What happened
The drop in Chinese private-education stocks continued this week, as shares of New Oriental Education & Technology (EDU +0.46%), Gaotu Techedu (GOTU +0.00%), and 17 Education & Technology fell 17.4%, 14%, and 10.5%, respectively, while TAL Education (TAL 1.23%) was down 8.8%. The crackdown by Beijing on online educators continues to take its toll.
So what
China has launched a widespread regulatory offensive against a swath of industries, underscoring the risks and dangers of being a capitalist in a communist country, as well as investing in them.
Image source: Getty Images.
Tech companies, retailers, and fintech stocks are also coming under closer scrutiny, sometimes simply for having the temerity to launch initial public offerings (IPOs) in the U.S. and other foreign markets. Online educators are just one of the latest to feel the screws tighten.
As the John McClane character in the movie Die Hard might say, "Welcome to the party, pal."
Now what
On the one hand, tougher regulatory scrutiny is welcome. Many Chinese companies have often walked a fine line between legitimate business and investor scam, so greater oversight should improve investor confidence in investing in Chinese stocks.
On the other hand, regulators seem to retaliate against their critics, such as what seems to have happened with Jack Ma's empire, as well as target companies choosing foreign markets for their IPOs. The result has been a lot of collateral damage. Just look at internet giant Baidu, which has lost half its value since February.
As an industry, however, Chinese online educators are alleged to have engaged in various fraudulent acts, such as false advertising and deceptive sales practices. With a market as opaque as China, it's tough to know what's true or not, meaning investors should continue to tread with care when investing in these stocks.
