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CHINA: Education crackdown is part of broader ‘common prosperity’ agenda

Table of Contents

  • China's cabinet announced sweeping new policies to regulate the after-school tutoring industry, motivated by concerns that the industry preys on parents' anxieties about academic competition and leaves children overworked.
  • The crackdown is part of the government's latest effort to rein in elements of China's tech sector following recent anti-monopoly, financial risk, and data security enforcements.
  • As with those earlier actions, the education crackdown primarily reflects concerns about specific industry practices, rather than a general hostility to consumer tech or the private sector.

The State Council directive on 24 July requires education companies that teach the primary or middle school curriculum to re-register as nonprofit institutions and prohibits them from raising capital or going public. The policy also bans these companies from teaching the school curriculum on weekends or public holidays or from offering any academic tutoring to children under six. The Ministry of Education followed up on 28 July with a statement that it would block public school teachers from moonlighting as after-school tutors.

Willing to sacrifice growth

After-school education, offered primarily online, boomed during the pandemic. As with the other recent actions affecting the tech sector, the speed and ferocity of the crackdown was surprising, but Beijing's basic intentions have been clearly telegraphed. As previously discussed, a series of policy statements in recent years has signaled that GDP growth is no longer the Communist Party's top priority. Policymakers also signaled that unlike in the 2010s, economic policy was no longer directed towards so-called “re-balancing” the structure of economic demand away from investment and towards consumption. This objective had prompted both policymakers and investors to view consumer services like education, health care, entertainment, and tourism as promising growth areas.

The education clampdown is best understood as one element in Xi's broader “common prosperity” agenda which focuses on addressing social problems like economic inequality, housing costs, environment, and family stress, even at the cost of sacrificing a degree of economic growth. The recent slough of tech crackdowns probably also reflects policymakers' judgement that this year presents a window of opportunity to advance “common prosperity,” given that growth is comfortably on pace to exceed this year's un-ambitious GDP growth target.

A predatory industry

Beyond the broad focus on addressing social issues, the government has specific concerns about the for-profit education sector. Authorities believe the industry preys on parents' anxieties about academic competition, while often providing low-quality, overpriced services marketed through misleading advertising. Children are also overworked and sleep deprived while parents are financially burdened.

Lurking behind these concerns is China's falling birth rate, which already prompted the government in May to ease the limit on children per family from two to three. Policymakers believe that easing the psychological stress and financial costs of raising children can encourage more births or at least arrest the decline. Another concern is that private education exacerbates social inequality because wealthier families can afford to spend more on such services. As early as 2018, Chinese President Xi Jinping gave a speech warning that off-campus education institutions should “not become profit-driven.”

As with the other crackdowns, Beijing's action against private education companies appears intended to curb specific excesses rather than to kill off the industry entirely. Nor does the crackdown reflect a general hostility to the private sector: the party wants a vibrant private sector, but only on the condition that private-sector business models are consistent with the party's broad objectives for economic and social development. Similarly, the crackdown is not motivated by concern about enforcing ideological conformity in education. Private tutoring companies focus almost exclusively on helping students succeed on school exams, and these companies faced no incentive to teach politically sensitive content.

Investor concerns matter – but aren't paramount

Authorities are not entirely insensitive to investor concerns, especially after several days of stock market declines that extend far beyond the education sector. The China Securities Regulatory Commission reportedly convened a meeting of major investment banks on 28 July to reassure them that the crackdown is narrowly targeted. State media also weighed in with commentaries arguing that the market rout was overdone. Still, the overall takeaway from this incident is that China's leadership is less concerned than other governments about avoiding collateral damage to investors and the stock market in pursuit of key political and policy objectives.

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CHINA: Education crackdown is part of broader ‘common prosperity’ agenda

China’s cabinet announced sweeping new policies to regulate the after-school tutoring industry, motivated by concerns that the industry preys on parents’ anxieties about academic