Beijing slaps edtech unicorns Zuoyebang, Yuanfudao with steep fine over false advertising

The State Administration for Market Regulation imposed a maximum penalty of 2.5 million yuan each on Big Tech-funded Zuoyebang and Yuanfudao
The two companies are the front runners in China’s pre-college, off-campus education market

China technology

Coco Fengin Beijing

Published: 7:29pm, 10 May 2021

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Beijing’s market regulator has slapped education technology giants Zuoyebang and Yuanfudao the maximum penalty of 2.5 million yuan (US$388,591) each for false advertising and misleading marketing campaigns, as authorities tighten supervision of off-campus learning institutions.

The State Administration for Market Regulation (SAMR) said in a notice posted online on Monday that both Zuoyebang, which is backed by Baidu and Alibaba Group Holding, and Tencent Holdings-funded Yuanfudao falsified teachers’ work experience and advertised deceptive discounts to drive up sales, violating pricing and unfair competition laws in China.

The notice also said that Zuoyebang falsely claimed that it was a partner of the United Nations on its website and fabricated user comments. Investor Alibaba is the parent company of the South China Morning Post.

A primary school pupil attends an online class at home in Shanghai. About 90 per cent of the estimated 1 million off-campus education providers in China are small enterprises that train fewer than 1,000 students a year, according to a report published last year by consulting firm Oliver Wyman. Photo: Reuters

In response, Zuoyebang said on its official page on microblogging site Weibo that it sincerely accepts the regulator’s punishment. The firm said it will “take active and comprehensive rectification of the improper publicity content and pricing signs, strictly comply with relevant laws and regulations, optimise business processes and serve the users with heart”.

Yuanfudao also said it accepts the fine imposed by the regulator, according to its post on Weibo. The company said it “has started self-review and examination of products and channels” as well as corrected its advertising material. The goal is to raise “study efficiency” through “scientific and technological innovation”, while strengthening its business processes and norms, according to Yuanfudao’s post.

The SAMR’s latest action reflects how China’s US$110 billion K-12 off-campus education market, which has struggled during the coronavirus pandemic, is bracing for increased regulation.

In March, President Xi Jinping described the domestic market for K-12 – referring to kindergarten to 12th grade – after-school training services as a “social problem” during a meeting of the Chinese People’s Political Consultative Conference.

The prospects of tightened regulation could bring uncertainty to the market and the plans of Chinese Big Tech companies to expand operations in the education sector. Typically, primary school students take extracurricular tutoring on top of their studies on campus to perform well in examinations.

China’s pre-college, off-campus education market is forecast to reach 730 billion yuan this year, up from 400 billion yuan in 2020, according to estimates by the National Institute for Education Sciences, consultancy Oliver Wyman and TAL Education Group.

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Zuoyebang and Yuanfudao are currently the front runners in this market. Zuoyebang was said to be considering a US$500-million initial public offering in the US, according to a Bloomberg report in April. It already raised more than US$1.6 billion in December last year from a funding round that included investors Alibaba and SoftBank Group Corp’s Vision Fund,

Yuanfudao, meanwhile, was said to be seeking new funding at a valuation of more than US$20 billion, boosting its hopes to go public in 2022, according to a Bloomberg report in February.

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