Private Education Policy Change Eliminates Billions from HK Stock Market

On Friday 10th August, China’s Ministry of Justice issued a Draft Regulation containing details of an implementation plan to “Encourage China’s Private Education Sector”. The Ministry is seeking public opinion on the Draft Regulation which includes a range of interesting new clauses, such as those that prohibit Variable Interest Entity (VIE) structures (which have made offshore ownership possible through multiple layers of shareholding), those that ban education groups from controlling not-for-profit institutions (which also widely exist in current listed or to-be listed education groups), and those that set the direction for the separation of public institutions and independent institutes. The regulation is largely designed to block “so-called not-for-profit institutions” and ensure they seek to achieve financial gain elsewhere. Although these new clauses contradict many current practices, they are not a complete surprise for many within the industry.

The release of the Draft Regulation caused a “Black Monday-like” event in the Hong Kong stock exchange, where eight mainland China education groups are currently listed. On Monday 13th August, following the Regulation’s release, there was a drop in the share value of all mainland education companies by more than 30%, which saw over RMB 10bn (USD 1.5bn) evaporate from the market.

For a full list of mainland China education companies listed on the Hong Kong stock exchange including a brief background of each, please click here.