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

Overview

On 1 September 2021, China released two education regulations:

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" Education Policy

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:

Private Education Promotion Law

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.

How will China's education policies affect business?

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.

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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