The EdTech sector exploded internationally during the Covid-19 crisis, with digital technology becoming the priority means of continuing to teach. In China, the situation has particularly evolved in recent years. After experiencing strong growth, the government took a radical decision in July 2021, jeopardizing the activity of the country’s most lucrative EdTechs.

What was the situation in China’s EdTech sector before and during the crisis ?

To fully understand the dynamics of China’s education market, we first need to look at the country’s history and culture. As a Newly Industrialized Country (NIC), China has grown enormously thanks to globalization. As a result, it has had to educate and train its population on a massive scale. But how to make education accessible to millions of people?

China has been quick to turn its attention to technologies that facilitate access to educational resources, and that can facilitate this massive new need for learning. In 2016, the government pledged to invest $30 billion in education technologies by 2020.

Numerous start-ups are being created to capitalize on the country’s culture of excellence, helping to reinforce the elitist nature of education in the country. Indeed, from an early age, children attend private lessons during the week and often even at weekends to learn more and develop their skills more quickly. Parents, who are also behind this race for excellence, do not hesitate to spend large sums of money to ensure their offspring’s future. In major Chinese cities, for example, families spend an average of $7,000 a year on their children’s education, according to a study by EdTech Media Platform.

As a result, the EdTech market is flourishing. In this country of over 300 million students, 20 EdTech startups went public in 2018. Some of them dominate the market worldwide! Since then, the health crisis and the highly restrictive confines imposed in China have led to an explosion in the use of EdTech solutions, which have developed very significantly. Of all the EdTech unicorns (startups valued at over a billion dollars) in existence at the start of 2020, China has 8, according to HolonIQ statistics.

Among them is Yuanfudao, a homework help app offering several e-learning solutions, from streaming to exam preparation. It has been valued at $15.5 billion, a record for the EdTech sector, and recently raised $2.2 billion in funding.

Its competitor, Zuoyebang, which raised 1.6 billion in 2020, is an educational app that caters to the needs of students from primary to high school. They can record their lesson questions, while the app also offers online courses and homework help.

Private tutoring is one of the fastest-growing areas of the EdTech sector. This market, which mainly caters for pupils in primary and secondary school, but also for students preparing for university entrance examinations, is now worth over $120 billion.

So why is there talk of an EdTech crash in China?

The Chinese government recently decided to drastically regulate the EdTech ecosystem. Faced with an excessive increase in the pace of private tutoring and tutoring services, leading to major inequalities, the country has decided to convert all EdTech in the K12 sector (6-18 year-olds) to non-profit status. It recently tightened the screws a little more, banning tutoring at weekends and during school vacations. The government also says it wants to get rid of a “chronic disease” that endangers children’s mental health.

Nevertheless, parents are not happy with this decision, which is designed to reduce the pressure on their children and the financial burden they bear. They feel that the public solutions proposed by the state are too flexible and leave too much room for leisure and distraction, when their children could be working much more seriously.

As far as the markets were concerned, this news obviously caused company valuations to plummet, some of them by as much as 70-90%.

“The New Oriental group has lost more than 62% of its business,” describes Mehdi Cornilliet in his article “The death sentence of EdTechs in China.”

China, the world’s 2nd largest economy, has experienced very strong growth and is now structuring the country not just to generate profit, but also to balance the quality of life of its inhabitants. Innovation yes, but not at the expense of society! The main aim of these new measures is to avoid excessive imbalance in equal opportunities, and to enable children to be better protected from their parents, who are themselves under pressure from elitist education. These restrictions have also been applied in other areas, notably in the tech and digital sectors, to better manage data collection and use, and thus better protect users.

While China has been one of the world leaders in the EdTech sector in recent years, it would appear that the cards are about to be reshuffled. These measures taken in China should no doubt make us reflect on the direction of the growth of our economic activities in EdTech, of course, but more broadly in all digital sectors, especially those that collect our data !

Discover another fast-growing market : the EdTech market in India !