China's new private education law pulls schools out of legal grey zone
(http://www.emerging-strategy.com/)
Insights
Sign up for our Monthly
Newsletters
(http://www.emerging-
strategy.com/media-center/sign-
up-for-our-monthly-
newsletters/)
Newsletter Archive
(http://www.emerging-
strategy.com/media-
center/newsletter-archive/)
Articles (http://www.emerging-
strategy.com/media-
center/articles/)
Podcasts (http://www.emerging-
strategy.com/media-
center/podcasts/)
Videos (http://www.emerging-
strategy.com/media-
center/videos/)
Publications
(http://www.emerging-
strategy.com/media-
center/publications/)
Infographics
(http://www.emerging-
strategy.com/media-
center/infographics/)
Press Releases
(http://www.emerging-
strategy.com/media-
center/press-releases/)
In the Press
(http://www.emerging-
strategy.com/media-center/in-
the-media/)
Featured Events
(
https://www.bmocm.com/conferences/)
(https://theinnovationenterprise.com/summits/cso-
singapore-2017)
(http://summit.edtechasia.com/summit/)
http://www.emerging-strategy.com/article/chinas-new-private-education-law-pulls-sc… 11/11/2017
Page 1 of 3
CONTACT (HTTP://WWW.EMERGING-STRATEGY.COM/CONTACT/) LANGUAGES Search … Search
CHINA’S NEW PRIVATE EDUCATION LAW Recent Insights (/media-
PULLS SCHOOLS OUT OF LEGAL GREY ZONE center/articles/)
January 17, 2017
China’s craze for Common
This article was first featured in the Emerging Strategy Education Monthly. Sign up Core-aligned curricula
here (http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly- (http://www.emerging-
newsletters/) for rich insight into the education business in the U.S. and around strategy.com/article/chinas-
the world. craze-for-common-core-aligned-
curricula/)
The Chinese private education sector has been booming. The number of
private schools nearly doubled between 2005 and 2015 from 86,000 to
Data-driven diagnosis:
163,000, according to the Ministry of Education. However, the legal Barriers hinder AI-powered care
designation for all of China’s private schools has always been non-profit, as models and MHealth apps
profit-seeking education entities were not legally allowed. The amendment to (http://www.emerging-
strategy.com/article/data-driven-
China’s law governing private education passed in early November 2016 has
diagnosis-barriers-hinder-ai-
now made profit-seeking schools legally allowed in China for the first time.
powered-care-models-and-
The opportunity for education organizations to legally operate profit-seeking mhealth-apps/)
schools for the first time is just one of the opportunities these regulatory
changes pose.
Data-driven diagnosis: The
On November 7th, China’s National People’s Congress passed an amendment proliferation of mobile
healthcare (Mhealth) delivery
to the “Promotion of Private Education Law”, which will come into effect on
using advanced information
September 1, 2017. According to the the amendment, private schools shall be technology
categorized as non-profit and for-profit and the two types of private schools (http://www.emerging-
shall be regulated separately. This is big news for private education strategy.com/article/data-driven-
organizations in China. The law allows private schools, excluding schools that diagnosis-the-proliferation-of-
mobile-healthcare-mhealth-
offer “compulsory education” such as private primary schools and middle
delivery-using-advanced-
schools, to designate themselves as for-profit entities. Under the revised
information-technology/)
regulations, these newly legal profit-seeking schools will realize a few specific
benefits:
Market Monitoring for an
Full autonomy in tuition fee setting Uncertain World
(http://www.emerging-
For-profit schools will have full autonomy in setting their tuition fees without strategy.com/publication/market-
any intervention from the government. Before the amendment, the monitoring-for-an-uncertain-
government had to be informed about any tuition fee changes or approve world/)
them in some cases. This is particularly welcome news for some high-end
private schools that want to further differentiate themselves in the market. Competitive intelligence
automation offers value creation
Stronger protection for asset ownership opportunities: Q&A with Partha
Bhattacharjee of Cambridge
As for-profit private schools will be subject to the corporate law, which
Semantics
protects the assets of business owners, for-profit school owners will be able (http://www.emerging-
to own the school assets legally after paying taxes. Before the amendment strategy.com/article/competitive-
intelligence-automation-offers-
was passed, private school owners had no right to dispose of school assets
once schools stopped running. value-creation-opportunities-qa-
with-partha-bhattacharjee-of-
Going public without legal barriers cambridge-semantics/)
Before the amendment was passed, it was extremely difficult for private
schools to have access to the financial market due to various restrictions
Subscribe
imposed on non-profit schools. In order to bypass the restrictions, some
private schools had to list themselves in overseas markets and transfer the Want to stay up to date on the
profits to their overseas investors through financial vehicles such as “Variable latest news and business strategy
issues in global & emerging markets
Interest Entities” (VIE). However, going forward the longstanding legal barriers
with insights from our industry
to go public will be lifted. Shareholders of the for-profit schools will now be
experts? Subscribe to our monthly
able to obtain dividends legally. Many private schools are expected to be newsletters here:
listed on the domestic stock market as a result of these regulatory changes.
Both for-profit and non-profit schools will face challenges and risks from Subscribe
the new law (http://www.emerging-
strategy.com/media-center/sign-up-
Although there are clear benefits for private school operators resulting from for-our-monthly-newsletters)
this new amendment, some legal barriers may persist for private schools that
(http://www.emerging-
offer both compulsory and non-compulsory education, such as schools that
strategy.com/media-center/sign-up-
offer classes from grade 1-12. If they would like to go public, they would have for-our-monthly-newsletters)
to separate their for-profit and non-profit units and list only the entities (http://www.emerging-
offering education that is legally allow to be for-profit, such as pre-K or strategy.com/media-center/sign-up-
grades 9-12. for-our-monthly-newsletters)
(http://www.emerging-
Another likely negative impact on profit-seeking schools will be the loss of strategy.com/media-center/sign-up-
preferential policies that private non-profit schools have long enjoyed. Many for-our-monthly-newsletters)
private non-profit schools have been receiving government subsidies in the
China's new private education law pulls schools out of legal grey zone Page 2 of 3

form of cheap land or tax benefits. Although it is up to local jurisdictions to (http://www.emerging-

implement the law, and the details of the implementation laws have yet to be strategy.com/media-center/sign-up-
for-our-monthly-newsletters)
released, it is expected that for-profit schools would see government
(http://www.emerging-
subsidies and other incentives reduced. Many schools, once they designate
strategy.com/media-center/sign-up-
themselves as for-profit, may face abrupt cost increases, which will impact for-our-monthly-newsletters)
their bottom lines. However, as for-profit schools will have autonomy to (http://www.emerging-
adjust tuition fees at their discretion, some schools may find that the rising strategy.com/media-center/sign-up-
for-our-monthly-newsletters)
costs can be offset by tuition fee increases in the long term.
(http://www.emerging-
The choice posed by this amendment raises questions for many schools. strategy.com/media-center/sign-up-for-
Although those that must remain non-profit or those that choose to do will our-monthly-newsletters)

enjoy the same preferential policies as public schools, they will find it more
difficult to give their shareholders any form of financial return going forward
due to the cancellation of the “reasonable rate of return” policy.

This policy was legalized in 2002 and was intended to give financial incentives
for non-profit school owners. However, in order to be eligible to receive
funding from some local governments, most private schools actually never
took advantage of their right to generate a “reasonable rate of return”.
Although by giving up “reasonable rate of return”, some school shareholders
were still able to gain “grey income” through various financial vehicles or
complicated transactions. Whether the government will tighten regulations
on those financial vehicles or not is not yet clear.

Further growth and consolidation of the private education market is

expected

Overall, the amendment provides clarity in longstanding grey areas such as

who are the legal persons of private schools and who own the schools’ assets
etc. Although the private education market will be more regulated, the clarity
of regulations may make investors feel more confident in entering this
market than before. We expect that a deeper participation of capital markets
will help to drive further growth and consolidation of the private education
market in China. Possibly the biggest winners from these regulatory changes
are those schools offering supplementary, non-degree education, since they
do not offer compulsory education the amendment will have minimum
negative impact on them.

For additional insight into China’s private education market, download our full
report Opportunities for Private Education in Emerging Markets
(http://www.emerging-strategy.com/publication/opportunities-for-private-
education-in-emerging-markets/)

(/#facebook) (/#twitter)
(/#google_plus) (/#email)
(/#google_gmail)
(/#yahoo_mail) Save

(https://www.addtoany.com/share#url=http%3A%2F%2Fw
pulls-schools-out-of-legal-grey-
zone%2F&title=China%E2%80%99s%20new%20private%20e

(http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly-newsletters)
(http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly-newsletters)
(http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly-newsletters)
(http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly-newsletters)
(http://www.emerging-strategy.com/media-center/sign-up-for-our-monthly-newsletters)

SERVICES MULTIMEDIA
ABOUT US CAREERS
(http://www.emerging- Articles (/media-
strategy.com/media-center/sign-up- center/articles/) Our Company (/about-us/our- Overview (/careers/overview/)
for-our-monthly-newsletters) Podcasts (/media- company/) Available Positions
(http://www.emerging- center/podcasts/) Our Clients (/about-us/our- (/careers/available-positions/)
strategy.com/media-center/sign-up- Videos (/media-center/videos/) clients/) Internship Program
for-our-monthly-newsletters) Publications (/media- Senior Team (/about-us/senior- (/careers/internship-program/)
(http://www.emerging- center/publications/) team/) Apply Now (/careers/apply-
strategy.com/media- Offices (/about-us/locations/) now/)
center/sign-up-for-our- Partnerships (/about-
monthly-newsletters) us/partnerships/)
(http://www.emerging- Contact Us (/contact/)
strategy.com/media-
center/sign-up-for-our-
monthly-newsletters)Market
Intelligence (/client-
services/market-intelligence/)
Target Intelligence (/client-
services/target-intelligence/)

http://www.emerging-strategy.com/article/chinas-new-private-education-law-pulls-sc… 11/11/2017
China's new private education law pulls schools out of legal grey zone Page 3 of 3

Market Strategy (/client-

services/market-strategy/)
Mergers & Acquisitions (/client-
services/mergers-acquisitions/)
Political Risk (/client-
services/political-risk/)
Industry Solutions (/industry-
focus/overview/)
Functional Solutions
(/functional-
solutions/overview/)

Home (/) (http://www.emerging- © Emerging Strategy 2016 (/)

Privacy Policy (http://www.emerging-
strategy.com/privacy-policy/) strategy.com/connect/subscribe/)
Terms of Use (http://www.emerging- (https://twitter.com/emerginstrategy)
strategy.com/terms-of-use/)
(https://www.linkedin.com/company/247671)
(https://www.youtube.com/user/emerginstrategy)

oter(); ?>

http://www.emerging-strategy.com/article/chinas-new-private-education-law-pulls-sc… 11/11/2017