US-Listed China Tutoring Stocks Jump As Beijing Dials Back Regulatory Blitz

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by Tyler Durden
Monday, Nov 08, 2021 - 03:29 PM

U.S.-listed Chinese education stocks jumped premarket following a WSJ report that said Beijing would issue a dozen or more licenses to companies to restart after-school tutoring programs. This comes after the government unleashed an unprecedented crackdown on the education sector, banning for-profit tutoring companies over the summer. 

People familiar with the decision tell WSJ that multiple tutoring companies, including Gaotu Techedu Inc., previously known as GSX Techedu Inc., and Tencent Holdings Ltd. -backed Yuanfudao, have held discussions with government regulators about resuming tutoring services to students in the ninth grade and below.

The new license will require tutoring companies to operate after-school tutoring on a non-profit basis. Other services, such as tutoring adults for professional exams, can be allowed to make a profit. There's also a price cap on how much the education companies can charge each student in after-school tutoring classes. 

There is still uncertainty on how many licenses would be granted, and China's Ministry of Education didn't respond to questions via WSJ. 

The shocking overhaul of the $100 billion education sector, which began in late July, resulted in many listed Chinese education companies losing upwards of 90% of their value via American depositary receipts. 

Today's announcement comes as China's ruling Communist Party's Central Committee has begun its sixth plenum to discuss the policy and trajectory of the country behind closed doors. 

The decision to offer the licenses has brought relief to US-listed Chinese companies. Many of them are surging in premarket, New Oriental Education & Technology jumps 22%, Tal Education gains 16%, Gaotu Techedu surges 24%, Puxin is 7.6% higher, RISE Education increases 10%. 

Last month, we outlined how President Xi Jinping's regulatory blitz is ebbing, which wiped out hundreds of billions of dollars of market cap in its tech sector and other industries. We pointed out China tech has been trading sideways for the last few months. 

Regulatory crackdowns have resulted in global investors slapping China stocks with a lower multiple because of uncertainty. But suppose crackdowns are ebbing and resolutions are nearing, such as today's news in the education industry. In that case, global investors might find some China stocks, such as tech, attractive, despite the Evergrande debacle. 

Take a look at MSCI World versus MSCI China, the largest gap since 1998. 

Is beaten down China tech ready for a bounce? Will WSB crowd pile into China education and tech stocks?