When you think about China’s vast education system you might consider the country’s gruelling examinations. Or perhaps the booming after-school tutoring market. This report though tackles something else: private school operators offering degree-granting education in both kindergarten to Grade 12 (K-12) and higher education. We answer three big questions: what they are, what are the policies that matter, and why we see plenty of growth/ opportunities ahead. Skip to Exhibit 4 for a visual that details the educational landscape. 

Private education – a small but vital role in the education system China’s education system is the world’s biggest with 275m students. However, private schools traditionally haven’t played a big part and in general lag behind public schools in terms of academic results and government support. But don’t let that put you off. Their market share has risen rapidly over the past four decades. They provide unique offerings like international schools for the middle class, supplement public schools in cash-strapped provinces and offer places for migrant workers unable to register their children in local public schools.  

Policies – a key part of the education ecosystem  While the business model for schools may look straight forward, it can’t be overstated how important changing government policies are for the entire education sector. In this report, we dive deep into the policies related to private school operators, including the all-important, but delayed, “Implementation Regulations of Private Education Promotion Law”. The dust hasn’t settled on this yet. The latest proposed policies on regulating student fees and restricting connected transactions around “not-forprofit” schools have led to some large share price swings and is another reminder of the importance of policies.    

Where are the opportunities?  We are largely bullish. Over the short-term, the worst appears to have past, as most schools have now reopened post COVID-19 imposed lockdowns. M&A has also resumed. Another positive is if households are going to cut spending, education is the least likely to be affected. Longer-term, we believe China wants to further raise its student enrolment rates and strengthen the quality of its education, providing growth opportunities for the private sector. While there are limitations for private operators in some areas (such as kindergartens and compulsory education), we see potential opportunities from publicly-sponsored K-12 private schools becoming pure private schools. There’s also plenty of government support for higher vocational education and the accelerated conversion of public-affiliated independent colleges into private universities.