China’s education crackdown flunks economics

Students recite a poem by China's late Chairman Mao Zedong on the 125th anniversary of Mao's birthday, at a primary school in Liaocheng, Shandong province, China December 26, 2018. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. - RC1DB2A10510

HONG KONG, June 21 (Reuters Breakingviews) - Beijing is mastering subtraction, but struggling with basic economics. A crackdown on the country’s $120 billion tutoring industry may help address manic competition for college preparation, which distorts the labour supply and suppresses the birth rate. It’s a byproduct of a widening wealth gap, however, and this approach could make it worse.

Chinese tiger parents serve investors well. Families in Shanghai’s Jing’an district, for example, spent around $80,000 per child on educational services before they even reached high school, a 2019 state think-tank survey found. Multiplying by 400 million middle-income people produces a massive market. TAL Education (TAL.N) and Gaotu Techedu (GOTU.N) are among the companies that rode the thesis straight onto U.S. bourses.

There’s no mandate to “leave no child behind” in China. Teachers identify the best students early and invest in them. The playing field is theoretically flat; children who score well on the all-important “gaokao” college exam can pull a family out of poverty. Nobody likes “teaching to the test” more than poor Chinese parents.

But manic rivalry has engendered a negative feedback loop. To please competitive moms and dads, schools force advanced concepts onto kids too soon, including MBA courses in elementary school. They swamp them in homework, supplemented by weeknight and weekend tutoring sessions. Constant cramming inhibits development of critical thinking. Many students graduate with little practical life or work experience, but are on the hook to support their parents in retirement and continue the cycle with a car, house and their own kids. Small wonder birth rates remain low.

Suppressing tutoring businesses – including with weekend bans, as Reuters recently reported will happen – is expedient. Yet the industry’s excesses reflect middle-class anxieties the elite are pulling up the class ladder behind them. The number of poor students in top schools is shrinking, and poor provinces are falling behind wealthy ones.

Rich parents have no trouble paying for one-on-one lessons, enabling them to cement their educational advantage. For everyone else, the new policies might reduce the expense of raising children, but at the cost of future earning power – no incentive to have more kids. Policymakers are due an economic refresher course.

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- China is poised to unveil a tougher crackdown than was anticipated on the country's $120 billion private tutoring industry, Reuters reported on June 16 citing unnamed sources.

- A mooted “vacation tutoring” ban, which adds to plans to bar online and offline tutoring on weekends during term time, could deprive tutoring companies of as much as 80% of their annual revenue, two of the sources said.

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Asia Economics Editor Pete Sweeney joined Reuters Breakingviews in Hong Kong in September 2016. Previously he served as Reuters' chief correspondent for China Economy and Markets, running teams in Shanghai and Beijing; before that he was editor of China Economic Review, a monthly magazine focused on providing news and analysis on the mainland economy. Sweeney came to China as a Fulbright scholar in 2008, and in that role conducted research on the Chinese aviation industry and outbound M&A. In prior incarnations he helped resettle refugees in Atlanta, covered the European Union out of Brussels, and took a poorly timed swing at craft-beer entrepreneurship in Quito even as the Ecuadorean currency collapsed (not his fault). He speaks Mandarin Chinese, at the expense of his Spanish.