Top Chinese Tutoring Company Fires 60,000 Workers Amid Brutal Regulatory Crackdown

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by Tyler Durden
Monday, Jan 10, 2022 - 06:23 PM

In July, China issued new rules on after-school tutoring companies for students in compulsory nine years of education. The rules said companies and institutions that teach the school curriculum must go non-profit and cannot pursue IPOs, or take foreign capital. 

The unprecedented regulatory overhaul crashed shares in China's big tutoring companies. By the end of 2021, New Oriental Education & Technology Group Inc., the largest after-school tutoring in the country, was worth about 89% less than a year earlier. Its current market capitalization is approximately $3 billion. 

New revelations over the weekend from the founder and chairman of the Chinese tutoring giant, Yu Minhong, show overhaul cost amounted to a whopping 20 billion yuan, or about $3.1 billion, last year. 

Minhong took to his personal social media account on WeChat Saturday to disclose how the crackdown resulted in the company dismissing 60,000 workers in 2021 after revenues plunged 80%. 

"In 2021, New Oriental encountered too many unforeseen events from factors such as policy, the pandemic, and international relations," he wrote. "Much of our business remains in a state of uncertainty."

Despite the layoffs, the company still employes 50,000 teachers, Minhong said in another post on Monday. He said there had been requests for the company to shutter all operations. "But that is an impossible thing. [I] cannot accept that emotionally, and it is not practical in reality," he added.

The purpose of the rule change by Beijing is to reduce financial burdens on families who send their children to after-school tutoring. 

New Oriental announced at the end of 2021 that it would disband tutoring for students from kindergarten through grade nine. In doing so, it would have a tremendous impact on future revenue. 

Minhong did offer an outlook for the company and said it would invest more money into tutoring university students and teaching the Chinese language abroad.

A senior industry analyst for Bloomberg Intelligence, Catherine Lim, said New Oriental could experience losses through 2024.

So buying the dip in Chinese education stocks is not advised. Maybe the folks over at Wall Street Bets will try and catch the falling knife.