Chinese education group New Oriental posts $876mn loss after Beijing clampdown

Chinese online tutoring company New Oriental announced significant losses on Tuesday in its first results after Beijing banned the private education industry, which is worth $ 100 billion a year, from making a profit.

The New York-based educational group reported losses of $ 876 million in the six months to Nov. 30, compared to $ 229 million in net income over the same period a year earlier.

New Oriental blamed the losses on “significant adverse effects” of the termination of tutoring services for school-age students following China’s repression last July as part of a broader government effort to reduce childcare costs and increase the country’s low birth rate.

Beijing’s pressure on the previously highly lucrative tutoring industry has led to a collapse in the valuation of Chinese education technology companies in the United States. New Oriental’s stock price fell more than 92 percent after a peak last year, while rival Tal Education fell 96 percent.

New Oriental said the losses were due to the cost of layoffs after it laid off 60,000 of its employees and was forced to pay for the termination of property leases after the company closed many of its educational centers in China.

The group’s results came the day after Tal Education reported a net loss of $ 1 billion in the nine months to Nov. 30 compared to earnings of $ 53 million for the same period a year earlier.

New Oriental is looking for new revenue streams, including adult tutoring services and camping vacations, as Beijing deepens its efforts to eliminate costly extracurricular children’s programs that exacerbate social inequality. In January, Yu Minhong, chairman of the education group, called on other employees who survived the mass layoffs to be “bold” in finding “new business opportunities” that are in line with government policy.

Over the past few months, the group has invested in a number of new businesses, including a stationery company and a storage provider, as it seeks a future beyond regulatory repression. He reported on the balance sheet $ 1 billion in cash and cash equivalents.

Ekaterina Kologrivaya, co-founder of the Beijing-based consulting firm EdTech Expand, said: “New Oriental will have to spend a lot of money to train employees in these new businesses, but they will be able to cope with these costs.”

Recent losses in the private education sector have highlighted the financial impact of Beijing’s regulatory authorities as investors continue to dump shares of some of the country’s largest internet companies.

The price of shares of Chinese food delivery group Meituan fell more than 20 percent after regulators warned on Friday that they would seek to reduce the fee that food platforms may charge restaurants for delivery.

Michael Norris, a senior analyst at consulting firm AgencyChina in Shanghai, said the latest steps were a “wake-up call” for investors that the regulatory storm in China is far from over.

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