China’s government plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring

By Keith ZhaiNov. 8, 2021 5:52 am ET WSJ

SINGAPORE—China’s government plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring, according to people familiar with the matter, capping months of turbulence for a once-flourishing industry devastated by new restrictions.

Tutoring companies including Gaotu Techedu Inc., previously known as GSX Techedu Inc., and Tencent Holdings Ltd. -backed Yuanfudao, have engaged in discussions with regulators in recent weeks about an arrangement that would allow them to resume offering tutoring services to students in the ninth grade and below, said people familiar with the talks.

Under the new licensing arrangement, tutoring companies will be required to operate after-school tutoring on a nonprofit basis while being allowed to make a profit on other businesses, such as tutoring adults for professional exams, the people said. The government is also set to place a cap on the price companies can charge for each after-school tutoring class, some of the people said.

Each licensed company will be required to set up and manage a nonprofit foundation to collect proceeds from after-school tutoring, according to the people, who said the decision is likely to be announced later this month. Such a foundation, which is prohibited by law from soliciting public contributions, will likely need to be registered as a separate entity under the Ministry of Civil Affairs, one of the people said.

It couldn’t be determined exactly how many companies would be granted licenses.

Concerned that skyrocketing educational costs were exacerbating wealth disparities and discouraging families from having more children, Chinese leaders in July issued rules that banned for-profit after-school tutoring, restricted tutoring companies from raising capital, and forbid teaching during weekends and holidays.

The restrictions shocked markets, wiping tens of billions of dollars off the value of listed Chinese education companies. The American depositary receipts of Gaotu and other Chinese education companies have lost around 90% of their value since May.