Industry Spotlight: China’s Education Market

Every year, over 9 million Chinese high school students take an exam that has the power to impact the rest of their academic and career paths. This exam is known as the gaokao and is widely regarded as one of the most difficult and intensive tests in the world.

The score on this test is in fact seen as deciding the fate of the student’s life. Because of this, parents are willing to spend a fortune to give their child an advantage in their education, starting at a very early age.

Take a look at some of our previous articles: Industry Spotlight: China’s Imported Food & Beverage Market

In this article, we ask 4 key questions to help you better understand the Chinese education sector.

What Does China’s Education Market Look Like?

As China opens up both economically and internationally, the private education sector has boomed across the country. Nowadays, private schools, boarding schools, private tutoring, and online/AI-guided classes are widely available to Chinese consumers. These new forms of education provide additional options for Chinese students. They can for example study music, arts, and other electives Chinese parents are increasingly finding important.

Private Schools – Private school curricula are increasingly sought after by the affluent middle class. Many Chinese parents, especially in urban areas, hope to send their children to international or bilingual schools. Those are believed to provide better offerings than the public system. Research from L.E.K. Consulting shows that China’s private education sector is growing extremely fast. The market was valued at $260 billion (RMB1.6 trillion) last year and set to grow at 9 percent year-on-year until 2020.

Tutoring – Chinese parents are increasingly adding supplemental instructions and private tutoring outside of school hours for their children. Statistics estimate that the after-school tutoring market in China will grow at a CAGR of 13.84 percent during the period 2018-2022.

Online Education – Similarly, online education has been experiencing speedy growth in the last few years, a trend set to continue in the near future. According to iResearch Consulting Group, the revenue of China’s online education market reached RMB 251.76 billion in 2018. This represents a 25.7 percent growth year-on-year. Online education is becoming more and more mainstream, praised for its flexibility and convenience.

How Fast is the Education Market Growing?

The education sector continues to be one of the fastest-growing in China with annual growth as high as 11.2 percent, according to the National Bureau of Statistics. This growth continues amid the recent economic slowdown as demand for after-school tutoring and online education swells. Moreover, Chinese parents are known to not compromise on the education of their children. For that, they can cut other discretionary spending but not on educational fees.

Chinese families are willing to spend exorbitant amounts of money on their child’s education to give their child an advantage for the gaokao. In fact, it is not uncommon for parents to spend upwards of 8 percent of their disposable income on education. That is 4 times the amount spent in Japan (1.9 percent) and the United States (2 percent).

The trend of staggering growth in education sectors in China is predicted to only increase with the 2015 implementation of the two-child policy. As more children enter into schooling, parents will spend increasing amounts of money to keep up with the ever-growing competition.

Why Do Chinese Parents Invest So Much in Education?

China’s education “frenzy” is not exactly a new phenomenon. Historically, Chinese families have always placed great value in education and the rapid modernization of China has only expanded that value. With the job market becoming increasingly competitive, any potential advantage is seen as a crucial investment in their child’s future.

Furthermore, China’s reputation-oriented society compels parents to invest in premium education. This concern over social status means that parents are willing to pay more in order to have their child associated with foreign teachers and top-notch educators.

Chinese parents also place a high value on English fluency for their children, especially with as many as one million Chinese college students studying abroad. However, Chinese public schools offer less English language exposure (at around 3-4 hours per week) than their Asian counterparts. Japanese and Korean schools offer as much as more than 6 hours of English every week. This creates yet another incentive for Chinese parents to seek supplemental instruction.

How Can You Invest in the Chinese Education Market?

Investors agree that the Chinese education market has one of the brightest futures in the investment market. However, some restrictions apply for foreigners looking to set up their own educational institution.

Every year, the Chinese government published an updated Foreign Investment Catalogue. This document lists all industry sectors and classifies them into 3 categories: encouraged, restricted or prohibited. Education is one of the restricted industries.

What does it exactly mean? The main implication of this classification is that foreigners cannot establish education-related WFOEs. Any entity providing educational services must be setup in a joint venture with a Chinese partner. Moreover, the head of the school or training facility should be a Chinese national.

Conclusion

Demand for private and online education programs shows no sign of waning. However, the industry adheres to strict regulations, and setting up your own school or training facility may be a long, difficult process to tackle alone, especially if you are not currently based in China.

We encourage any business looking to tap into the market to seek the help of a specialist to help you navigate the latest regulations.

Contact us

S.J. Grand provides advisory on setting up a business in China. We put our competent team at your service to give you the most effective China market entry, due diligence, and tax optimization strategy for foreign-invested enterprises.  Contact us to get you started.

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