Chinese tech stocks: Gaotu serves as a cautionary tale in Beijing’s private education crackdown

The stock price for Gaotu, formerly GSX Techedu, has dropped this year to US$2.50 from US$149 amid controversies, fines and new regulations

Beijing’s ban on profits for K-12 private online tutoring firms has upended the industry, causing a sell-off that has spread to other Chinese tech stocks

Reading Time:3 minutes

The homepage of Gaotu Techedu arranged on a laptop computer in Shanghai on July 27. China rolled out new regulations for private education companies last week, sending stock prices plummeting, in another blow to Gaotu this year after weathering previous controversies. Photo: Bloomberg

Published: 11:00pm, 27 Jul 2021Updated: 1:10pm, 28 Jul 2021

Gaotu Group, a Beijing-based education and training firm, has seen its New York stock price plummet to US$2.50 from US$149 in the span of just six months, exemplifying the vulnerability of Chinese stocks to regulatory risks in the wake of the latest crackdown that has upended the country‘s private tutoring market.

Gaotu, formerly GSX Techedu, was among the hardest hit in a regulatory overhaul initiated last week by Beijing, which has banned profits at tutoring firms catering to schoolchildren, along with other Chinese education stocks such as TAL Education Group and New Oriental Education & Technology Group.

The policy change from China’s Ministry of Education has negated the industry’s business model and destroyed prospects for future profits, triggering panic selling from investors.

Gaotu chairman and CEO Larry Xiangdong Chen, right, along with members of the company's leadership team, celebrate the IPO for their company, then known as GSX Techedu, as they ring the New York Stock Exchange opening bell on June 6, 2019. Photo: AP

The sell-off also spread to other Chinese technology stocks. In Hong Kong, stocks sank to an eight-month low on Tuesday, with Tencent and Meituan, two of the exchange’s biggest tech stocks, losing roughly 18 per cent and 30 per cent of their value, respectively, from their closing prices on Thursday after news of the policy change broke the following day.

Investors continued to dump their holdings on Monday and Tuesday to avoid the growing risks from China’s regulatory rampage.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x