian Rong, Director, EY Consulting
• Isabella Sun, Senior Manager, EY Consulting
• Summer Xin, Manager, EY Consulting

If you would like to understand more about these regulatory changes and want to speak with the experts from EY, then please do get in touch.

Disclaimer: The views and opinions expressed within this content are those of the Policy team summarising the information. This material is for informational purposes only and has been prepared for the exclusive use and benefit of British Chamber of Commerce Shanghai members or prospective members. Neither the Policy team nor the British Chamber of Commerce Shanghai accepts any liability arising from use of this content.