China Economy

China's after-school crackdown wipes out many jobs overnight

Key Points
  • Beijing's harsher-than-expected crackdown on after-school tutoring businesses in July adds pressure to China's already competitive job market, particularly for the record 9.09 million graduates this year.
  • Seven after-school tutoring companies, mostly listed in the U.S., had a total of more than 250,000 full-time and contract employees prior to this summer, according to public disclosures.
  • "It's really quite a rush” for these education workers to find new jobs, since corporate severance plans are based on years of employment, a recruiter told CNBC. That means many laid off workers might only get a month or two of pay, if they were not forced to resign on their own.
A man looks at an advertisement for Chinese online education startup Zuoyebang in the street on December 26, 2020 in Shanghai, China.
VCG | Visual China Group | Getty Images

BEIJING — For hundreds of thousands of Chinese people, Beijing's crackdown on after-school tutoring this summer means their well-paying jobs are disappearing quickly.

While it's difficult to pin down the exact scale of the job losses, data and CNBC interviews with people in the education industry point to how the abrupt policy change is adding pressure to Beijing's efforts to tackle unemployment, particularly among a record 9.09 million recent graduates this year.

Tutoring businesses had little notice when a harsher-than-expected policy on school-age academic courses was released in late July, banning operation on weekends and holidays, and ordering them to restructure as non-profits. The directive was meant to reduce the burden on families, who often spend large portions of their incomes on hours of supplemental courses for their children, even those in elementary school or younger.

Companies lost large revenue sources overnight. Many employees lost a career path. Public disclosures show that prior to this summer, seven after-school tutoring companies, mostly listed in the U.S., had more than 250,000 full-time and contract employees combined.

Within a few weeks, the number of job seekers with a background in the education and training industry jumped — up 10.4% in July from the prior month, and greater than the 6.3% increase across the market, according to a report last week from recruitment site Zhaopin.

Why this tech analyst says 'no sector is safe' from China's crackdown
Why this tech analyst says 'no sector is safe' from China's crackdown

Half, or 51.7% of job applicants in July with that education industry background had also already left their prior positions, the report said. That's a far higher share than the 44.7% disclosed by job applicants on the site.

Education industry job postings dropped, with the capital city of Beijing seeing the greatest decline, down 49% versus March, the report said.

Women and young people were disproportionately hit. Three-fourths of these education job seekers were female, while the category of those age 25 and younger saw the greatest increase among former education employees searching for jobs, the report said.

That's particularly concerning as the unemployment rate for 16- to 24-year-olds rose to 16.2% in July from 15.4% in June, far above the nationwide rate of 5.1% in cities. China's National Bureau of Statistics said last week it did not have details on the impact of the after-school tutoring policy on employment, but would increase support for college graduates in finding jobs and starting businesses.

Education businesses shut down

ByteDance, the owner of social media app TikTok and one of the most popular destinations for recent graduates, cut a large number of its kindergarten to 12th grade education-related positions in the wake of the new government policy, according to a recruiter with over a decade of experience finding talent for the biggest Chinese internet companies. He requested anonymity for professional reasons.

Chinese media had reported the news in early August. ByteDance confirmed the changes to its China business in an email to CNBC.

Many other companies have cut segments of their education businesses related to school-age academic subjects, the recruiter said.

The shift is sharp. "I was looking overseas for talent to fill a senior position of Huohua Siwei's international business just a few months ago," he said, referring in Mandarin to a company that had filed to go public in the U.S. in June under the name Spark Education.

"Now this position is not there anymore," he said, according to a CNBC translation. While workers with an IT background can easily find a new job, those without one are "losing direction" and even trying to become recruiters themselves, he said.

He said most affected workers were making about 5,000 yuan to 10,000 yuan a month ($769 to $1,538).

That's well above the average monthly wage of 4,811 yuan for workers at privately run companies in cities, according to official data. Wages vary widely in China by region and industry.

"It's really quite a rush” for these education workers to find new jobs, since corporate severance plans are based on years of employment, the recruiter said. That means many laid off workers might only get a month or two of pay, if they were not forced to resign on their own.

At one branch of U.S.-listed Zhangmen Education, the company gave about 100 employees, including interns, only a few days' notice of their layoffs — and just a few days' pay, according to a local Chinese media report. The article noted layoffs or resignations at four other locations, including Shanghai.

Zhangmen, whose shares have plunged 70% since going public on the New York Stock Exchange in June, did not respond to a CNBC request for comment.

Hundreds of thousands of jobs at stake

After-school tutoring businesses grew rapidly over the last several years, with some models boosted by demand for online education in the wake of the coronavirus pandemic.

U.S.-listed industry giants TAL, New Oriental Education and Technology Group and Gaotu Techedu disclosed a surge new hires last year — by the tens of thousands. But after the regulatory crackdown, their stocks have plunged by nearly 90% or more for the year so far.

Public disclosures from these and four other after-school tutoring companies showed they had more than 250,000 full-time and contract employees combined.

The companies — TAL, New Oriental, Gaotu, Zhangmen, Spark Education, Zuoyebang and 17EdTech — did not immediately respond to CNBC's requests for comment.

These figures reflect just a portion of the industry as there are many other large and small businesses that do not disclose headcount.

The kindergarten to high school education service industry as a whole accounts for about 10 million jobs in China, according to a report from Beijing Normal University and TAL Education.

About a third of those positions could be affected by the new policy, estimates Liu Xiangdong, deputy director of the economic research department at the China Center for International Economic Exchanges based in Beijing.

"This policy adjustment has certainly affected some employment flows," he said, according to a CNBC translation of his Mandarin-language remarks.

He said the government and companies are providing some support, and noted that industries like manufacturing face large job vacancies, according to his team's research. For the economy to grow longer term, the government will need to improve training for businesses and workers so that there is less of a mismatch, and graduates will need to lower their salary expectations, Liu said.

Education a popular choice for new grads

In the past decade, elementary and middle school education surpassed finance as the most popular industry for college graduates to enter, according to Chinese higher education consulting firm MyCOS.

The average salary for students graduating with a bachelor's degree in 2019 was 5,440 yuan a month, nearly twice the average of 2,815 yuan in 2010, the report said.

A major factor behind the jump in salary is the growth of technology-driven businesses, including education ones.

Between 2013 and 2019, investors poured 14.5 billion yuan into projects that claimed to combine education with artificial intelligence, according to the Beijing Normal University and TAL Education report.

The K-12 segment by far attracted the most of any category — at 7.8 billion yuan, the report said, noting many companies went on to go public in the U.S. and Hong Kong where they would raise even more money from the public.

Capital helped fuel increasingly fierce competition in education, said Ash Tang, adding the heavy investment in technologies like artificial intelligence created a strong demand for new graduates with backgrounds in computer science and information technology.

Tang is an English tutor at a Beijing-based middle-sized education institution. She said she works almost every day and has to pay attention to students and parents around the clock, making it very hard to balance work and life.

As a result, five years into the education business, Tang was already planning to change jobs before the crackdown. She's not that concerned about her next steps given her experience in other industries.

But for colleagues who built their careers in education, it can be hard for them to make the change, she said, adding that age discrimination in the workplace is another challenge for those in their early thirties.

Many Chinese job postings explicitly say they will only consider applicants age 30, or 35, and younger.