Welcome to Foreign Policy’s China Brief.
This week’s highlights: Chinese regulators raise the $ 120 billion mark private education sector with new measures, Beijing is enacting a itemized list of complaints to US diplomats and a COVID-19 outbreak in Nanjing raises concerns about the delta variant.
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Beijing’s war on private education
The Chinese government has introduced tough new regulations for the private education industry. The rules include requiring tutoring and educational service companies to convert to nonprofit status, prohibiting core curriculum tutoring – with the aim of passing exams – on weekends and during vacation, and prohibiting foreign curricula or recruitment from foreigners outside of China to teach remotely.
The regulatory measures that have been hinted at for months have hurt stock prices in the $ 120 billion sector. New Oriental, a company that dominates English teaching, plunged from a high of $ 19.68 on the New York Stock Exchange in February to a low of $ 2.18 last Friday. Firms like VIPKid, whose entire business model was built around providing relatively cheap access to Western teachers through digital learning, now have no choice but a desperate pivot.
It is tempting to associate private education regulations with Beijing’s war against tech companies and monopolies – and regulators are sure to be bolstered by government pressure on private companies. But these new measures also reflect the widespread belief in China that the private tutoring sector has a negative impact on parents and upper-middle class children in cities, both in terms of cost to parents and the psychological impact on children.
In China, education depends on the Gaokao, the all-important college entrance exam. Chinese parents can spend thousands of dollars annually on tutoring just to keep their children competitive; the stress of parenting even turned into a hit video game. It’s important to remember that these costs have been relegated to a relatively privileged layer. Three in four Chinese children grow up in rural areas, where the average annual disposable income is around US $ 2,635 and access to education is severely limited.
The average government official also belongs to the upper middle class and has seen the effects of the educational race on their own families and children. That is probably why the interventions seek to encourage hobbies and cultural interests after school while constraining the curriculum. Unlike the United States, where extracurriculars are an important part of college admissions, they play only a minor role in the Gaokao system.
If the new regulations help reduce the cost burden on parents and the burden on children, the government hopes to reverse the demographic decline. The price of raising children in China is a powerful factor limiting family size even after the government raised the limits on family planning. The authorities are not only concerned about growth, but also about the so-called quality of the population – they want more children for wealthy families and not for the rural poor.
The measures are also part of the growing xenophobia in China. The Chinese Communist Party (CCP) spends a lot of time worrying about ideological education. Measures that restrict the study of US and world history, for example, were introduced years ago. From the CCP’s point of view, banning foreign curricula and foreign teachers could prevent the creeping influence of foreign ideas and prevent Chinese students from applying to foreign universities.
The regulations will not prevent the very wealthy, who often have Ivy League ambitions for their children, from seeking tuition abroad anyway through discreet personal contacts and US bank accounts. At the upper end, the price for one-to-one tuition is already $ 200 per hour and can rise after these measures.
The question is whether the same market for private tuition for the middle class will emerge, which is driving rather than reducing the costs necessary to stay in the race. South Korea offers a relevant lesson: the dictator Chun Doo-hwan banned private lessons in 1980, but when the sector was relegalized in 1991 it was bigger than ever. A second South Korean attempt to crack down on expensive private education, launched in 2011, had limited success.
China’s detailed list of complaints. During a controversial visit by US Secretary of State Wendy Sherman to Tianjin, China, Beijing filed two sets of complaints with Washington on Monday. The first was to demand that the United States end its sanctions programs, restrictions on CCP officials, and visa restrictions on Chinese students with military or state ties, and drop its extradition lawsuit against Huawei CFO Meng Wanzhou. The second list raised concerns about the attacks on Chinese companies and anti-Asian racism.
Previous presentations of similar grievances towards Western countries have not been good for China. A 14-point list given to Australia last September sparked widespread ridicule and anger in the Australian media and hardened government officials’ attitudes towards Beijing.
Cooler heads probably know the list is likely to provoke a similar response from the U.S. government. But this type of denunciation has been part of communist diplomacy since the Soviet era. As the rule of Chinese President Xi Jinping deepens and the rift with the West deepens, this makes political sense in China, even if it causes diplomatic headaches.
Flood event. Xenophobia resonates in China as well, as was recently revealed when foreign reporters trying to cover the devastating floods in Zhengzhou were faced with angry mobs whipped up by local officials. The death toll in Zhengzhou, which now stands at 71 and is likely to rise, appears in part due to local businesses and public institutions ignoring flood warnings to keep employees at home. Chinese labor law is theoretically strict about working conditions and worker hazards. In practice it is seldom enforced.
Outbreak of the delta variant. A severe COVID-19 outbreak in Nanjing, by Chinese standards, is of concern due to the rapid spread of the Delta variant and the possibility that the city’s airport has become a transmission zone. City-wide testing and isolation, a well-established routine in China, is likely to contain the outbreak. Delta variant concerns, however, are likely to limit a domestic tourism sector that is slowly recovering.
Condemned dissident entrepreneurs. Sun Dawu, an agricultural entrepreneur and multimillionaire who has become an outspoken critic of the CCP’s policies, was sentenced to 18 years in prison on Wednesday. The verdict is identical to the verdict against Ren Zhiqiang, a retired tycoon who criticized Xi last year. Sun was a popular figure known for his local philanthropy; he had a keen eye for the effects of politics on ordinary people, especially farmers.
It is a blessing for officials to target dissenting businesspeople: not only do they remove a potential political threat, but an individual’s wealth can also be shared out as a reward for believers. Sun’s son hinted at this, saying an official had recommended several independent companies to take over the Dawu group.
Evergrande in danger. Chinese real estate giant Evergrande, whose shaky outlook and massive debt has been a serious concern for months, posted a 13.4 percent decline Tuesday after its board of directors changed course on a special dividend announced two weeks ago. Evergrande was the world’s most valuable real estate company in 2018, but its wealth was built on a mountain of liabilities.
Beijing appears determined to keep it up for the time being, fearing it could become Lehman Brothers of Chinese real estate company China.
Stock market panic. The Golden Dragon Index, which tracks Chinese technology stocks, has fallen 15 percent in the past few days due to the introduction of private education regulations and fears of further action against technology companies. Chinese stocks are currently performing worst in Asia.
It seems like Beijing has finally crossed the red line for analysts like economist Stephen Roach, a self-proclaimed “innate optimist” for China who warned of “disruptive actions” and the start of a Cold War this week. “China is following the core of its new entrepreneurial economy, and it is pursuing their business models,” he said.
Beijing seems shocked by the reaction: The China Securities Regulatory Commission convened an emergency meeting on Wednesday to reassure investment banks. As I argued recently, Western financial analysts have underestimated China’s political risk for years. If that fails, it will mean the loss of a large pro-Chinese faction in US politics.
Huawei lobbying. Chinese telecommunications giant Huawei, which has faced a barrage of restrictions in the west in recent years, is attempting a concerted lobbying campaign in Washington in the hope that the Biden government will be unlocked. That seems extremely unlikely: President Joe Biden’s team has continued most of the Trump-era restrictions, and technology remains at the forefront of the US-China confrontation.
Still, the firm recently hired a group of new lobbyists, including the once influential Democratic figure Tony Podesta, whose lobby group disbanded in late 2017 after investigating the Trump campaign’s links with Russia.
“China uses Tibetans as agents of the Himalayan Empire,” by Robert Barnett, Foreign Policy
This investigation into the nearly 250,000 Tibetans forced into new border fortification villages in the Himalayas follows on from FP’s earlier revelation of the Chinese annexations in northern Bhutan. Tibetans, unlike Uyghurs, are seen as useful to the Chinese state rather than as an obstacle to expansionism in the Himalayas. Their historical cross-border connections and their cultural adaptation to mountain life make them ideal agents of the Empire – at the expense of their own decisions and their lives, as Barnett points out.