Edtech giant VIPKid gives up its massive stake in China

VIPKid, an edtech behemoth that was once valued at over US$3 billion, will no longer serve as a platform connecting English-speaking tutors (many of whom are American) and Chinese children, though it will continue offer online tutoring to children in other countries. For years, the company has been facilitating live, one-on-one language lessons given by English-speaking tutors to young Chinese students as well as adults.

The announcement is perhaps the highest-profile example of the fallout from the Chinese government’s introduction, in summer 2021, of sweeping regulations (called the shuangjian reforms) to curtail private and online tutoring for Chinese children in the country.

The reforms are to be imposed by local governments, and Shanghai, Beijing, and Guangzhou were the initial megacities to introduce the new rules.

Founded in 2013 by Cindy Ma, VIPKid quickly became one of the world’s most valuable online education companies – Forbes notes that it had managed “200 times growth in the past four years.” Among its achievements, VIPKid was named one of the world’s most innovative companies in 2018 and 2019 by Fast Company and Glassdoor called it one of the Best Places to Work in 2019. Its main source of revenue has come from hosting live, one-on-one language lessons between native English speakers, many of whom are American, and children in China.

VIPKid intends to continue tutoring adults in China (the shuangjian bans do not extend to adult tutoring) and has also partnered with American company BookNook as part of a new growth strategy to compensate for the steep loss in the Chinese market.

Background

Last summer, the Chinese government banned companies offering tutoring services around academic subjects in China’s National Curriculum from making profits, raising capital through stock markets, or going public. To keep operating in China, they were told to switch to a non-profit organisational model.

Most seriously for foreign firms and Chinese firms delivering services via a foreign affiliate, overseas investment in online and private tutoring operations for school-aged children was banned as was the hiring of foreign instructors operating outside of China.

Also forbidden is any curriculum-based tutoring of compulsory subjects that happens during vacations or weekends, regardless of whether the tutor is Chinese or foreign, a ban that is having the effect, so far, of prompting many families to squeeze even more studying into the normal school week.

The official reasons for the regulations included:

• Stopping education operations from putting profits ahead of the welfare of students. One-on-one private tutoring fees are often about US$200 an hour.
• Reducing financial pressure on middle- and upper-middle-class families that are contributing to low birth rates (i.e., because having more children is obviously more expensive). In May, China announced that parents can now have up to three children. Previously the cap had been two children.
• Alleviating the anxiety of parents and children who face incredible competition in school and the economy – there is even a term, Jiwa, which means “chicken baby” that as Reuters notes, “refers to children pumped with extracurricular classes and energy-boosting ‘chicken blood’ by anxious parents.”

But as EdSurge notes, it is also possible that the Chinese government wanted to cut the ties between American tutors and Chinese children:

“As tensions between the United States and China escalate, many observers speculate that the Chinese government wanted to curtail Western influence on its youngest minds.”

Another motivation, says the New York Times, is likely the Chinese government’s growing alarm at the power of private technology giants:

“Beijing’s crackdown on private education is a new facet of its campaign to toughen regulation on corporate China, an effort driven in part by the party’s desire to show its most powerful technology giants who is boss.”

Many companies are closing down as a result of the new regulations

Many other tutoring companies have collapsed (e.g., GoGoKid) or are winding down operations in China (Magic Ears, QKids, Landi English and others), and foreign tutors, many of whom are North American, are reeling from the loss of income. In 2019, for example, 100,000 American and Canadian tutors were on contract with VIPKid to tutor 600,000 children in China. EdSurge notes that many of the tutors were teachers “who didn’t make enough money in the classroom alone to cover the bills.”

VIPKid’s contracted teachers are feeling the financial pinch of losing tutoring income, and some are expressing sadness at losing long-term connections with Chinese students and their families. That said, EdSurge interviewed tutors who said they understand the Chinese government’s stated mission of relieving the anxiety of Chinese children as well. Anna Whitehead provided an example of the stress facing Chinese children: “I have one student who said, on a Saturday, ‘I have 13 hours’ worth of class today.’ “I said, ‘Wow,’ and she said, ‘Oh, it’s not so bad. I have a friend who has 17 hours.’”

Another tutor, Quinones Robinson, said that it was “difficult to watch” a five-year-old struggle through his nighttime lesson: “He was exhausted. He was falling asleep. These kids are worked so hard. … Part of me thinks this will be good for them.”

Skepticism that reforms will ease families’ burdens

There are many who are skeptical that the new regulations will relieve the education-related stress felt by Chinese families. The New York Times notes that parents and experts believe that “the wealthy will simply hire expensive private tutors, making education even more competitive and ultimately widening China’s yawning wealth gap.”

Siqi Tu, a postdoctoral research fellow at the Max Planck Institute for the Study of Religious and Ethnic Diversity in Göttingen, Germany, told the Times that if the pressure around the ultra-competitive gaokao (the single exam children begin studying for “even before they can write”) isn’t lessened “it’s hard to change specific practices” such as expensive and exhausting tutoring on top of normal classes.

In fact, parents told Chinese media outlet Sixth Tone that the new regulations are heightening their anxiety instead of lessening it:

“As their children’s schedules are more exhausting than ever, parents themselves are in a frenzied free-for-all to secure spots at a shrinking number of extra-curricular classes. To many, actually reducing their child’s after-school activities is not an option.”

Sixth Tone conducted interviews with nearly 30 families in Shanghai and Beijing which revealed that,

“The vast majority (92%) vowed to continue seeking out extra courses for their children. Three out of four said that the policies, instead of making it easier to raise children, have only made their lives more stressful.”

For additional background, please see:

• “Sweeping new rules ban for-profit school tutoring in China”
• “Chinese border to remain closed until second half of 2022”