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Here's Why New Oriental, TAL, and Other Chinese Education Stocks Plunged Today

By Joe Tenebruso – Jul 26, 2021 at 4:21PM

Key Points

  • China's private-education companies will have to become nonprofits, in an effort to lower education costs for families.
  • Stocks of China's leading private-education companies lost more than a quarter of their value in response.

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A regulatory crackdown sent investors scrambling for the exits.

What happened 

China's government announced a wide-ranging overhaul of its for-profit education sector over the weekend. Investors reacted by selling many education-related stocks, which resulted in brutal, broad-scale declines. 

Here's how shares of China's leading private-education companies performed on Monday:

  • New Oriental Education & Technology (EDU 6.24%), down 34%
  • TAL Education (TAL 4.02%), down 27%
  • Youdao (DAO 5.12%), down 34%
  • Gaotu Techedu (GOTU 11.11%), down 29%
  • 17 Education & Technology (YQ 15.39%), down 26% 

So what 

The new rules will require China's tutoring companies to become nonprofit entities. They will no longer be able to raise capital in the stock market or invest in other education providers. They will also be banned from offering tutoring services during the weekends and school breaks. 

A person is holding her head and sitting with her eyes closed in front of a computer screen.

China wants to reduce the stress on students and their families. Image source: Getty Images.

After-school tutoring had long been seen as a way for Chinese parents to help their children get ahead. But somewhere along the way, the financial and time burdens on families became excessive.

With a renewed focus on boosting its declining birth rate, the Chinese government is taking drastic action to ease these burdens on families. Regulators hope that by reducing education costs, they can make it more affordable for people to have more kids.

Now what

However, in their attempt to help parents, regulators are crushing China's for-profit education industry. With their ability to obtain financing, invest, and even generate profits now in question, many of these businesses' shareholders are understandably choosing to exit their positions.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends New Oriental Education & Technology Group and TAL Education Group. The Motley Fool has a disclosure policy.

Stocks Mentioned

New Oriental Education & Technology Group Stock Quote
New Oriental Education & Technology Group
$30.13 (6.24%) $1.77
TAL Education Group Stock Quote
TAL Education Group
$5.69 (4.02%) $0.22
Gaotu Techedu Stock Quote
Gaotu Techedu
$1.40 (11.11%) $0.14
Youdao, Inc. Stock Quote
Youdao, Inc.
$4.93 (5.12%) $0.24
17 Education & Technology Group Inc. Stock Quote
17 Education & Technology Group Inc.
$1.35 (15.39%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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