Tencent-backed edtech company Yuanfudao attempted to withdraw or defer job offers to more than 2,000 new university graduates as regulators barred a key service. It is the latest Chinese online tutor to move to downsize operations in response to increased regulatory scrutiny.

Why it matters: Beijing is stepping up its scrutiny on the country’s online education sector, which boasts eight of the fifteen edtech unicorns as of early 2020.

  • A new revision in China’s Minors Protection Law, which took effect on June 1, bans kindergarten and private tutoring institutions from teaching elementary-school courses to pre-school students. 
  • The law affects most major Chinese edtech giants, such as Yuanfudao, Zuoyebang, GSX Techedu, Vipkid, and ByteDance, which also has a major presence in online education.
  • Investment sentiment, both from venture capitalists and individual investors, could turn cold on the sector due to uncertainties brought by regulation, putting an end to capital enthusiasm triggered by online tutoring after the pandemic.

Details: Yuanfudao, the Chinese unicorn valued at $15.5 billion, withdrew or delayed job offers to new hires, most of them were fresh graduates, in pre-school tutoring, local media Phoenix Weekly’s business section reported on Monday.

  • Zhang Yun (pseudonym), a university graduate, told Phoenix Weekly’s business section that Yuanfudao asked her to choose to either defer the offer till September or lose it right away. She had given up other options to accept the offer. Zhang said she had already rented a place in a new city to prepare for job. Other Chinese media outlets have reported similar cases. 
  • A Yuanfudao spokesman told TechNode that the job offer change affected about 2,000 people, whose offers were either canceled or deferred. But the company has since set up a special unit to help graduates who face “real difficulties” in finances, such as those who have signed housing contracts or rejected other offers. He added that the company had also walked back some cancellations and allowed some new hires to start work as planned. 
  • US-listed rival GSX Techedu reportedly trimmed a third of its headcount starting in late May as the company shut its pre-school education business for children aged between three to eight.

Context: Over the past few years, regulators have issued various rules on the online education sector to curb what they view as chaotic growth.

  • Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao in May, two of the country’s most valuable edtech startups, for unfair competition.
  • Four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—were fined for deceptive pricing practices in April.
  • Since July 2019, Beijing has required all foreign teachers to hold valid teaching credentials and required companies to make public all related information, such as certificates and work experience details.

Emma Lee (Li Xin) was TechNode's e-commerce and new retail reporter until June 2022, when she moved to Sixth Tone to cover technology and consumption. Get in touch with her via lixin@sixthtone.com or Twitter.