China is home to a massive private university counseling sector, with at least 20,000 firms advising students in the world’s largest study overseas market. Despite a tumultuous three years for the broader private education industry, China’s study overseas sector has displayed remarkable resilience, with some indications of recovery. Recent data offers cause for cautious optimism for the Chinese agency landscape in 2024. This piece on the state of China’s agent landscape is one of several reports that we will be sharing from our upcoming white paper, Trends in Chinese International Education and Student Mobility for 2024.
- The number of new Chinese agencies is growing, with 148% more agencies established in 2023 than 2021.
- These new entrants in the market will accelerate decentralization in the Chinese recruitment agency landscape. The fate of larger incumbent agents is diverging, as some record healthy profits and others declare bankruptcy.
- Agencies have been more resilient than other education firms. While the number of newly established agencies increased from 2021-2023, newly established private education companies decreased by 67% as the broader industry faced regulatory tightening, economic pullback, and COVID restrictions.
- A more fragmented agency space will raise the stakes for vetting trustworthy agencies. Some universities will be tempted to adapt how they screen agents, incorporating agency certifications, novel approaches to systematic vetting, and ad-hoc vetting by university personnel.
- The Chinese agency business model is evolving with new regulation, industry fragmentation, as well as technological disruptions such as the “direct admissions” trend, the impact of AI on admissions, and the shifting role of application submission platforms.
“Agencies” in Context
Universities vary widely in whether and how they engage with agents. Generally, UK and Australian universities make heavy use of agents. 49% of American universities use agents, while many more maintain informal relationships with IECs. Regardless of how universities interact with agents, they are influential in the ecosystem of student mobility. BOSSA estimates that China has 20,000-30,000 agents, and 20% of all international students use them. The term “agency” is ambiguous, since some refer to all private university counselors as “agents,” while others define agents as strictly those that accept commissions from universities for enrollments that they originate. There are four distinct types of players in China’s private university counseling sector.
- Traditional commission-based agencies (CBAs). Most of these firms are 10+ years old and have physical offices in multiple cities. They tend to offer other services beyond university counseling, such as academic tutoring, extracurricular enrichment, and test prep. They charge families for university counseling, and they receive commissions from their university partners if their students enroll in a partner university.
- Independent educational consultants (IECs). Sometimes referred to as “studios” (工作室 gōngzuòshì), these firms charge families for university counseling, but they do not receive commissions from universities. For some, this is a deliberate choice, while others are unaware or unable to secure commission partnerships with universities. They vary widely in quality, scope, and age, from small startups founded by 22 year olds operating in one city, to mid-sized firms with a regional presence, to counseling firms that offer online counseling to students around the country.
- Solo Practitioners. Similar to non-commission-based IECs, private counseling services in China are also offered by individuals. They might be professionals with decades of experience, an office, and a business license. Or they might be recent college graduates who offer college advice alongside informal tutoring done in a cafe or a living room table.
- Tech Platforms. Technology firms also play many roles in university advising: complimenting counseling for school research and discovery, acting as aggregators of sub-agents, engaging directly in counseling, or facilitating “direct admissions” where schools offer admission to students based on a student’s profile. Some operate on a commission basis, but business models vary.
Hereafter, we refer to all four of the above types of counseling firms as “agencies'' for simplicity. Traditional commission-based agencies are referred to as “CBAs”. Non-commission-based consultants are referred to as “IECs”.
Newly Established Agencies Are on the Rise
China has massive internal diversity, so it’s worth examining where the growth in new agencies is coming from. We analyzed new agency establishment in 20 cities, spanning Tier 1, Tier 2, as well as 10 of China’s “New Tier 1” cities like Hangzhou and Chengdu. Tier 2 and 3 cities together made up 46% of new agencies in 2023, with Tier 1 cities being 29% and New Tier 1 cities being 26%. Growth rates from 2021 were 301%, 136%, 148%, and 98% for Tier 1 cities, New Tier 1 cities, sampled Tier 2 cities, and other cities, respectively. This stands to reason: New Tier 1 and Tier 2+ cities have the greatest growth potential and have more population, and New Tier 1 cities are quickly catching up to Tier 1 cities. Although Tier 1 cities bounced back faster during the pandemic, the majority of newly established agencies and the bulk of the Chinese market lies in lower tier cities.
The data shows that new agencies are being established, but it’s important to recognize the limitations of the data. Some new business entities are formed as part of spinoffs and restructuring. Some are founded out of duress, perhaps with a counselor starting their own company after a layoff. And new agencies also form as others formally dissolve or become inactive. There is little systematic data on agency closure rates in China, but a recent survey shows that 62% of agencies that were active in 2022 remained active in 2023. One might use this to infer that any gross agency growth rate above 38% would result in a net gain in the number of agents. Further analysis of what’s driving this increase appears in the “Resiliency” section below.
More Agencies Drive Fragmentation
The data shows that new agencies are being established at a growing rate. Newly established companies are more likely to be small and are more likely to be IECs than commission-based agents since commission partnerships take time to develop. The growth of new agencies in China suggests a continuation of the trend towards the fragmentation and decentralization of the agency landscape in China, which traces back to 2017 when China eased registered capital and special licensing requirements for study abroad agencies and opened the space to startups.
A more fragmented agency landscape in China is mixed news for university recruiters. On the one hand, fragmentation probably means more work for universities. Fragmentation likely will shrink the market share of existing agent partners and require recruiters to be more proactive in building and maintaining relationships with new agents. This will be more effort and travel-intensive than in the past. Smaller scale IEC outfits tend to focus on one or a handful of cities, so replacing a defunct national agency might require a patchwork of several local agents. New agents may not fully understand commission-based models, so it may take more effort to identify the best mode of partnership and onboard their counselors. It may be necessary to create Chinese-language fact sheets and school profiles with the particular needs of Chinese private counselors who are new to the industry in mind. As each recruitment cycle concludes, it is also worthwhile to survey existing agent partners to confirm whether they remain active in the space and to maintain multiple contacts at each agency to hedge against staff turnover.
On the other hand, fragmentation isn’t all bad news for recruiters. It offers the opportunity to diversify internally in China, ameliorating volatility inside one city or one company and allowing schools to recruit more diverse students from China. It’s a good opportunity to reassess non-performing partnerships and to avoid renewing exclusive relationships. Working with smaller scale agencies will give you more access to different levels of the organization chart, enabling better feedback from counselors and sales teams that work on the front lines and offering greater visibility into how each agent recruits students. One university might also be a more valuable partner for a smaller scale agent, compared to a national agency with 1,000+ commission agreements. And fragmentation might be better for students and families in the long run, as competitive markets tend to deliver better products at lower costs compared to oligopolies.
While new data and trends dating back to 2017 demonstrate growth in small-scale agencies and IECs, we’ve seen a divergence of fates for China’s largest agencies, with some growing and some closing.
- Some large CBAs collapsed under pressure. Most notably, one of China’s 5 largest agents called Tiandao declared bankruptcy in late November 2022. At the time of the announcement, the firm owed 15.55 million RMB in wages and student refunds.
- New Oriental reported that net revenues for its study overseas division increased by 8.9%, reaching $354.8 million from May 2022 to May 2023. Operating profit in the same period grew by 26%, reaching $33 million in May 2023. In the third quarter of 2023, it reported 26.6% growth in top-line revenue for study overseas consulting.
- The divergence of fates here owes to many factors, but a key one is how the company was structured. Companies like JJL that never created large academic tutoring service divisions were able to avoid the strictures of the Double Reduction Policy in 2021, while some like New Oriental had separated their tutoring and study overseas units and could thus insulate their study overseas units from the 2021 regulatory crackdown. However, some large and mid-sized companies like Tiandao had vertically integrated both academic tutoring and study overseas businesses, and these companies faced the most difficulty in the past 3 years.
- China’s other large agencies appear to be holding steady, without major growth or contraction in the years following the COVID demand shock of 2020-2021. In our conversations with employees at other large Chinese agencies this year, we’re hearing that they’re seeking to expand their sub-agent networks, both inside China and overseas in regions where there are large numbers of Chinese expatriates.
Agencies Show Resilience Despite an Embattled Education Industry
This suggests that the study overseas market is more resilient than other sectors of private education in China. Study overseas is a small segment of China’s private education market, as most education companies serve domestically-oriented students who have no plans to study overseas, as well as destination-agnostic tutoring and extracurricular enrichment. The broader private education market outlook is more pessimistic, as new education companies dropped from 106,306 in 2021 to 35,395 in Q1-Q3 of 2023, a 66% decrease. Companies with the term “international education” (国际教育 guójì jiàoyù) in their name fared more ambivalently with 942 new companies in Q1-Q3 of 2023, which would represent a 29% decrease from 2021 but a 38% increase from 2022.
Several factors might explain the increase in the number of newly established agencies and their comparative resilience:
- New Demand: Study overseas is more complicated than it used to be. Visa applications are more challenging for Chinese students, and more students are interested in applying to universities in multiple countries, which might have driven more demand for expert advice.
- Demand for Study Overseas Is Less Volatile: Families plan for study overseas far in advance, and it’s difficult to pivot from an international curriculum to preparing for China’s domestic admissions tests. University applications have high stakes and might result in better scholarship and job placement outcomes, so families are less likely to cut spending on counseling. On the other hand, they may choose to cut back on after school training expenses if finances are tighter in a given year.
- Tight Regulation on Tutoring Made Study Overseas More Attractive: In 2021, China’s Double Reduction Policy imposed strict limits on pillars of private education in China: academic tutoring and online training. The regulations focused on grade 1-9 students and academic tutoring, with little direct impact on university counseling services. Some entrepreneurs might have been attracted to the safer agency business, while others might have needed to spin off their agency business as separate entities from their tutoring business units.
- Displaced Employees: With many tutoring companies and some large agencies closing down or cutting staff, laid off former employees may have chosen to start their own ventures. And with a 21.3% youth unemployment rate, some recent overseas returnees may have decided to start agencies when facing a bleak job market.
Thus, study overseas has shown more resilience than other segments of China’s private education industry. This resilience is driven both by positive fundamentals for study overseas as well as weaknesses in other varieties of private education.
Agency Fragmentation Will Raise the Stakes for Vetting Agencies
With so many new entrants to the study overseas industry and the mixed trajectories of large-scale agencies, agency vetting becomes both more important and more complex. Some universities will be tempted to adapt how they screen agents, incorporating recognized agency certifications, novel approaches to systematic vetting, and ad-hoc vetting by university personnel. In order to engage newly established agents and drum up new partnerships, we expect that universities will engage in more on-site visits in China to identify and individually vet newly founded agencies.
The stakes of vetting are higher, because smaller scale agents vary more widely in their professionalism and reliability. Less scrupulous counseling companies may lack counselor training, established customer service norms, data processing frameworks, and systems to ensure ethical counseling and the integrity of application materials. Vetting newer, smaller organizations is harder as these organizations have less of a track record to evaluate.
Certification by a group like AIRC is an important signal from an agent that they are committed to the study overseas space and that they comply with core counseling and business standards. While AIRC certification is the most rigorous level of vetting for an organization we’re aware of, there are also other markers of some prior vetting, such as ICEF Agency Status, British Council certification, BOSSA/COSSA membership, or the completion of the CEAC training program. For IECs, membership in groups like NACAC, International ACAC, HECA, or IECA can also demonstrate some level of prior vetting.
However, most organizational certifications require that a company has operated for 2+ years, excluding newly established firms, and the cost of certification may create barriers for small scale firms. There are also company-level memberships or certifications that sometimes operate in parallel to the training and memberships that individual counselors possess. For example, a school-based counselor may have decades of experience in counseling and membership in counselor organizations, but if that counselor creates their own agency, then they may lack organization-wide certification or membership.
There are certainly principled reasons for why a university may only want to work with a company that has been in operation for several years, but the fragmenting agency landscape in China will tempt some universities to adopt novel vetting approaches for agencies who are unable to get certified by a third party and blend these approaches with traditional vetting systems. This might include attendance at international conferences or ad-hoc due diligence of company business licenses, legal filings, counselor biographies, and internal training documents. We expect that ad-hoc vetting by university personnel will play more of a role in vetting new agencies, particularly in the form of in-person meetings and site visits inside China as universities seek to grow the ranks of new CBA and IEC partners in the coming year. Some universities will do so through self-organized travel to China or structured recruitment tours of China, while others will do so through targeted outreach campaigns offered by market research firms.
The Agent Business Model is Adapting to Tech Disruption and Regulation
The Chinese agency business model is evolving as agencies respond to new regulation and fragmentation of the industry domestically as well as global technological disruptions such as the “direct admissions” trend, the shifting role of application submission platforms, and the impact of AI on admissions.
Before 2021, there was a strong business incentive to spend heavily on marketing to recruit young students for academic tutoring, sometimes before the student had decided to study overseas. This allowed private education firms to recover marketing spend with academic tutoring services in the short term and to create a lasting relationship with a family, with the opportunity to sell tutoring, test prep, extracurricular enrichment, study tours, and university counseling for overseas-bound students. A long “customer lifetime value” was more profitable for agents, this meant that agents helped to steer university discovery and planning earlier on in a student’s academic career. This tended to benefit larger scale agencies with big marketing budgets and diversified product offerings spanning from elementary years to graduate school applications.
The Double Reduction Policy of 2021 and broader industry fragmentation has shifted this business model. The Double Reduction Policy essentially banned academic tutoring for Grades 1-9 students and has caused many agents to either eliminate or radically scale back their work with Grade 1-9 students. There are some signals that enforcement of the Double Reduction Policy may ease, but agencies are playing it safe for now to avoid fines or name-and-shame campaigns by the government. Agencies are now more likely to engage students starting in Grade 10 now, which has shortened the lifetime customer value of a study overseas student. Strictures on the marketing of academic tutoring and the broader fragmentation of the agency industry has leveled the playing field between large and small agencies.
Global technology trends are also shaping the agency business model in unpredictable ways. That technology is shaping university counseling is no surprise, but agents in China increasingly find themselves downstream from technological change rather than leading the charge. Chinese IECs were early adopters of online college counseling, and online interviews providers like InitialView and Vericant started out in China before expanding to other regions. Now, technological shifts are unfolding overseas and coming to China later.
First, “direct admission” (sometimes referred to as “flipped recruitment”) allows universities to send offers directly to students based on public student profiles. Some US state university systems pioneered the trend in 2015, and private providers like Concourse / EAB, Sage Scholars, and Niche offer platforms for direct admissions. Application processors like the Common App have also entered the space. In the long term, this may affect agents who send students to less selective universities, since students can harvest admission offers from more universities without as much assistance from agents.
For now, Chinese agents are more insulated from these effects than agents elsewhere. Chinese agents often work with students who may aim for highly selective “reach schools,” while the agent is free to make suggestions for less selective match and safety schools with which the agency partners. Chinese families may assume that direct admissions is only offered by less desirable universities, judging from the general skepticism in China toward test-optional admissions, which only truly abated during the pandemic. There is less awareness of direct admissions in China in general, and China’s Great Firewall may create accessibility issues if one of these platforms is blocked or has its load times throttled, as often happens with websites hosted overseas. Still, Chinese agencies are downstream from this trend in direct admissions, and agents will need to contextualize their value proposition in light of these changes.
The second broader tech trend is a more blurred line between traditional commission-based recruitment channels and tech platforms like application submission tools for students and counselors. The Common App is piloting direct admissions. Cialfo, which has historically focused on application management, now has a live application for AIRC certification. As tech platforms create referral fee-based partnerships with universities, it’s unclear if agents will view these as a threat to their own commission-based partnerships with universities, or if agencies will embrace the new tools and help students to contemplate many admissions offers from universities that families may not have heard of before.
Third, agents are downstream from the broader discussion of AI in admissions. While there’s broad consensus that students should avoid using AI to outright draft personal statements, there’s less consensus on where the line is between plagiarism and acceptable uses of AI as a grammar checker and writing co-pilot. The line is also blurry as counselors determine how much AI can be used in providing advice and feedback on application materials. And admissions offices themselves are determining how much they want to use AI in responding to student inquiries, completing internal processes, or screening applications.
The Chinese agency industry is recovering after a difficult three years. New agency establishment is on the rise, especially in Tier 2+ cities, which offers room for cautious optimism. The resilience of the study overseas industry in China is unique as other education firms struggle. The agency landscape in China in 2024 and beyond will be more fragmented and decentralized. Finding and vetting new partners, especially among newly established companies, will take more effort and may combine traditional and novel vetting approaches. And Chinese agencies both large and small will need to adapt their business models to reflect new regulations and technological trends. Universities would do well to diversify their modes of engaging China’s evolving ecosystem of agents, combining regular communication and in-person visits in China to cultivate partnerships that deliver well-qualified students.