China's "Double Reduction" Education Policy: A brief guide for Canadian companies

On 1 September 2021, China released two education regulations:

• "Double Reduction" Education Policy, which aims to reduce the burden of homework and afterschool tutoring as well as the social inequality of these services
• the Private Education Promotion Law, which prohibits for-profit schools and prohibits foreign investments in any educational institution and at any educational level.

While Canada continues to be an attractive and important study destination for Chinese students, Canadian schools and education companies operating in China may be negatively impacted by these regulations and; face higher business risks due to sudden changes in policies and regulations, or their inconsistent interpretation and application.

The "Double Reduction" Policy targets tutoring companies that provide services to students in compulsory education (~ages 6-15) that teach "subject-based" curricula. In China, "subject-based" generally refers to the subjects taught in the compulsory education school system, including Chinese literature, history, geography, math, foreign languages (English, Japanese and Russian), physics, chemistry, biology, and morals and law. Although the policy is not applicable to pre-school (ages 3-6) or upper middle school ("adult classes", ~age 16+), many local governments are applying these policies to all levels of study and therefore, it is likely that companies offering classes/services for these age groups will be subject to the same rules.

While the policy sets out various targets and requirements for in-school education, the emphasis is on regulating tutoring companies. Key developments include:

• No new tutoring companies will be approved
• All existing tutoring companies will convert to non-profit organizations. Following the release of the new rules, the National Development and Research Council, State Administration for Market Regulation and Ministry of Education (MOE) jointly issued price-setting regulations for off-campus training institutions stating that, local governments will determine price levels while allowing for a 10% fluctuation. The price-setting regulations make it clear that, as non-profit organizations, all income generated by the institution will be reinvested into education-related activities and the operation of the institution (i.e. no return on investments)
• All existing online tutoring companies will be subject to a review by local authorities; any not approved will have their information service business license cancelled.
• Once approved, tutoring companies will be placed on a "white list" and be allowed to provide classes according to local regulations. This list will vary by municipality.
• Tutoring companies are prohibited from offering curriculum-based classes during national holidays, weekends or winter and summer breaks
• Tutoring companies must use qualified teachers for classes. Qualifications may depend on the study level, institution and local regulations
• Online classes will not exceed 30 minutes and intervals between courses will be no less than 10 minutes. Training can only begin after 17:00 and will end no later than 21:00
• There will be strict control of capital investments into tutoring companies. All tutoring companies are prohibited from conducting initial public offerings (IPOs) or otherwise raising funds from capital markets. Public companies are prohibited from investing in any "subject-based" tutoring companies through stock market financial transactions or acquisitions of assets from such institutions in the form of equity or cash. Foreign capital is prohibited from engaging in mergers or acquisitions, trustee arrangements, franchising, or using "variable interest entity" (VIE) structures to control or participate (through equity or otherwise) in subject-based tutoring companies
• Tutoring companies are prohibited from teaching beyond what is taught in the compulsory education subject-based curriculum
• A content review mechanism and a filing and supervision system will be established to control and monitor training materials and training content used by tutoring companies
• Foreign teaching materials, including course curriculum and content, are strictly prohibited from use in compulsory education and in tutoring. However, certain approved foreign teaching materials may be permitted in curricula subjects outside of compulsory education, for example in colleges and universities, secondary vocational schools, Sino-foreign cooperative education institutions or projects, and ordinary high school using overseas curriculum projects approved by the provincial education administrative department
• Foreigners located abroad cannot be hired to provide online tutoring services
• Teachers in the compulsory education system are forbidden from taking on paid supplementary lessons outside of school; if found in violation, teachers can have their teaching qualifications revoked.

The Private Education Promotion Law prohibits foreign investors from directly investing in Chinese compulsory education grades 1 to 9; this includes private schools and private schools teaching foreign curriculums predominately attended by Chinese citizens (i.e. excludes international schools for foreign passport holders). Like the "Double Reduction" Policy, the Private Education Promotion Law prohibits investments through stock market financial transactions or acquisitions of assets from such institutions in the form of equity or cash. Foreign capital is prohibited from engaging in mergers or acquisitions, trustee arrangements, franchising, or using "variable interest entity" (VIE) structures to control or participate (through equity or otherwise) in compulsory education. In addition, the Private Education Law maintains the prohibition of foreign teaching materials from being used in compulsory education and subject-based curriculum.

Canadian clients operating in the education sector should work closely with their Chinese partners to understand how the local government is implementing these regulations and the associated risks. It is likely that local governments will be implementing this according to their interpretation of the State Council's announcement, potentially leading to inconsistent application. Although Chinese partners may operate in multiple regions or municipalities, the requirements for each locale will be unique and require adaptability and cooperation with local authorities.

• "Double Reduction" Policy Impact: Canadian businesses seeking to provide course materials to tutoring companies, such as English, will likely face hesitancy from local business partners in accepting new course content developed overseas.
• However, Canadian businesses in the edutech space that seek to offer service platforms may still be able to operate. Off-campus tutoring institutions can continue to offer online classes so long as they conform to the new policies. Companies providing platform services will also be subject to China's cybersecurity regime, including data security laws.
• Private Education Promotion Law Impact: Private schools teaching Canadian curriculums in China will have to adjust their operations to conform to the new law. Local authorities are attempting to reduce the number of students enrolled in private school to 5% by capping the number of students allowed to register. Other changes private school may have to consider include transferring ownership of some schools, changing the management boards, and making some schools non-profit. In addition, schools may be required to drastically alter their curriculum, which could affect overall student enrolment.

Long-term implications: These education policies could negatively affect demand for studying abroad. However, it is still too early to determine the long-term impact on this sector.

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