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Investors bet on the redemption of the godfather of education in China

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President Xi Jinping’s education reform last year wiped out 90% of the value of New Oriental Education, which is listed in China’s largest private education company, New York, and canceled decades of work by its founder, Toshihiro Yu.

When Yu vowed to stand up again, few expected the godfather of modern Chinese private education to turn to hawking steaks, books, and lipsticks to rebuild his business empire.

Still, live streaming, which combines English training and history lessons with product sales without shyness, is at the heart of Yu’s pivot from physical classrooms to online services.

Video popularity by New Oriental and its Hong Kong-listed subsidiary Koolearn Technology has attracted millions of viewers and attracted investor attention, with stock prices rising 125% in the last three months. did.

Whether Yu could rebuild its New Oriental business was a Lithomas test of Beijing’s attitude towards companies damaged by the crackdown on Xi regulations.

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The fate of New Oriental also sheds light on whether Chinese entrepreneurs like Yu understand where Beijing’s new “red line” is since the Chinese Communist Party’s dominance over the business environment has been reasserted. You may win.

Likian Ren, China Watcher and Director of Wisdom Tree Asset Management in the United States, said: “And the government may push the edge back.”

A year ago, Beijing banned for-profit companies from teaching elementary and junior high school students, creating a major source of income for New Oriental.

Sudden rule changes have led Xi’s radical “common prosperity” policy to reduce social inequality and curb large corporations across China’s education sector. Warned that there is a possibility of reviewing the target.

Currently, Citi analysts advise clients that the worst of China’s private education is over. U.S. banks received a “buy” rating from New Oriental after the group fired 60,000 staff in January and reported a loss of $ 876 million in the six months to November last year. I am.

Citi predicts that New Oriental’s stake in Hong Kong will recover by more than 40%. This is based in part on the group’s ability to sell products using live streams.

“We believe New Oriental will follow a visible growth trajectory in the long run, supported by strong demand for quality education services in China,” said an analyst at the bank.

JPMorgan points out that New Oriental’s net cash position of about $ 4.3 billion is higher than its current market capitalization of about $ 3.9 billion. Bank analysts also said the company’s share price, which is still down about 88% from its February highs last year, was “punitive” following the Xi reforms.

“Investors are literally paid to wait for the restructuring to complete … paving the way for scale and profitability,” said JP Morgan analysts, and the process takes years. Said there is a possibility.

New Oriental declined to comment.

Toshihiro Yuu giving a speech
Toshihiro Yu has vowed to rebuild New Oriental’s business © Bai Kelin / Imaginechina / Reuters

Yu, a prolific user of social media, has been forced to suspend offline classes and get refunds as pandemic measures under China’s Zero-COVID policy continue to have a “significant impact” on his business. I made it clear.

A 59-year-old woman also warns that losses can last for years. But he’s unwavering as he’s trying to revive his business in one classroom in a devastated Beijing building in 1993.

“The most important thing is to ignite the light of the children’s hearts,” he said in June.

The company will further focus on businesses adjacent to education, an activity that Beijing does not ban, such as live streaming, book publishing, tutoring English proficiency tests, and consulting for admission to foreign universities. ..

However, staff at New Oriental and other large Chinese companies say they are trying to measure the limits of government tolerance.

In what appears to be a signal of a private company’s amnesty, Beijing issued a major ride-hailing service group Didi on Thursday, fined $ 1.18 billion for data security breaches. The fines seemed likely to pave the way for Diddy to resume new customer registration after a year in regulated purgatory.

But after a storm of Xi regulation, Shenzhen-based social network giant Tencent is worried that livestreaming will spread free consumerism by promoting common prosperity. In the meantime, we reduced our investment in Koolearn.

The controversy involving China’s top online sales host, LiJiaqi, has fueled concerns about government regulation of livestreaming. Li is known as the “King of Lipsticks” for making-up marketing to tens of millions of followers on the Chinese version of TikTok, Douyin. However, he disappeared from public after featuring a tank-shaped dessert the day before the June 4th anniversary of the 1989 bloody crackdown on protests at Tiananmen Square in Beijing. ..

New Oriental is not the only corporate victim of regulatory crackdowns looking at e-commerce livestreaming. Qudian, an online microrender in China, has also moved this year. A New York-listed internet finance company, whose market valuation has fallen by $ 4.2 billion since Beijing banned lending to non-income borrowers in December 2017, is now aiming to become a “food company.” In one marathon 19-hour livestreaming session this month, Qudian founder and CEO Min Luo sold 9.56 million cooked dishes.

Jing Daily, a Chinese luxury market magazine, said New Oriental was “distinguishing” from typical livestreaming with free English lessons, rather than a significant discount on the product. However, the magazine also warned that “the live stream industry is saturated in China, and competition is fierce in it.”

“recently, [New Oriental’s] The channel is a hot topic with its unique livestreaming approach. Let’s see how long it can last for hype, “added Jing Daily.

The crackdown on private education companies was part of a broader effort to reduce childcare costs to boost the country’s declining birthrate. However, demand for education-related services from Chinese parents appears to remain strong amid a highly competitive employment market and record youth unemployment.

I asked him not to give it a name, but one teacher who taught in New Oriental for 10 years said he started teaching children “on the side” since the ban. This is a move with immeasurable personal risks.

“I have to be very careful in choosing a parent. If you have a troublesome parent report it, that’s it,” she said, as new regulations restricted access to tutors. He added that more parents wanted to send their children abroad.

Still, industry insiders say that prolonged regulatory risk means that there is little chance of returning to the golden age of private education in China.

“Before the regulations changed, the phrase was Spicy —Lie down on the bed and win, “said the New Oriental teacher. “For salesmen and saleswomen, all they had to do was sit in the office and wait for clients to come. Spicy passed. “

Additional report by Gloria Li and William Langley in Hong Kong