Chinese education and training stocks halted their decline and rebounded, with Gaotu closing up 25% this morning.

“New Oriental rose nearly 8%, Gaotu surged 25%, and TAL Education Group climbed 16%.”

Author: Miao Zheng

Editor: tuya

Produced by: Caijing Tuya

On the evening of July 28, 2021, Bloomberg reported that the China Securities Regulatory Commission held an online meeting with senior executives from major investment banks to ease market concerns about Beijing's regulatory actions in the private education sector. Sources close to the matter indicated that the policies targeting private education and training providers are 'targeted' and are not intended to impact companies in other industries.

As of the close of U.S. stock trading on July 29, 2021, Beijing time (July 28, Eastern Time),New Oriental(EDU.US)Stock price increased by 7.76%, Gaotu(GOTU.US)rose by 25.26%, TAL Education Group(TAL.US)climbed by 16.15%, NetEase Youdao(DAO.US)Increased by 30.3%。It is worth noting that,The stock prices of the aforementioned three companies remained in a sharp decline about half an hour after the market opened.It was only after the CSRC's online meeting concluded that the stock prices began to rebound. However, the three Chinese education stocks listed in the U.S. remain far from their pre-halving levels.

Meanwhile, at the close of trading, U.S.-listed Chinese stocks staged a rebound, with Alibaba (BABA.US), PDD Holdings (PDD.US), and JD.com (JD.US) rising by 5.34%, 15.54%, and 8.51%, respectively.

The 'policy' referred to earlier is the Opinions on Further Reducing the Homework Burden and After-School Training Burden of Students in the Compulsory Education Stage, issued on July 19, 2021, by the General Office of the CPC Central Committee and the General Office of the State Council (hereinafter referred to as the 'Opinions'). The Opinions stipulate that local authorities shall no longer approve the establishment of new off-campus academic training institutions for students in the compulsory education stage, and that all existing such institutions must be uniformly re-registered as non-profit entities. At the same time, academic training institutions are strictly prohibited from seeking public listings or raising capital through financing, and any form of capitalization-driven operations is expressly forbidden; listed companies are barred from raising funds via the stock market to invest in academic training institutions, or from acquiring assets of such institutions through share issuance or cash payments; and foreign investment is likewise prohibited from obtaining controlling or minority stakes in academic training institutions through mergers and acquisitions, entrusted management, franchising, or the use of variable-interest entities. Any violations already committed must be rectified and brought into compliance.

Following the release of the 'Double Reduction' policy, Chinese education stocks listed in the U.S.—including New Oriental, Gaotu, TAL Education Group, and Yiqi Education Technology (YQ.US)—plummeted almost overnight. At Friday's close on July 23, 2021, these stocks were cut in half, with New Oriental plunging 54%, Gaotu tumbling more than 63%, and TAL Education Group shedding over 70%.

Kelvin Tay of UBS Group Wealth Management said that many institutional funds are currently reassessing risks due to Chinese regulators' crackdown on sectors such as technology and private education. As a result, the Chinese market has become one of the worst-performing markets in the Asia-Pacific region so far this year.

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