China tech clampdown now targets edutech and market abuses

China's tech crackdown continues to roll on, this time targeting edutech and anti-competitive behavior by Internet firms.

Beijing on Friday announced a ban on IPOs for edutech companies and on investment in the sector by foreign or listed firms, declaring the industry had been "severely hijacked by capital." It also placed limits on out-of-hours tutoring for students. The decision has sent shockwaves through the $125 billion industry.

NYSE-listed Tal Education and Gaotu Edutech are down 79% and 74% respectively, while HKSE-listed New Oriental Education has sunk 69%. Larry Chen, founder of Gaotu Edutech, has lost $15 billion in personal wealth this year.

Mixed messaging

The bans are supposedly aimed at reducing the growing financial burden of education on young families, discouraging them from having more children. But critics argue it is a blunt instrument to deal with family planning and education inequality problems.

Online tutoring firms aren't a financial system threat like Ant Financial, whose IPO was suspended last year, and they don't own sensitive data like Didi, the ride-sharing firm now under intense scrutiny.

The online education bans also undermine one widely-held view of the tech clampdown, which is that Beijing, like western governments, has merely been trying to impose some order on a weakly regulated sector of the economy. The bans on IPOs and foreign investors suggest that not just the whole online economy but some established private sector practices are also under attack.

The steadily tightening controls on Internet firms has taken its toll on Hong Kong's Hang Seng Tech Index, which contains China heavyweights such as Alibaba, Tencent, Meituan and Kuaishou. On its first anniversary this week it is down 1.05%, having peaked up 59% in February.

There are also some signs of a retreat from China by some foreign funds, such as New York-based Ark Invest, which is unloading its positions in Chinese technology stocks including Tencent and JD.com.

No one is safe

But it's not just high-flying tech stocks that are under the gun. On Monday, the MIIT unveiled a six-month "rectification" campaign to rein in what it says are widespread abuses across the Internet and online commerce industries.

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It is targeting anti-competitive practices, like the blocking of website links to rival websites, or using pop-up windows to direct users to affiliated sites. It will also focus on protecting user data and try to stamp out so-called "black broadband," the unauthorized leasing of network capacity to sell low-cost broadband access.

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— Robert Clark, contributing editor, special to Light Reading