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After tech firms, China cracks down on the private education sector: Global investors get jittery

Chinese President Xi Jinping

China has once again hit headlines as it started a crack-down on its $120 billion private education sector—specifically the tutoring firms, which have drawn attention from foreign investors. The overhaul has given rise to uncertainty as many for-profit tutoring centres may be out of business.

Last month, the Chinese authorities issued new regulations aimed at limiting the for-profit tutoring services leading to massive selloffs by global investors.

The move is being seen as an extension of the overall clampdown exercise on the private sector. President Xi Jinping and his team have gone after the home-grown tech-majors too since last year.

According to Bloomberg, losses in Chinese tech and education stocks, since February, have now exceeded $1 trillion.

While authorities said that the overhaul is aimed at easing pressure and containing the cost of education, the move has sent jitters not only to the local Chinese– students, promoters and teachers but the even global investing community.

“The decision is driven by the ethos that a larger quantum needs to be shared with the middle class. The move has also made the middle class happy..this is a gamble that China has taken. On one hand the public at large (in China) is happy but the government’s increased interference and tighter grip on the private sector is making investors wary,” Subhomoy Bhattacharjee, Senior Adjunct Fellow at RIS (Research and Information System for Developing Countries) told India Narrative.

Also read: China's factory activity slows down in July

Last week, the outspoken Chinese billionaire Sun Dawu, known to be speaking openly on issues relating to human rights and the early mishandling of Covid 19, was sentenced for 18 years in prison. 

“Xi Jinping, long distrustful of the private sector, is moving assertively to bring it to heel,” the Wall Street Journal said.

Foreign investors thrive on certainty and stability. “Governments need to provide that otherwise you are shunning away the investors,” an analyst on condition of anonymity said.

“Beijing’s clampdown on the booming private education industry has shocked even some of the most seasoned China watchers, prompting a rethink of how far Xi Jinping’s Communist Party is willing to go as it tightens its grip on the world’s second-largest economy,” a Bloomberg report noted. 

Bhattacharjee added that the problem with China is somewhat self created. “It does not know how to handle its private sector, which has been a major pillar for employment generation,” Bhattacharjee said.

The timing of the crackdown couldn’t have been worse, as the country is already under the scanner for the way it is dealing with its tech companies.

Also read: Under pressure from green activists, China drops funding for coal projects

Importantly, China that carefully moulded itself into an education hub may even lose that edge with this “unnecessary clampdown.” Though the decision does not directly impact the higher education sector, the rising uncertainty and interference from the government may cause worry among foreign students and universities in China.