One Year Later: Behind China’s Education Reforms

It has been one year since China introduced its draconian education reform policies. In late July 2021, the State Council shocked international observers and investors by flat out banning after-school tutoring activities, which resulted in the collapse overnight of the market capitalizations of education-sector firms. Earlier the same year, Beijing had already made international headlines by prohibiting foreign ownership of private compulsory education and heavily restricting the operations of private schools, causing the abrupt closure of thousands of schools countrywide in just a few months.

According to the Chinese Ministry of Education, within seven months after the crackdown on private tutoring, the number of offline primary and middle school tutoring institutions in China dropped from over 124,000 to 9,728, a drop of 92.14 percent, while 87 percent of the total 263 online institutions shut down. Even the survivors took a heavy punch, with their share prices falling by over 90 percent. Zuoyebang, once the market leader in online tutoring, pivoted to producing hardware such as smart watches and noise-canceling headphones. To keep going, New York-listed New Oriental, China’s largest private education firm, shifted to live-streaming e-commerce programs hosted by their teachers. Yuanfudao, once the number one unicorn in the ed-tech sector internationally with a market cap of US$15.5 billion, started selling down jackets to make ends meet.

Much of the discussion in the international media regarding China’s reformative measures in the education sector has focused on the economic consequences: company values evaporating together with investor confidence, the offering of expensive underground tutoring classes beyond the means of working-class families, and precious market opportunities lost while the market demand among parents has been left unfulfilled. Critics see the drastic policies as part of the government’s broader crackdown on the tech industry, an attempt to force foreign capital out of the Chinese market. They reckon that the state means to monopolize education, one step in the Communist Party’s efforts to tighten control and aim for totalitarian order.

Such sharp views, however, overlook the essential concerns behind the reforms. From a policy perspective, education reforms are necessary, but the motivation is neither political nor economic. Instead, they are due to increasing social tension and the need to restore education as a public good, provided by the country and for the country, without being distorted by capitalist for-profit interests.

Private education: Exacerbating disparity

Private schools have flourished since China introduced its first private education law in 2003. By the end of 2020, there were 192,200 private schools countrywide, accounting for more than a third of all schools and a fifth of all students. Cash-rich private schools often offer much higher remuneration, causing talent-draining from public schools. It is a common phenomenon that good teachers are nurtured mainly by public schools, yet once they have honed their skills, gain experience and build a good record, they move to a private school and immediately double or even triple their salaries. Public schools pay the cost of talent development; private ones enjoy the benefits of that training and support.

Deprived of good teaching talent, public schools lose in the competition for better student academic performance. In recent years, primary and secondary education sectors in big cities have been dominated more and more by private schools. Gaps between private and public schools have widened. In 2015, all the top-ten middle schools in Shanghai were private, while 90 percent of all the top-scoring students who took the high school entrance exams in Hangzhou were from private institutions. Many parents have come to believe that if their children to not go to a private primary or secondary school, their kids will end up in a mediocre or low-quality university.

Experts have been warning of a “Latin Americanization” of education in China: Students in privileged social classes can afford higher-quality private primary and secondary education, subsequently monopolizing higher education opportunities, while their less wealthy public-school counterparts struggle. This trend reduces social mobility and exacerbates income disparity. According to The Economist, only 0.3 percent of rural students make it into the best universities (the top one percent) in China today, compared with 2.8 percent of urban students.

The tutoring boom led to unhealthy competition and severe anxiety. When more and more students took tutoring classes, those who did not were put at a disadvantage and their parents were compelled to follow suit for fear of losing the race at the starting line. The intense competition significantly overloaded students and placed undue burdens on their health. Seven- or eight-year-olds often endured 5-6 hours of tutoring on a school day and 12-13 hours each day of the weekend. Several tutors openly voiced concerns when they saw pupils dozing off during sessions.

Tutoring has also put significant financial pressure and mental stress on families. Parents complained that tutoring costs took up such a large portion of their total household income that it crowded out other expenses and activities, reducing overall living standards. But because all their children’s peers were enrolled in tutoring course, they felt compelled to do the same. Parents were pained to watch their children suffering through classes they disliked, not having time to play as kids should. Many young couples admitted that the prospects of having to endure such anxiety and the financial burden discouraged them from having children.

An education market hijacked by profit-making

The Chinese online education market has been massively popular among investors in recent times. According to a Chinese think tank report, in 2020, the total capital raised by 111 unlisted online education firms was approximately RMB540 billion (US$84.4 billion), a sharp increase of 267.4 percent year-on-year. Major investors have included financial giants such as Tiger Global, Sequoia, Hillhouse and Softbank, among others.

This capital boost soon over-saturated and distorted the market, leading firms into ravenous user-grabbing, extravagant advertising campaigns, and fierce price wars. Parents’ anxiety was exploited as a sales pitch: slogans such as “take (tutoring classes) or your kid will lag behind” or “don’t have regrets one day when you could have done more for your kid today” became prevalent. Companies offered extra-long-term packages (which violated government regulations) at discounts and lured customers into paying in advance. Parents of primary students have often pre-paid for tutoring courses all the way through high school. It even became common for sales reps to push cash-tight parents to take out installment loans to pre-pay for tuition. Companies that adopted such irresponsible practices included many of the most prominent players.

This dysfunction derailed the education sector from its fundamental purpose. The education of a student was less important than the growth of subscriber numbers, while a family’s hope for their child’s future was exploited as a way to make a profit. Education, a fundamental public good, instead became a sector riven by commercial rivalries and turbo-charged by parental demand ramped up by fears that youngsters would be left behind.

Many people in China still have vivid memories of the period of the “industrialization of education” from the late 1990s to the early 2000s, during which the government, due to severe financial deficits and insufficient education budgets, mandated public educational institutions to function as businesses and sustain themselves by generating revenue. This practice led to significant market distortions, all sorts institutional misbehavior and social anxiety and unrest. Knowledge of this part of history is essential to understanding people’s resentment towards a market-driven education sector.

How education inequality made reform necessary

It is a fundamental belief of the Chinese people that education changes one’s fate. For more than 1,300 years until 1905, the Keju (科举), or imperial examinations, were the most effective way for people of humble backgrounds to climb up the social ladder. The modern-day Gaokao (高考), or college entrance exam system, though widely criticized for its rigidity, is still regarded as the fairest way to evaluate students. It allows everyone to excel by the same standard, regardless of wealth or social status.

Facing expanding income disparity, skyrocketing housing prices and increasing class rigidity, the Chinese regard education as a last resort to break class barriers. With this path clogged, social tensions only mount and eventually lead to unrest. For the government, therefore, education equality is not merely a sectoral or societal concern, but a political one, too.

By introducing the financial factor to the meritocratic equation, private institutions pivoted the education sector towards plutocracy. Hard work and perseverance are no longer the decisive factors for excellence and achievement; instead, academic success depends on how much money a family can spend. While parents are distressed over not investing enough in their kids’ education, the students are overwhelmed by the extra work and endless hours beyond their already heavy school schedules.

Concerns about education equality made reform necessary. It is intended neither to suppress the industry nor to impose total control. The essence of the reform is threefold: to restore education as a public good and means for social mobility, to prevent big capital from distorting the education sector and making it subservient to financial interests, to maintain a healthy and productive educational environment that is neither stress inducing nor correlated with monetary means so that young people do not withdraw and give up trying their best. Each of the three points has implications that go beyond education or economic gain.

Are the reforms working?

Critics argue that since the reform measures did not address the root cause of the intense competition – the Gaokao system – the crackdown on tutoring has only driven the services underground, making regulation harder. Meanwhile, making tutoring illegal has made it an even more scarce resource that is the privilege of the rich.

Such concerns were well founded. Tutoring did not vanish; it simply became private and secret. Institutions quit but teachers started to operate on a personal basis. Group classes became one-on-one arrangements, and the costs ballooned. Worrying parents complain that while the need for tutoring still lingers, classes just become much less affordable.

Advocates of the free market argue that the government intervention only destroyed the natural and healthy dynamics of the education sector and made it much less efficient. They also reckon that the policy measures completely failed to achieve what they set out to do: to stop tutoring operations. Furthermore, these measures severely undermined investor confidence in Chinese stocks while sabotaging the country’s credibility in maintaining an open and stable marketplace.

From a Chinese policymaker’s perspective, however, the reform policies might well have accomplished their purposes. First, although the measures did not eradicate tutoring activities, they did demonstrate the government’s determination to maintain education equality and social mobility, even at the cost of a whole sector’s evaporation, together with billions of dollars in market value. This show of determination gives hope to those less privileged and therefore, to some extent, defuses social tension.

Second, rather than eliminating tutoring, the reform policy serves as a market incentive to marginalize it as a commodity. The issue here is not tutoring itself, but what it leads to if everybody takes classes – involutional, unhealthy and unproductive competition. The crackdown on tutoring significantly raised the financial threshold for families still insisting on participating, shrinking the market by over four quintiles. The reforms substantially transformed tutoring into an individual activity from an institutional one, removing the influence of capital. After reducing its market size and cutting off the link to profit making, tutoring will no longer be a systemic problem.

How will the government fill the void left behind by private institutions?

The question is, what will the Chinese government do next after suppressing the private education sector, and how is it going to fill the void left behind by private institutions? China seems to be eyeing the Finnish model of education: Public schools provide comprehensive primary and secondary education, ensuring every child has a fair chance and that education does not become a direct cause of social disparity. The government exercises rigorous control over private schools, and charging tuition is strictly prohibited. There is no question of making a profit.

Finland’s education system ranks among the top in the Human Development Index of the United Nations Development Programme. The country’s experience has demonstrated that a government-led public school system can produce high-quality education services. It is worth noticing that Finland typically spends over 6 percent of its GDP on education, while China’s education spending was only 3.6 percent of GDP as of 2020. Whether China is ready to increase its current RMB5.3 trillion (US$831 billion) annual education budget by more than 50 percent is not clear.

Even if China manages to deploy adequate resources, there is still a dire need to address the urban-rural and regional disparities. Currently, public education budgets tend to focus on elite schools in cities, while schools in the countryside receive not nearly as much attention. Now that the education sector is free from the influence of investor capital and market forces, the government must ensure that public funding is allocated fairly and impartially.

Finally, China must revive its vocational education system. For decades, vocational education has been regarded as the outlet for students who fail to enter university. This assumption is wrong and obsolete. China’s manufacturing industry is developing rapidly and is in dire need of high-level technical workers who are highly skilled and would be well paid. Rectifying people’s perception of vocational education will not only solve the current shortage of technical talents, which is in line with the China Standards 2035 strategy, but it would also substantially take the pressure and anxiety of the Gaokao off the shoulders of many young people and their families.

As one of few paths to social mobility and social justice, education in China has profound implications for its people. Any reform of such a complex system will affect hundreds of millions and their future. Policymakers have to be sensitive to the impact. Criticism, opposition and even protests might be expected. The Chinese government must tread carefully and maintain its focus on the complex issues involved and what its policies and strategies will mean for the stability of society and how well the state meets the expectations and aspirations of its people.