When the Chinese leadership announced that private education providers who offer tuition in core school subjects would no longer be allowed to make profits in the future, it was a catastrophe for their share prices. On Friday the courses of the companies Gaotu, TAL Education and New Oriental Education collapsed by 70 to 80 percent. For several years it has been clear that the increasing pressure on Chinese parents to prepare their children for a better final exam at the end of high school with expensive private tuition is a thorn in the side of the Chinese Communist Party. There are two reasons why this is now proceeding so radically: On the one hand, the pressure to buy online tutoring has increased extremely during the pandemic. The providers had expanded considerably,what China’s President Xi Jinping called “a mess” in March and a “disease that is difficult to cure”.
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On the other hand, the party shocked the drastic decline in population growth, which could soon turn negative.
Chinese parents usually cite the high educational costs as the main reason for not having a second child, often not having a child at all.
"The Chinese government has now shown that it does not shy away from simply shutting down a large and profitable industry in order to achieve its social and political goals," writes Ernan Cui of the Beijing analysis company Gavekal Dragonomics.
After this draconian change in education policy, the recent attacks on technology companies and restrictions on real estate financing and Bitcoin mining, investors are now clearly unsettled. On top of that, some economic indicators are showing signs of weakness and an expansion of the latest corona outbreak in the country is considered possible, while doubts about the effectiveness of Chinese vaccines have increased.
The Chinese stock index CSI-300 is again under significant pressure after a significant slide in March and a long sideways movement since Friday. Since then it has fallen by more than 7 percent to 4,751 points and has fallen to its lowest level in almost nine months. The yield on ten-year Chinese government bonds fell on Monday at 2.871 percent, the lowest level in a year, but rose again to 2.94 percent on Tuesday. These movements are another indication of noticeable uncertainty - especially since speculation that American hedge funds are now aggressively selling Chinese assets because of possible impending investment restrictions, said Li Kunkun, trader at Guoyuan Securities. The mood was badly damaged.The yuan, the national currency, interrupted its sustained appreciation against the dollar at the end of May and recently fell significantly.
The market is also burdened by speculation about China's highly indebted real estate developer China Evergrande. In recent times, this has increasingly had to resolve financing disputes. The rating agency Standard & Poor's has a fragile assessment of the company's financial position and has lowered its credit rating by two notches to the very weak “B-” rating. On Tuesday, Evergrande canceled a planned special dividend with which the group wanted to stop the decline in the share price, which has fallen by around three quarters within a year. In 2018, a similar crisis was overcome with a dividend. But this time the market reaction was less positive. The yield on the Evergrande bond due 2025 with a coupon of 8.75 percent has risen from just under 14 to more than 30 percent since the beginning of June.Keywords: