Chinese online education platform 51Talk has occupied a large share in the domestic market with its online courses provided by Philippine English-speaking teachers. After the Chinese authorities issued a guideline in July on regulating the tutoring market to ease the burden on students in compulsory education, the company issued a statement on August 9 that it would stop selling courses by foreign teachers to domestic teenage students from that day onward, and shift its focus toward adult English teaching—also a key component of its business.

The boot has dropped not only for the tutoring industry, but for the platform economy by large. Over the past months, the Chinese Government has launched supervision and anti-monopoly penalties on Internet-based firms such as e-commerce giant Alibaba, online service platform Meituan and ride-hailing company DiDi Chuxing. Following the regulatory policies, China's stock market has recently been experiencing fluctuations. Concerns of foreign investors on the prospects of the Chinese market have also emerged.

However, many still hold that the potential of Chinese market remains. Improving regulations is not a direct cause of stock market fluctuations, but instead can promote sound market growth, according to Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology.

"The recent weakening of China's stock market is within expectations after rebounds in previous months," Dong told Beijing Review, adding that the U.S.' newly released requirements on Chinese companies, combined with the deadlock in China-U.S. talks, have also led to declining investor confidence. On July 30, the U.S. Securities and Exchange Commission announced that it would require Chinese companies to disclose more information before approving their listing applications. 

As Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, wrote in a post on his LinkedIn account in early August, China's recent regulatory crackdown has been misconstrued as being anti-capitalist by some Western investors, even though the trend over the last 40 years has been strongly inclined toward developing a market economy.

"As a result, they've missed out on what's going on in China and probably will continue to miss out on that," Dalio said.

Market regulations 

To ease the burden of students and ensure equal access to educational resources, Chinese authorities have recently been introducing a series of new policies on the regulation of off-campus training institutions. In late May, the government launched a crackdown on the unqualified operations and false advertising mechanisms of tutoring companies. The Ministry of Education later set up a new department to supervise off-campus education and training in June.

In July, it introduced a guideline to ease the burden of teenage students through reducing homework and improving courses provided by schools. The guideline stipulated that local governments must cease approval of the establishment of new tutoring institutions teaching school curriculum subjects and have existing institutions be registered as non-profit ones.

Facing the changes, many educational enterprises have announced to shift to the training of art, sports, science and technology, and focus more on courses for adults.

"Off-campus institutions are supposed to serve as a supplement for schooling, while some of the institutions provide courses ahead of school schedules. That has caused a blind rush and educational inequality," Gu Mingyuan, a professor with Beijing Normal University, told the 21st Century Business Herald.

Platform economy enterprises have also seen improving regulations targeting malperformances. Last year, the State Administration for Market Regulation (SAMR) fined Alibaba for not gaining approval before making acquisitions. The attempt to develop community group-buying schemes on the part of several Internet-based companies including Alibaba, online retailer JD.com, and Meituan was also disproved, considering the interests of individual vendors.

In March this year, the SAMR said that it would impose administrative penalties on 12 companies violating the anti-monopoly regulation. Later in April, Alibaba was fined 18.2 billion yuan ($2.8 billion) for its monopoly. Meituan was investigated at the end of April for increasing prices based on big data analyses of customers and forcing retailers to sign exclusive contracts. With a guideline that called for improving the income and social insurance of food deliverymen issued in July, companies like Meituan are urged to provide better treatment for employees.

The directive for protecting users' interests, too, has been reinforced. In July, the Cyberspace Administration of China asked online mobile app stores to remove ride-hailing app DiDi Chuxing, saying that the app violated laws and regulations as it collected and abused user data. It urged the company to fix the loopholes in its systems to ensure the security of user privacy. Before that, the authorities already made multiple efforts of regulating ride-hailing, mainly by improving in-vehicle recording systems and ensuring the drivers' qualifications following several cases of passengers' physical injury.

Still upbeat 

While domestic and foreign investors have reduced holdings in stocks of companies affected by the newly issued regulations, the market has, in fact, rebounded. Data from the Institute of International Finance on August 3 showed that China's stock market attracted over $800 million of funds in July.

As Justin Onuekwusi, investment manager and head of retail multi-asset at Legal & General Investment Management told Reuters, the market impact of China's recent regulatory crackdown on companies is priced in, making its stocks relatively attractive compared to European and U.S. peers. Given the Chinese equities are already at a depressed level, the froth on the market lies in U.S. and European equities. 

Dalio urged international investors to understand that Chinese regulators are figuring out the appropriate protocols for the rapidly developing market environment. "Don't misinterpret these wiggles as changes in trends," he said.

UBS analyst Wang Tao said in a recent report that new business models have boomed in China in recent years as the government showed inclusiveness and launched eased guidelines. The recent tightening up can be considered as a quick fix to previously loose regulations. Wang said that the Chinese Government is expected to continue its support for the digital economy and encourage technological innovation.

(Print Edition Title: Vigilance and Vitality) 

Copyedited by Elsbeth van Paridon 

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