CFA China Shanghai Crowd-Research Series Report
- China Education Industry Market Insights
Working Group of CFA China Shanghai Crowd-Research Project * 2019
*Working group members include: Feng Hao, CFA; Han Xu, CFA; Li Chen, CFA; Wang Yingren, CFA; Xu Shenjun, CFA; Yingyi, CFA; Zhang Chen, CFA; Zhang Shuguang, CFA; Zhao Yang, CFA
Table of Contents
Research summary ...... 1 Introduction ...... 3 Chapter I Overview of the Development of China's Education Industry ...... 4 Section 1 China's Educational Development Events ...... 4 Section 2 Development of China's Education Policy ...... 6 Section 3 Overview of Foreign Education Development...... 10 Chapter II Status of China's Education Market Segments ...... 15 Section 1 Education Industry Chain ...... 15 Section 2 Education Market Segments – Diploma Education ...... 16 Section 3 Education Market Segments – Education Training ...... 20 Section 4 Education Market Segments – Education Related ...... 31 Chapter III Investment Status in China's Education Market ...... 35 Chapter IV Prospects for China's Education Market ...... 38 Section 1 Macro Environment ...... 38 Section 2 Education Market Segments – Diploma Education ...... 39 Section 3 Education Market Segments – Education Training ...... 41 Section 4 Education Market Segments – Education Related ...... 44 About CFA China Shanghai ...... 46 About CFA China Shanghai Crowd-Research Project ...... 46 Acknowledgments ...... 46
CFA China Shanghai Crowd-Research Series Report - China Education Industry Market Insights
Research summary After years of steady development, China's education market has entered a stage of rapid development with the implementation of the Private Education Promotion Law and the development and application of educational technology, and has also received great attention from many investment institutions. In this context, we have carried out industry research for this market, and hope to explore the development trend of the industry, propose development proposals for industry companies, and help investors to judge investment trends.
The introduction clarifies the scope of this article. The education areas studied in this article are mainly organized school education and professional social training.
The first chapter reviews the development history of China's education industry and the evolution history of related policies. It also compares the development of the industry in Europe, the United States and Japan, and provides a reference for us to analyze China's future industry trends.
The second chapter focuses on the education industry chain, and introduces the development status of each industry segment in China in detail. The content covers the diploma education market, including kindergarten, primary, secondary and high school and higher education; the education and training market, including early education, offline and online academic and quality education training in the K12 stage, adult education and international education; and education-related markets, including informatization, media and publishing.
The third chapter introduces the current investment situation of the Chinese education market. We found 2,307 financing events from 976 education companies. The data shows that 869 investment institutions have invested in the education industry, among which ZhenFund, TAL Education Group, BE Capital, Sinovation Ventures, Matrix Partners China and Tencent are the most active. These investment institutions often layout on multiple education segments, and will choose one or two of these companies on each segment to cultivate. At present, education companies listed in the entire Chinese market are still few. It is expected that many large listed companies will arise in the education industry in the future.
The fourth chapter discusses the future development trend of China's education industry from the perspective of industry macro environment and various education market segments. In terms of macro environment: China's education industry is in a stable development period, and its market size and investment potential are still huge; Industry supervision will be further enhanced, and the standardization of private education market will be greatly improved.
In terms of the diploma education market segment: Kindergarten: Chain kindergarten brands with high degree of feasible standardization will rapidly gain their market share; Primary, Secondary and high school: Western-style international high school and the dual high school integrating Chinese and Western education will grow rapidly; Higher education: Private college and university leaders will continue to expand market share by acquiring independent colleges.
In terms of the education and training market segments: Early education: The rapid growth of the early education market will usher in an inflection point, and the scale effect of the brand will be presented;
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K12 academic training - offline: The intelligent teaching system will be promoted from language training to other disciplines and widely used; the dual-teachers model will become an important way for offline training institutions to expand in different places; K12 quality training - offline: The business model of the training institution will be extended from B2C to B2B2C; the strategic focus of quality education training institutions in the future will shift to third- and fourth-tier cities; K12 academic training - online: The live broadcast platform will form a monopoly pattern; advances in intellectual property protection will enhance the investment value of online courses; K12 quality training - online: STEM and other quality education content will be included in the admission system, and the development potential is huge; Adult education: Cross-border training by industry companies will stimulate new market demand and impact on relevant traditional training institutions; population aging activates the elderly education training market; International education: The young age and popularization of overseas education promote the extension of industrial services.
In terms of education-related market segments: Informatization: The closed loop of hardware, system and content trinity will become the strategic choice of education informatization companies; Media: We-media products like short video are expected to be the most efficient means of educational information dissemination; Publishing: The publication of digital teaching materials and teaching supplements will be the main incremental market for the education publishing industry.
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Introduction Education in a broad sense covers all activities that enhance people's knowledge and skills and influence people's ideas. They can be divided into family education, school education and social education. Education in the narrow sense mainly refers to school education. The educational areas studied in this article are mainly organized school education and specialized social training. Education as an industry has anti-cyclical characteristics. In the context of China's economic slowdown in recent years, the education industry has been favored by many investment institutions, and related investment and financing events have also increased significantly. Meanwhile, because education involves the vital interests of all Chinese people, the occurrence of related social events and phenomena will cause widespread concern. The Chinese government has also promulgated various policies to strengthen supervision and promote education reform. For the relevant enterprises in education industry, they face both opportunities and challenges. This paper divides the education industry into three major market segments to elaborate and study: diploma education, education training, and education related industries. Among them, diploma education is divided into three parts: kindergarten, primary, secondary and high school and higher education; education training is divided into early education, offline and online academic and quality education training in the K12 stage, adult education and international education; education related industries include informatization, media and publishing. This paper focuses on those segments that have investment opportunities, and schools that are compulsory in education that cannot be invested by law are not described in detail. This paper is divided into four chapters. The first chapter introduces the history of education development and policy development in China since the founding of the People's Republic of China, and gives an overview of the development of education industry in Europe, the United States and Japan; The second chapter introduces the development status of various market segments in China; The third chapter is for statistical analysis of investment events in the education market; The fourth chapter makes forward-looking predictions on the macro environment and the future development of various market segments.
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Chapter I Overview of the Development of China's Education Industry Section 1 China's Educational Development Events At the beginning of the founding of the People's Republic of China, the education system was initially established (1949-1976) In 1949, the construction of new China's education system started. The Common Program of the CPPCC promulgated stipulated that "compulsory education should be implemented in a planned and step-by-step manner throughout the country." In November, the Ministry of Education of the Central People's Government held an inauguration ceremony and founded China's first new university, Renmin University of China in 1950. In 1968, the People’s Daily quoted Mao Zedong’s instructions in a report: “It is necessary for young people to go to the countryside to receive re-education from the poor and middle-class farmers.” Since then, there has been a rush of intellectual youth going to the countryside. A major feature of the education industry during this period was the focus on popularization. At that time, the most basic national condition in China was that 80% of the total population was illiterate, and a large part of them were school-age children. In order to change this situation, in terms of basic education, the Chinese government first started with the focus on quantity to educate as many school-age children as possible. Resuming of the college entrance examination, elite education taking the lead in development (1977- 1994) In the early days of reform and opening up, the focus of the work of the state began to shift to economic construction. As the education system was greatly affected during the Cultural Revolution, the talent resources needed were extremely scarce. Therefore, the “elitism” strategy has gained a great degree of recognition at this stage. On October 12, 1977, the State Council approved the Opinions on the Enrollment of Colleges and Universities in 1977 by the Ministry of Education, and resumed the system of unified examinations for admissions in higher education institutions. On November 3, the Ministry of Education and the Chinese Academy of Sciences jointly issued the Notice on Recruiting Graduate Students in 1977. After the long-term interruption in the “Cultural Revolution” period, the recruitment and training of graduate students began to resume. The Degree Regulations of the People's Republic of China, which was passed in 1980, came into effect on January 1, 1981, marking the official establishment of China's degree system. The Compulsory Education Law of the People's Republic of China passed at the 1986 National People's Representative Meeting was implemented on July 1. It stipulates that the state implements nine-year compulsory education. Enrollment expansion of college entrance examination, improving education level in an all-round way (1995-2010) Since the mid-1990s, China’s reform and opening up, and modernization have entered a new stage. The government pointed out that “it must shift economic construction to the track of relying on technological innovation and improving the quality of workers.” Therefore, the national rejuvenation through science and education has become China's basic national policy, and the basic position of education in the formation of comprehensive national strength has been recognized by the top-level administrators. In order to cultivate qualified talents of various types and improve overall national strength, the development strategy of education has significantly increased the proportion of “Education for All”. The landmark event of this period was the “211” project launched by the State Council in November 1995, which began to build about 100 colleges and universities and a number of key disciplines and majors to reach the world-class university level. In 1999, the State Council approved the Ministry of Education's Action Plan for Education Revitalization for the 21st Century, proposing that by 2010, the gross enrollment rate of higher education will reach 15% of the youth of the appropriate age, marking the opening of the enrollment expansion of colleges and universities. The document also proposed the official launch of the "985 Project". The project aims to develop a number of leading universities with world-class levels for the country. College entrance examination reform, deepening quality education and achieving education fairness (2011-present) With economic globalization and reform entering the deep-water area, China's economic development faces enormous challenges such as the disappearance of demographic dividends and the slowdown in GDP growth. Human resources, as a strategic resource for economic and social development, has become the focus of education development reform in the new era. After 30 years of development, China's education industry has made tremendous achievements. The education penetration rate at all levels is among the highest in the developing countries, but there are still shortcomings, such as regional imbalances, poor quality of education,
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etc. In 2012, the state's fiscal education funding exceeded 2 trillion CNY for the first time, accounting for more than 4% of GDP for the first time. In the National Medium- and Long-Term Education Reform and Development Plan (2010-2020) document issued in 2010, it is clear that “improving quality as the core task of education reform and development, providing more abundant quality education for the citizens”. It opened a new stage of education in China. The concepts of "quality education" and " education fairness" have begun to enter people's horizons. On September 4, 2014, the State Council issued the Implementation Opinions on Deepening the Reform of the Examinations and Enrollment System, officially proclaiming that the reform of the new college entrance examination has entered the pilot stage, and the focus of the policy has moved from the country to the localities, and various localities have begun to implement pilot policies aimed to examine the comprehensive quality of students through independent enrollment and select outstanding talents. During this period, the policy also requires comprehensive improvement of the quality of higher education, and continued to implement the "985 Project", "211 Project", the innovation platform for superior disciplines and the key disciplines with special features. It is also during this period that education informatization has also been put on the development focus. In April 2012, the State Council determined the development orientation of education informatization of “Three Links and Two Platforms”, namely “every school can get access to broadband network; every class can get access to quality teaching resources; the network learning space will be accessible to everyone; the digital education resources public service platform and the education management information system platform are strengthened”, and the education informatization 1.0 phase begins. In the area of private education, the market has returned from explosive growth to a stable development (1982-present) After the founding of the People's Republic of China, the private education gradually disappeared in the process of public ownership reform. The Constitution of the People's Republic of China in 1982 gave the legitimacy of private education, and in 1987, the Provisional Regulations of the State Education Commission on Running Schools for Social Forces opened a new chapter in the standardized operation of private education in our country. In 1992, Deng Xiaoping's South Tour Speech played a role in promoting private education. In the same year, a new private school was established in Dujiangyan City, Sichuan Province. This is the first private school with large-scale investment in China, and private education has entered a stage of rapid development. In 1997, the State Council promulgated the Regulations on Running Schools for Social Forces. This is the first administrative regulation that regulates the social forces to run schools. It proposes that "the social power of running a school is an integral part of socialist education.” This indicates that the status of private education has finally changed from “supplementary” to an integral part of education. In 1998, RYB Education created the first parent-child park for 0-6 years old children in China. The concept of “parent-child park” also appeared on the mainland for the first time. In 2004, the Private Education Promotion Law and the Regulations on the Implementation of the Private Education Promotion Law were promulgated, and began to allow the investment in training schools to receive appropriate returns. This change has become the beginning of the capitalization of China's education industry. Its introduction is a major breakthrough in promoting the development of private education, and has solved several core problems that have plagued private education for many years: the nature and status of private education and private schools. After more than a decade, the industry of private education began to explode. In 2006, New Oriental was listed on the New York Stock Exchange. It was the first educational institution from Chinese mainland listed in the United States. Afterwards, the fact that private education enterprises were continuous pursued by various countries’ capital market has made China's education and training industry an unprecedentedly good development trend. From pre-school education to diploma education and non-diploma education to adult education, private force has gradually emerged at all stages in the education market. And all of this reached its peak around 2010. On August 5th, Ambow Education was listed on the New York Stock Exchange; on October 8th, Global IELTS was listed on NASDAQ; on October 20th, XES Education (renamed as TAL Education Group in 2013) was listed on the New York Stock Exchange; on November 2, Xueda Education was listed on the New York Stock Exchange. In order to encourage private capital to continue to enter the education field and make up for the shortcomings of insufficient state investment, in November 2016, the 12th National People's Congress Standing Committee reviewed and approved the revision of the “Private Education Promotion Law” and clarified the classified management of private education. The legal status of for-profit and non-profit private schools is recognized. In April 2018 and August 2018, the Ministry of Education and the Judiciary respectively issued drafts for public
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opinions and drafts for review for the Regulations on the Implementation of the Private Education Promotion Law (Revised), and publicly solicited opinions from the public.
Section 2 Development of China's Education Policy Since the reform and opening up, the state has promulgated a series of important documents and laws to ensure and promote the reform and development of China's education. Among them, the landmark documents and laws and regulations include: "The Decision of the Central Committee of the Communist Party of China on the Reform of Educational Mechanisms" promulgated in 1985, which comprehensively opened the reform of China's education system and mechanism, and proposed the fundamental guiding ideology "Education must serve socialist construction. The socialist construction must rely on education” and incorporated education reform into the overall design of reform and opening up, and modernization; the "Outline of China's Education Reform and Development" was promulgated by the State Council in 1993, and established the goal of education development by the end of the 20th century; The "Education Law of the People's Republic of China" promulgated and implemented in 1995, the “Higher Education Law” promulgated and implemented in 1998, and the subsequent “Compulsory Education Law”, “The Teacher Law”, “The Private Education Promotion Law” and “The Vocational Education Law” constitute the education legislation system at the national level in China; the "Decision of the State Council on the Reform and Development of Basic Education" and the "Outline of the National Basic Education Curriculum Reform" were promulgated in 2001, the two important documents clarify that "the implementation of rural compulsory education is under the leadership of the State Council. It is a county-based system which is responsible by the local government with hierarchical management”; “The Outline of National Medium- and Long-Term Education Reform and Development Plan “(2010-2020) issued by the State Council in 2010 clarified that "priority development of education and improvement of the level of education modernization" is the central task of education reform and development; fairness and quality have become two important dimensions of China's education reform. It has pointed out a work roadmap for the development of education in China. It is necessary to point out that the development of China's higher education mainly relies on national policies. Since the resumption of the college entrance examination in 1977, the policy has continued to support the goal of building a higher education capability. In 2014, the State Council launched the examination and enrollment system reform to further expand the enrollment scale of colleges and universities and promote the popularization of higher education. In 2015, it released two important documents: Total Planning for Promoting the Construction of World-Class Universities and First-Class Disciplines and Guiding Opinions on Guiding the Conversion of Some Local General Undergraduate Universities to Application-oriented Types. In addition to the Private Education Promotion Law, the above education laws and regulations are generally targeted at government-sponsored public schools. The Private Education Promotion Law is a sign that the development of private education has begun to enter the legalization track, marking that China has entered a situation of joint development of private education and public education. The construction of the entire private education legal system can be summarized into several stages: the first stage, in the 1980s, in order to alleviate the shortage of education funds, the state proposed to fully mobilize social forces to raise funds for running schools. At that time, the policy basically focused on social fund-raising and financing, and did not explicitly propose the construction of a legal system for social forces running school. The second stage, from the 1990s to 2002, marked the orderly development of private education. The appeal of “reasonable return” was incorporated into the legal system. The third stage, after the promulgation of the Private Education Promotion Law in 2002 to 2013, the policy focus is on "equal status" and "financial support". The fourth stage, in November 2016, the second review of the Private Education Promotion Law by the State Council began. Private education development has entered a new stage of history. Then in December, documents such as the “Registration Rules” and “Regulatory Rules” of various ministries and commissions have been issued to provide legal guarantee for the legality of private education. In September 2017, the new Private Education Promotion Law was officially implemented, and the policy orientation was to classify private schools and regulate separately. The founders of private schools may choose to set up non-profit or for-profit private schools, but schools in compulsory education must be non-profit. The founders of for-profit private schools have the right to retain school profits, and can allocate operating income balances in accordance with Chinese company law and other relevant laws and regulations. The founders of non-profit private schools are not entitled to any profits and income from the non-profit schools in which they
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operate, and the full operating balance of the school must be used for school operations. Generally speaking, the keynote of the policy construction of private education legal system is to "prioritize the development of education" while "supporting and standardizing social forces to set up education". The direction of policy formulation is "support" and "standardize". Concerning the specific implementation level of the Private Education Promotion Law, since the revision of the Private Education Promotion Law in 2016, the implementation rules have not been issued until August 10, 2018, the Ministry of Justice issued the Implementation Regulations (draft for review). The draft for review has made major clarifications in several aspects, and has a profound impact on the entire operation of the private education schools. First of all, it is stipulated that “the group-based education entities shall not control non-profit private schools through mergers and acquisitions, franchise chain, and agreement control.” This clause cuts off the channels for non-profit private schools to transfer profits to for-profit institutions. It is foreseeable that in the future, private education institutions will carry out more related businesses in the form of new for-profit educational institutions. Secondly, it is stipulated that “foreign-invested enterprises established in China and social organizations with foreign parties as actual controllers shall not hold, participate in or actually control private schools that implement compulsory education”. This clause further clarifies that foreign capital may not establish a school at the compulsory education stage. Finally, it is stipulated that “the supervision over signing agreements between non-profit private schools and stakeholder parties shall be strengthened. For agreements involving major interests or long-term and repeated execution, the necessity, legitimacy and compliance shall be reviewed and audited.” This clause requires the relevant education authorities to strengthen the supervision of the related transactions of private schools, which constitutes a restriction and impact on the current common practice of the VIE structure in the industry.
Chart 1.1 Summary of China's private education related policies Year Department Theme Key content 1985 Ministry of The Decision of the Central The first major document on education reform since the reform and opening up. It is Education Committee of the Communist pointed out that it is necessary to mobilize the enthusiasm of all levels of government, Party of China on the Reform teachers and students, and all aspects of society, and adopt various forms and methods of the Education System to run schools. 1987 Ministry of Several Provisional China's first rules and regulations specifically for private education marks the Education Regulations on Running beginning of the construction of the private education system in our country. The School for Social Forces document points out encouragement and support for social forces to run schools and strengthening macro management. 1997 State Council Regulations on Running Referred to as the "97 Regulations", the document points out the principle of "active School for Social Forces encouragement, strong support, correct guidance, and strengthened management" for social organizations running school. The Regulation was abolished on September 1, 2003 and replaced by the People's Republic of China Private Education Promotion Law. 1997 State Opinions of the National It further explains and emphasizes a series of important issues involving auditing and Education Board of Education on finance in the running school for social forces. Commission Several Issues Concerning the Implementation of the (Regulations on Running School for Social Forces) 2003 Standing People's Republic of China Private schools have the same status as public schools, but private schools are not Committee of Private Education Promotion allowed to provide education in military, police, political and other special fields. the National Law Public schools that provide compulsory education may not be converted to private People's schools. The focus is on "reasonable return". Since education is a public welfare Congress undertaking, under this premise, reasonable return is a support and reward for the organizer, and it is not for profit. 2010 Working Outline of the National For the first time, private education units are divided into for-profit private education group office of Medium- and Long-Term units and non-profit private education units. the Outline of Education Reform and the National Development Plan (2010- Medium- and 2020) Long-Term Education Reform and Development Plan 2012 Ministry of Implementation Opinions of Encourages private investment and foreign investment in education field, and stipulates Education the Ministry of Education on that the proportion of foreign investment in joint venture educational institutions is Encouraging and Guiding below 50%, and the domestic party must dominate. Private Funds to Enter the Field of Education to Promote the Healthy Development of
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Private Education 2015 Standing New revision of The It is pointed out that schools and other educational institutions that are organized or Committee of Education Act participated in organizing with financial funds and donated assets may not be the National established as for-profit organizations. People's Congress 2015 Standing Higher Education Act Removed the requirement for "not for profit" Committee of the National People's Congress 2016 Standing New revision of the Private Private schools will begin to distinguish between for-profit and non-profit, and stipulate Committee of Education Promotion Law that for-profit private schools must not be held at the compulsory education stage. the National Private high schools, kindergartens and training institutions can be established as for- People's profit schools, and the founders of for-profit private schools can obtain schooling Congress profits. 2016 State Council Several Opinions on A comprehensive deployment of private education reform and development was made. Encouraging Social Forces to In the field of private education, institutional mechanisms should be innovated in a Establish Education to timely manner, including the classified registration and management system for private Promote the Healthy schools, and the support policies of different governments. The people's governments at Development of Private all levels are responsible for formulating and improving support policies for private Education schools. 2016 Five Regulations on the Classified The rules for the classified management of private schools were clarified. The departments Registration of Private establishment of a private school requires the approval of the government. After the including Schools competent government agency issues a school-running permit, it shall apply for a Ministry of registration certificate and business license in accordance with the classified Education registration requirements. 2016 Ministry of Implementation Rules for The registration, supervision and management rules for for-profit private schools are Education, Supervision and Management clarified. It can operate for-profit private universities and private colleges and other Ministry of of For-Profit Private Schools higher education institutions, but it is not allowed to operate for-profit private schools Human that provide compulsory education. Resources and Social Security, State Administration for Industry and Commerce 2016 Development Revised version of the Interim The type and amount of fees for private schools should be determined based on cost and Reform Measures for the and market demand. The fees for for-profit schools will be determined by the school Commission, Administration of Charges for itself, and the fees for non-profit schools will be supervised by the relevant local Ministry of Private Education government agencies. Education, Ministry of Labor and Social Security 2018 Ministry of Several Opinions on The classified support policies for for-profit and non-profit private schools are clearly Education Encouraging Social Forces to defined, and the general directions are given in terms of land use, taxes, fees and exits. Establish Education to Promote the Healthy Development of Private Education 2018 Ministry of Regulations on the Further distinguishes the regulatory rules for for-profit and non-profit schools Justice Implementation of the compared with the draft for opinions. People's Republic of China Private Education Promotion Law (Revised) (Draft for Review)
Policy development in education-related fields involves the field of education informatization and education publishing. First of all, education informatization is a national-level strategy. Since 2010, the state has issued a series of important policies to promote the development of educational informatization, and the industry enjoys policy dividends. From 2012 to the present, every year from February to March, the Ministry of Education issued the Key Points of Education Informatization Work as the goal and implementation orientation of the education departments and schools at all levels. Schools and education departments all over the country responded to the call and implemented policies. Since the launch of education informatization, China's education informatization has achieved remarkable results. Education informatization first experienced infrastructure construction. Subsequently, the education informatization network was fully deployed. In 2015, the school's broadband network coverage was fully realized. “Internet +” and sharing quality education resources were proposed. At current stage, China is advancing the goal of education informatization 2.0
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construction, and strives to achieve the goal of “Three Full, Two High and One Big” by 2022 (the full coverage of teaching application for all teachers, the full coverage of learning application for all school-age students, the full coverage of digital campus construction for all schools; high application level of informatization, high information literacy of teachers and students; big platform for internet + education). The education informatization construction is mainly driven by the government, and the implementation of the education informatization 2.0 action plan will bring a rich policy dividend to the education informatization segment.
Chart 1.2 Summary of education informatization related policies Time Department Theme Key content 1999 State Council Education Revitalization Education informatization was a major project approved by the State Council at that forwarded to Action Plan for the 21st time, marking China’s transition to an era of educational modernization. the Ministry of Century Education 2004 State Council Education Revitalization The education informatization construction project is listed as one of the six major Action Plan 2003-2007 projects.
2012 Ministry of Ten-Year Development Plan By 2015, the education resources and public service system with network resources as Education of Education Informatization the core will be basically established. Every school can get access to broadband (2011-2020) network; every class can get access to quality teaching resources; the network learning space will be accessible to everyone. 2012 Ministry of On the Full launch of "Full It was decided to launch and implement the “Full Coverage of Digital Education Education Coverage of Digital Resources at All Teaching Places" project. Education Resources at All Teaching Places " 2012 Ministry of The 12th Five-Year Plan for Incorporated education informatization into the national informatization development Education the Development of National strategy, and by 2015, the campus coverage rate of digital teaching will reach 50% or Education more. 2015 Ministry of Education Informatization The national education informatization development planning requirements should be Education Work Points in 2015 basically completed. The construction of online open courses should be further strengthened and a network of study space for teachers and students should be built. The goal is to have 50% of teachers and 30% of students above junior high school use online learning space. 2016 Ministry of Education Informatization To achieve 95% Internet access rate in primary and secondary schools, comprehensively Education Work Points in 2016 improve the construction and application of the "Three Links and Two Platforms", focus on promoting " the network learning space will be accessible to everyone ", and deepen the popularization of "one teacher, one excellent course; one class, one excellent teacher" activity. 2016 Ministry of The 13th Five-Year Plan for By 2020, complete the "Three Links Project" to enhance the basic support capacity of Education Education Informatization education informatization, basically realize the full coverage of broadband network and network teaching environment at all levels of schools, realize the coordinated development of public service platforms, and accelerate the exploration of the supply mode of digital education resource services. 2017 Ministry of Education Informatization Improve the construction and application of the "Three Links and Two Platforms", and Education Work Points in 2017 basically realize the full coverage of Internet in all types of schools at all levels. At the same time, the goal is to enable 90% of teachers and 60% of students from junior high school or above to open and apply online learning spaces. 2018 Ministry of Education Informatization The implementation of the following: pilot operation of broadband satellite connecting Education Work Points in 2018 school; the large educational resource sharing plan; the informatization demonstration project of “a hundred of typical areas, a thousand of benchmark schools, and 10 thousand of demonstration classes”; the network support project; and the popularization of online learning space applications; identifing the first batch of national quality online open courses. 2018 Ministry of Notice on Printing and It is recognized that the second batch of national quality online open courses should be Education Distributing the Essentials of more than 500, and the number of teachers and students' online learning spaces should Education Informatization increase by 10 million. The new cycle of teachers' information technology improvement and Cybersecurity in 2018 projects should be launched, and the second round of local education administrators' informatization training should be completed. Realize Internet access and speed up at all levels of schools. 2018 Ministry of Education Informatization It is proposed that by 2022, the development goal of “Three Full, Two High and One Education 2.0 Action Plan Big” will be basically realized, that is, the full coverage of teaching application for all teachers, the full coverage of learning application for all school-age students, the full coverage of digital campus construction for all schools; high application level of informatization, good information literacy of teachers and students; big platform for internet + education.
In addition, the textbook publishing industry has always been a monopoly of the People's Education Press. Later, due to the implementation of the textbook bidding work, the publication and distribution of textbooks
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was pushed to the market. The bidding work of the textbooks is mainly based on the Implementation Measures for the Pilot Project of Textbooks Publishing Bidding for Primary and Secondary Schools jointly issued by the General Administration of Press and Publication, the Ministry of Education and the State Planning Commission in 2001, and the Implementation Measures for the Pilot Project of Textbooks Distribution Bidding for Primary and Secondary Schools, and in 2002 The Management Regulations on Publishing of the People's Republic of China is implemented to recognize the bidding of textbooks. According to the Implementation Measures for the Pilot Project of Textbooks Publishing Bidding for Primary and Secondary Schools, the publishers who respond to the bidding and participate in the bidding must have the qualifications for the publication of textbooks confirmed by the state. At present, only state-owned enterprises have the qualification for publication. The state attaches great importance to the management of the publication of teaching supplements. The main normative documents include: Administrative Measures for Teaching Supplements in Primary and Secondary Schools issued by the General Administration of Press and Publication and the Ministry of Education in 2001, which require to clean, rectify and strengthen the management of the teaching supplements market, and to reduce the burden of students' academic work. In November 2001, the supporting document Implementation Opinions on the Management Measures for Primary and Secondary School Teaching Supplements were issued. Thereafter, each year, the education administrative department rectified, cleaned and standardized the teaching supplements publishing market based on administrative measures and implementation opinions. In 2015, the State Administration of Press, Publication, Radio, Film and Television of The People’s Republic of China, the Ministry of Education, and the National Development and Reform Commission re-enacted the Administrative Measures for Teaching Supplements in Primary and Secondary Schools to further standardize publishing and distribution, protect intellectual property rights, and promote standardized operations. Since 2017, it has been further cleaned up and rectified. Especially for the market- based teaching supplements, it is strictly forbidden for schools to subscribe to, teachers to recommend purchase, and institutions to promote in schools. The previous market sales channels and ecology have been broken.
Section 3 Overview of Foreign Education Development Globally, the leading and representative areas of education development are mainly Europe, the United States and Japan. Europe Europe is a region where the modern practical science and industrial and commercial development is earlier in the world. There are many countries with comprehensive education development, including Britain, Germany and France. The historical development of modern education in European countries has all experienced the process of promoting education fairness, improving teaching quality, improving curriculum content, and strengthening education supervision. According to EU data, the average level of education expenditures in the EU countries is about 5% of GDP. Education funds are not only used in public schools, but also in the development of private education, such as the establishment of school supervision and evaluation systems with administrative grants, and the issuance of research funding. In addition, educational institutions can receive donations, charitable grants, and research funding from companies in addition to tuition fees (training fees), book fees (content fees), and accommodation costs (service charges). In terms of the scale of private education, according to the 2016 report of Ernst & Young's Parthenon Consulting, the private education market value in Europe is about 160 billion US dollars, of which the United Kingdom and Germany account for more than 50%, followed by Russia and France. Due to the high starting point, the overall growth rate of the education market in Europe is relatively low; the development opportunities of the market segments include: the need for specialized technology and new skills training, the improvement of public education efficiency, the continuous penetration of educational technology, The demand for online/distance education and the trend of expansion into emerging markets. There are many EU countries, among which the development of the education industry in the UK is relatively advanced and mature. The following is an example of the UK education system and its schooling education market. The education management department of the United Kingdom is the Ministry of Education under the leadership of the Parliament and the relevant departments of the local council. At the level of the Ministry of Education, appropriate laws and policy guidelines are issued for the education of all stages and the
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implementation of vocational and technical training. Meanwhile, it provides a unified national education resource information platform, education supervision and evaluation. In terms of policy details, there are differences between England, Scotland, Wales and Northern Ireland. The relevant departments of the local council are responsible for the handling and management of specific affairs. The UK's Education Standards System (Ofsted), funded by the UK National Government, monitors and evaluates the quality of running schools and regularly evaluates the scores. The school's ratings include excellent, good, qualified and unqualified. The focus of attention is on “unqualified” schools, while the accurate ratings of excellent schools tend to be ignored. Pre-school education in the UK mainly refers to the care and education of children aged 2 to 5 years old. The main place of education is the kindergarten, and it can also be taken care of directly by a registered caregiver. In general, the proportion of private education in the kindergarten stage is higher, and the tuition is relatively expensive, usually around £2,000 a month. Even public kindergartens run by local governments are charged at the normal cost level. Ordinary families can apply for some free policies for public kindergartens. For example, in England, all children aged 3 to 4 can have 570 hours per year free pre-school education (38 weeks*15 hours per week). Children between the ages of 5 and 16 in the UK receive free compulsory education for a total of 11 years. The school system is divided into two stages: primary school and secondary school. Among them, the primary school takes 6 years. The English, mathematics and science examinations are passed at the end of the 6th grade. The secondary school takes 5 years. Usually all the GCSE courses are completed in the 4th to 5th years of the secondary school, and the "General Certificate of Secondary Education" is obtained. Education for young people aged between 16 and 19 is usually provided by the Further Education Colleges organized by the local government. Some of the students will apply for admission to the university to receive higher education after completing the 2-year GCE A-Level course and obtaining the “General Certificate of Education Advanced Level”. There are also a number of students who continue to study the skills required for employment in the Further Education Colleges. Participation in further education can also be free or subsidized via proper application. In addition to public free schools, there are private schools (also known as independent schools) in the compulsory and further education stages. The famous Eton College and Harrow School are both private schools. Private schools are usually boarding schools, and there is no need to adopt a national curriculum system, and they are managed with high autonomy. However, all private schools must be registered with the government and regularly inspected. According to the British "The Good School Guide" quoted by Wikipedia, 9% of students in the UK choose private paying schools in the GCSE stage, and 13% of students in the A- Level stage. The annual tuition fee ranges from £3,000 to £27,000. In general, the penetration rate of private schools in primary, secondary and further education in the UK is not high. Well-known private schools in the UK also expand through overseas branch schools or sister schools. For example, Dulwich College, Wellington College have opened schools in China for foreign children. British schools that actively explore the Chinese market also include Harrow School and Wycombe Abbey International School, etc. It is not clear whether the UK's higher education institution, the university, is public or private. The earliest Oxford and Cambridge universities were research communities initiated by scholars. Later urban universities and technical universities, regardless of whether the organizer is a local government or a company, an individual, or a group, were highly autonomous in terms of governance and not subject to government control. In terms of legal subjects, most of them were chartered corporation who obtained a royal license. A small part of them were non-profit corporate legal entity. In terms of sources of funds for running schools, almost all universities accept funding from the UK Higher Education Funding Committee, and also receive government research funding. The tuition fees are also market-oriented. Therefore, the public or private attribute is not clear. The more representative British universities are members of the Russell Group, known as the English Ivy League. There are 24 universities, accounting for 15% of the total number of universities in the UK, but their quality indicators are much higher than the average. The most notable indicators include research funding. The research funds from the UK government, the European Union, enterprises and other organizations for the 24 universities accounted for 70% of the total. The average teacher-student ratio in the group was 1:7, much higher than the teacher-student ratio of 1:14 outside the group. There are no for-profit universities or listed companies engaging in running universities in the UK.
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In recent years, the EU region has faced a series of social and economic problems such as an aging population, slow economic growth, rising unemployment, and immigration growth. Education, especially vocational education and training that meets the needs of new technologies, new markets, and new environmental needs, is one of the core elements of solving problems. In 2010, the European Union introduced The Europe 2020 Strategy, placing education in a critical position, with special emphasis on education, training and lifelong learning. According to The EU 2020 Strategy, education is the cornerstone for promoting smart growth, sustainable growth and inclusive growth. The aim is to promote innovation through education, promote growth through innovation, promote employment through growth, and ultimately achieve social progress and upgrade of overall welfare of citizens. In terms of specific strategic objectives, vocational education and training are the first. Forecasts show that in the next 10 years, the demand for high-skilled labor is huge. Whether it is graduates, unemployed or employed people, they must adhere to lifelong learning and master new skills. The focus of EU's vocational education development is mainly in the following four aspects. First, in terms of skills development, both general skills and professional skills are highlighted. First of all, the horizontal general skills training is valued because, with the influence of the knowledge economy, the market's demand for workers with more skills is increased and also conducive to workers preparing for a unstable and unpredictable career. Secondly, importance is attached to the cultivation of professional skills, and is committed to developing a world-class vocational education system and carrying out higher levels of cooperation at the European level. Second, in terms of the promotion of mobility, a flexible and open vocational education system is to be built. The main focus is on solving the problem of the recognition of the professional qualifications and learning outcomes of migrants in Europe in different countries, including the establishment of a unified European Qualification Framework (EQF) and the promotion and establishment of the European Vocational Education Credit Transfer System within the EU, issuing European passes, etc. Third, education and training institutions, enterprises and potential employees are in cooperation, strengthening the links in the labor market. Specific measures include: conducting career qualification forecast, helping education and training institutions to quickly identify demand orientation, adjusting teaching content and methods, ensuring the effectiveness of vocational education, strengthening the matching of training and employment needs; promoting apprenticeship and implementing the incentive plan of vocational training by providing the government subsidies, reduces the cost of vocational training for apprentices. Specific subsidies can be direct payment or the issuance of training loans. Fourth, educational resources are optimized. Specifically, it includes: recruiting high-quality faculty and paying attention to long-term teacher training; using information and communication technology to develop training, through online distance education, greatly improving the efficiency and flexibility of learning, economizing resource of teachers; increasing investment in education funds, and subsidizing the expenditure on vocational training and education in member countries through EU funds. European educational start-up enterprises are mainly concentrated in the field of educational technology. According to a joint report released by EdTech X Global and IBIS Capital in 2016, the global education market totals more than $5 trillion. The already digitized component accounts for only 2%, that is, $100 billion, mainly because there are too many stakeholders in the education industry that need to be persuaded in digital transformation, including teachers, educational institutions, government departments, communities, and so on. The report also predicts that the market size of educational technology will reach $252 billion by 2020, with an average compound annual growth rate of 23%.
United States American education is mainly provided by the government and is controlled and funded by three levels of government: the federal government, the state government, and local governments (school districts). In primary and secondary schools, curriculum, funding, teaching, and other policies are determined by locally elected district committees, and education standards and tests are usually developed by the state government. Overall, the US public school education budget is dominated by state investment, and the federal government is only responsible for a small portion. U.S. public schools use the K12 compulsory education system from kindergarten to high school. According to the National Bureau of Education Statistics, 88% of students participate in public schools, 9% participate in private schools, and about 3% of students study at home. There are 50 states in the United States,
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about 14,000 school districts. In 2010, there were about 133,000 public, private, charter and Catholic primary and secondary schools. There are nearly 99,000 public schools, and about 30,000 private schools. The total number of registered students is about 55 million, and the number of teachers is 3.82 million. The ratio of students to teachers in public primary and secondary schools is 15.7. As early as 1988 in the US presidential election, George W. Bush put forward the slogan of "educational revival" and assured the American people that he would commit to education reform to improve the quality of the school. He also described the public school as a system that has failed, and thus broke the relevant monopoly power, introduced a market competition mechanism in the field of education, and promoted the development of private schools through measures such as “charter schools, education vouchers, special training, and private education companies”. The development of the school creates differences by introducing a competitive mechanism. Over the next few decades, schools and parents are more motivated to get information from each other: parents will announce their preferred educational services and methods, and schools use resources and funds to best meet their needs. Practice has proved that competition between schools can improve school efficiency. Similar to the situation of primary education in our country, the early American public-school system has long implemented the policy of enrolling in the neighborhood, so most American students are attending schools in the district. This kind of education system lacking flexible incentive mechanism has caused problems such as low quality of education in public schools, poor management and waste of educational resources. By transferring the school to a private education management company to introduce a competitive mechanism, this semi-marketization approach was a transitional mechanism model at the time, and has played a very good role in the transition of the education market reform. The United States began its educational informatization process in the 1980s and 1990s. From the emergence of a large number of teaching software, student information system companies, to the emergence of a large number of learning management platforms, online courses and mobile APP, this revolution has been in the United States for nearly two decades. The development of these two decades can be roughly summarized into two waves of development: the wave of digital education and the wave of online education. The first wave - education digitization: In the early 1990s, with the government's education informatization, and the student-to-hardware ratio 1:1 teaching, the penetration rate of school network, electronic whiteboard and terminal hardware continued to increase; teaching software companies about student information management system, course management platforms and course software have emerged in large numbers. The report by America’s Digital Schools shows that the two digital teaching tools, electronic whiteboard and online evaluation software, are already very popular in primary and secondary schools, with a penetration rate of over 70%. Under the wave of digital education, the teaching materials, teaching process and tests of K12 in the United States have gradually become paperless and digital, and have formed big data accumulation in the practice of many years. The presentation and analysis based on teaching big data makes the teaching personalized. The second wave - online education: After 2000, the rapid development of the Internet promoted the rapid growth of online education. In 1997, the Florida Virtual School was founded and became the first virtual network school with fully online and supplementary course in the US for all K12 grades. It currently has registered students in 35 states. In 2015, 25 states in the United States owned state virtual network schools. The powerful communication capabilities of the Internet have broken the limitations of time and space, and the content of openness has been increasing. The research data of Training Magazine 2017 on the national education and training market shows that the overall market size of this field in 2017 was $93.7 billion, up 32% from the beginning of the year. In addition, from the reception of international students, the 2017 China’s Study Abroad Trend Report pointed out that according to statistics, there were 4 million international students worldwide in 2016, and the United States is the country that receives the most international students, and absorbs a quarter of international students. Among them, the number of Chinese international students in the United States reached 328,000, accounting for 31.5% of the total number of international students in the US in the year.
Japan According to 2017 School Basic Situation Survey from the Japanese Ministry of Education, Culture, Sports, Science and Technology, as of the end of 2017, there were 18,886,465 students and 56,643 schools in
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Japan. Japan's total population in 2017 is 126.8 million, and school students account for 15% of the total population. Divided according to the three categories: primary school, secondary school and other education, the number of students and schools each accounted for one-third. Among the other education category, pre- school students only account for 9.4% of the total student population, but the number of pre-schools accounts for 25% of the total. As Japan's aging population is increasing and the willingness of young people to have children is reducing, the number of pre-school students in Japan has decreased year by year. Japan's current education system follows the United States after World War II and implements the "6, 3, 3, 4" system of school education, namely, six years of primary school, three years of secondary school, three years of high school, and four years of full-time undergraduate. Each academic year is divided into 3 semesters, the first semester (April to August), the second semester (September to December), and the third semester (January to March). The pre-school stage is currently divided into kindergartens and nurseries. In 2017, the National Assembly passed a 2 trillion Yen “Birth Revolution” plan. The Japanese government plans to allow children aged 3-5 years to go to kindergartens and nurseries free of charge within three years. The primary and secondary schools are the compulsory education stage in Japan, and the compulsory education stage is free. There are three types of higher education in Japan: the first category is short-term universities and higher vocational schools, which aim to develop higher vocational education and develop practical life skills; the second category is 4-year universities, including comprehensive universities, multi-disciplinary universities and single disciplinary universities; the third category is the graduate school which aims to teach and study academic theory and applications. Japan’s education law stipulates: “National, local public bodies, and school legal entities can set up schools. National, public and private schools are subject to the approval of the national education authority and must accept the leadership and supervision of the national education authorities.” Therefore, according to the identity of the school operator, it can be divided into national, public and private. A national school is a school operated or established by a national government. A public school is a school operated by local government. A private school is a school created and operated by private capital. National and public school funding is mainly funded by the state, and tuition is cheaper than private schools. Private school tuition is relatively high, but school equipment is superior. In terms of quantity distribution, in the primary and secondary education stage, that is, the compulsory education stage, the public schools dominated by local governments are the most common. State-led national education is mainly concentrated in the higher education stage and accounts for about 12%, compared with only about 0.5% in other education stages. Private education institutions invest mainly in pre-school education and higher education, accounting for 70% in pre-school education, 80% in higher education, and up to 95% especially in specialized schools. According to the Yano Economic Research Institute, the size of the education and training market in Japan in 2015 was about $25 billion (about RMB 170 billion). The education and training industry can be subdivided into school admission counseling institutions, English training, professional qualification training and certification exams, cultural centers, corporate-oriented training services, e-learning (online learning), and distance education. Among them, school admission counseling institutions accounted for 36% of the entire market, and English training accounted for 13%. The laws and regulations of Japan's education are complete, from the basic law of education to the bills of each education stage, from the construction of schools to the management of off-campus training institutions, from the management of the teacher system to the protection of student learning, all aspects of education, there are corresponding laws and regulations to provide. Japan has diversified education levels. The national, public and private schools have their own functions, and there are a certain proportion of special support schools taking care of the diversity of students in special groups. Under the premise of meeting basic education, they can meet the educational needs of different levels and realize the diversification of education. Japan's education informatization and programming education have become major trends. The new study guideline that Japan has fully implemented since 2020, Learning Guidance Essentials clearly states: In the primary school stage, programming will become a compulsory course.
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Chapter II Status of China's Education Market Segments Section 1 Education Industry Chain According to the public statistics of the Ministry of Education, the number of students enrolled in the national diploma education in 2017 totaled 269 million, including 217 million in public education and about 52 million in private education. Among them, the private education accounted for the largest proportion in the pre-school period, reaching 56% in 2017, and the lowest proportion of private education in primary schools, only about 8%; the proportion of private education in secondary schools and universities was 13% and 19% respectively. Compared with the data in 2012, the number of students enrolled in the national diploma education in 2012 was 260 million, of which 221 million were in public education and 39 million were in private education. In the past five years, the total number of students in diploma education has remained stable and has not changed much. However, the total number of students in private schools has increased by more than 30%, and the compound annual growth rate of students in schools has exceeded 5%, which is significantly higher than the growth rate of overall students. In 2017, the proportion of private education in all stages was higher than that in 2012.
Chart 2.1: Comparison of enrollment in various types of schools in China 2017 2012
Junior Junior (10,000 Primary High Univer- Primary High Univer- Preschool high Preschool high people) school school sity school school sity school school Public 2,028 9,280 3,864 2,072 2,125 1,833 9,098 4,312 2,232 1,858 (regular)
Private 2,572 814 578 306 628 1,853 598 451 235 533 (regular) Public (occupation 1,395 951 1,873 912
al) Private (occupation 197 74 241 22
al)
Total 4,600 10,094 4,442 3,971 3,779 3,686 9,696 4,763 4,581 3,325
Admission 80% 100% 104% 88% 46% 65% 100% 102% 85% 30% rate
Public 44% 92% 87% 87% 81% 50% 94% 91% 90% 83% proportion
Private 56% 8% 13% 13% 19% 50% 6% 9% 10% 17% proportion Source: Ministry of Education
The large number of students in school means a huge education market size and numerous educational segments. This study divides the education market into three parts: the diploma education market, which mainly includes various public and private schools (kindergarten, primary school, secondary school, high school, higher education); the non-diploma education market, that is, the education and training market, including early education, discipline training and quality training in K12 stage, adult education and international education; and education-related industry markets, mainly including informatization, media and publishing. The focus of this study is on the private education market composed of various private educational institutions, in which the online and offline training in the K12 stage is further subdivided and studied.
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Chart 2.2: Market Segments of China’s Education Industry Chain
Education Industry
Diploma Education Non-Diploma Education Training (Education training) Education Industry Kindergarten Early Education Informatization
Primary, Secondary K12 Academic and High school (on/offline) Media
High Education K12 Quality (on/offline) Publishing Adult Education
International Education
Section 2 Education Market Segments – Diploma Education Kindergarten Kindergarten belongs to the non-compulsory education stage of the diploma education part, mainly providing full-time childcare and education in the spring and autumn semester for children aged 3-6. As the basis of the entire education system, in addition to providing children with initial preparatory education, kindergartens also lay the foundation for students' future development in various fields (such as language, mathematical logic, space, physical exercise, music, interpersonal, etc.). Fairness is the basic feature and general trend of the development of early childhood education in the world. The Mid-term evaluation report of the National Medium- and Long-Term Education Reform and Development Plan Outlines proposed that “Double 50% or more” (i.e. the number of public kindergartens is more than 50% and the number of children enrolled in public kindergartens is more than 50%) will be the assessment indicators of the construction of non-profit inclusive pre-school education system. The local governments also issued policies to support the development of public kindergartens and increase the proportion of the inclusive kindergartens. The construction goal of “Double 50% or more” will reduce the living space of ordinary private kindergartens. From 2012, the growth rate of private kindergartens began to decline. Relatively speaking, public kindergartens are more inclusive, which means that the goal of early childhood education is to guarantee the bottom rather than to optimize the top: the educational nature of the kindergarten stage is about general knowledge and foundation, rather than maintaining some high-end kindergartens. At present, the number of private kindergartens is relatively large, accounting for nearly 2/3. The revision of the Private Education Promotion Law confirms the ownership of private school assets, and the classified management of for-profit and non-profit non-compulsory education such as preschool education. In November 2018, Several Opinions on Deepening Reform and Normalizing Development of Pre-school Education declared the state's determination to standardize the preschool industry, and raised “Do a good job in preschool education and realize early childhood care and education” to the level of “Major decision”, “Important livelihood projects”, “Related to social harmony and stability” and “Related to the future of the party and the country”. It put emphasis on the public welfare of pre-school education, completely cut off the acquisition, franchise, VIE listing path of non-profit kindergarten; for-profit kindergartens can be merged, franchised and chain managed, but will receive strict supervision, and in principle, should obtain the qualification of provincial demonstration kindergartens. In the long run, it seems to help improve the quality of the chain kindergartens. Moreover, private kindergartens are not allowed to be packaged separately or as part of assets to be listed. Listed companies may not invest in for-profit kindergartens through stock market financing, and may
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not purchase for-profit kindergarten assets by issuing shares or paying cash. The possibility of listing private kindergartens has been completely cut off. Currently, non-profit kindergartens in the listed company system may need to be converted into for-profit kindergartens as soon as possible. According to the data of the Education Bureau, the gross enrollment rate of preschool education in China has been increasing year by year. In the Opinions on Implementing the Third Three-Year Plan for Pre-school Education released by Ministry of Education, the National Development and Reform Commission, and the Ministry of Finance, the goal that the gross enrollment rate of pre-school education in the country will increase to 85% in 2020 was proposed. In the next 10 years, the number of kindergarten students will increase by 14 million. In 2020, the pre-school education penetration rate will reach 85%, and the number of students in the kindergartens will reach 50 million. According to the statistics of Frost & Sullivan, the size of the private kindergarten market reached 147 billion CNY in 2016. Take the RYB Education with large income as an example, the income of its directly-managed kindergartens in 2016 was 543 million CNY, market share is less than 1%; China's top five private kindergartens accounted for only 1.3% of the total market revenue in 2016, and the industry's current concentration is very low. In 2016, the enrollment in private kindergartens in China reached 24.4 million, and the enrollment rate was 75.1%. With the increase in kindergarten enrollment and the increase in student enrollment and penetration rates, the kindergarten market is also expected to grow substantially, with market size expected to reach 300 billion in 2021. According to the Ministry of Education's 2017 National Statistical Report on Education Development, there are 255,000 kindergartens nationwide, an increase of 1.51 million over the previous year, an increase of 6.31%. The number of children enrolled in pre-school education was 19,739,500, an increase of 158,700 over the previous year, an increase of 0.83%; the number of children in the kindergartens was 46,001,400, an increase of 1,862,800 over the previous year, an increase of 4.22%. The number of kindergarten teachers and staff was 4,129,900, an increase of 375,500 over the previous year, an increase of 9.82%; the number of full- time teachers was 2,432,100, an increase of 20.01 million over the previous year, an increase of 8.96%. Among them, there were 160,400 private kindergartens, an increase of 6,169 over the previous year, an increase of 4.00%; the number of children entering the kindergartens was 9,993,200, an increase of 342,400 over the previous year, an increase of 3.55%; the number of children in the kindergartens was 25,723,400 million, an increase of 1,346,800 over the previous year, an increase of 5.53%. The number of private kindergartens accounted for 62.9% of the total kindergartens, and the children in private kindergartens accounted for 55.92% of the total children in the park, all of which exceeded half. It can be seen that private kindergartens have become an important supply in the kindergarten industry. Young children are the hope of the family future. Under the impetus of the transformation of educational concepts and consumption upgrades, private kindergartens, especially high-end kindergartens, are admired. “post-80’s generation” and “post-90’s generation” have become the majority of parents of kindergarten students, and they are more acceptable to private schools. These parents have a higher level of education and a stable income. The proportion of investment in children's education has increased, and the demand has also shifted from general “nurse and care” and “game and entertainment” to more systematic and professional “quality education”. At the same time, due to the release of the two-child policy, under such a trend, the future demand of middle and high-end kindergartens will increase. At present, most middle and high-end kindergartens are distributed in first- and second-tier cities, and will then extend to third- and fourth-tier cities. According to the statistics of some brand chain kindergartens, the kindergarten gross profit level is about 50%~60%, and the net profit level is about 30%~40%. The chain kindergarten’s payback period is generally less than 12 months, with the features of stable cash flow and higher profit level. The top five private kindergarten brands with the largest number of kindergartens are shown in the following table:
Chart 2.3: Representative kindergarten brands in China Name Establish- Tuition (CNY) Number of Kindergarten Operating ment Time Mode 3200 CNY/month in There are 6 chain kindergartens, 1349 Beijing, 700-1600 Hoing brand franchise kindergartens (including Direct & 1998 CNY/month in Kingdergarten 475 flagship kindergartens), and 3,039 Franchise second and third tier Hoing & Yojo Kindergartens. cities
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60 direct kindergartens, more than 1,000 Direct & BY Kindergarten 1998 1200 CNY/month franchised kindergartens Franchise Dadi 3200-4500 CNY / Direct & 1985 620 franchise kindergartens Kindergarten month Franchise Da Feng Che 600-1600 CNY / Direct & 2001 More than 600 Kindergarten month Franchise RYB 1300-3800 CNY / 1,300 parent-child gardens and nearly Direct & 1998 kindergarten month 500 kindergartens Franchise
Primary, Secondary and High school According to the announcement on the implementation of education funds issued by the Ministry of Education, the per capita expenditure of education for primary schools, secondary schools and high schools in 2017 is 10,199 CNY, 14,641 CNY and 13,769 CNY respectively. If it is assumed that the per capita expenditure of private schools is roughly equal to the average level of public schools, and the expenditure is roughly equal to the tuition and miscellaneous fees, according to this data, the number of students in the school is estimated to be 210 billion CNY in 2017. The private diploma education in the primary, secondary and high school stage has a high entry barrier, a strong regional development, and low market concentration. As it takes time to obtain permission, build campus, accumulate student resources, and establish word-of-mouth, it takes at least 5 to 8 years for each school from preparation to enrolling students and reaching revenue expectations. Therefore, the organizers of private schools usually have relatively strong strengths, and they rarely obtain equity financing in the primary market in the early stage of development. From 2016 to 2018, a number of private schools operating primary, secondary and high schools were listed overseas. These schools were mostly established in the late 1990s and early 2000s, and basically did not receive equity investment from professional investment institutions. The private schools in the primary, secondary and high school stage have a high starting point. Not only do they need a lot of money to invest in campus construction, teacher recruitment, but also enrollment is a gradual process. Taking primary schools as an example, it takes at least 6 years from the completion of the campus building to the enrollment of students. Word of mouth and brand building take time to accumulate. Therefore, the vast majority of private schools need to introduce resources for public education or overseas education at the beginning, including brands, teachers, operations, etc. It is more difficult to rely solely on themselves for development. In addition, some private schools are organized by state-owned enterprises, such as Shanghai Privately-run Zhangjiang Group School, which is hosted by Shanghai Zhangjiang (Group) Co., Ltd., which is 100% owned by Shanghai Pudong New Area State-owned Assets Supervision and Administration Commission. There are also some private enterprise groups that supplement the education industry as the main industry, and play the role of coordinated development and mutual promotion of capital, such as real estate enterprises and immigration consulting companies. The following five typical companies are selected among the listed education groups, which represent different development models in the field of primary, secondary and high school education.
Chart 2.4: Representative private schools in China (2018) Name Number of Enrollment Representative features schools Maple Leaf 77 29,991 The largest K12 international school system Education Bright Scholar 60 29,747 The education brand of the real estate company is based on Education international curriculum Virscend 21 38,498 The largest privately-run education in the Southwest is Education based on the national outline curriculum Sunlands 5 8,597 Shanghai's largest single 12-year school, offering international courses and national outline courses respectively Kaiwen 2 Unknown Taking physical education as the characteristic of running a Education school, and concurrently training in art
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In addition, international schools are also an important branch of private education. International schools are a broad name. Generally speaking, there are some overseas-certified courses in the curriculum system. The schools with students whose future progression goals are mainly applying for overseas universities can be considered as international schools. The market generally divides international schools into three categories: The first category is foreign children's school in China. Usually, at least one of the parents is a foreigner who can apply for admission. The students are almost completely studying Western courses, and taught mainly by foreign teachers. The concentration of foreign children's school market segments is relatively high, mainly because foreign mature brands open branch campuses in different cities, such as: Nord Anglia, Dulwich, Yew Chung. This market has now stabilized and the growth rate is not high. The second category is the international division of Public Schools, which is dominated by high schools. From 2005 to 2013, the international projects organized by public schools developed rapidly. In 2013, the Ministry of Education issued policies to regulate the international projects of public schools, and the development slowed down. The third category is privately- run international schools. Starting from the end of the 1990s, they usually recruit Chinese and foreign students. They are the main force for future market growth. Schools such as Maple Leaf Education and Bright Scholar Education, as mentioned above, fall into this category. In addition, there are some international schools of Sino-foreign cooperation in running schools, such as Shanghai Qibao Dwight High School. According to the data in the Industrial Analysis Report of Private International Schools, there were 734 international schools in 2017, including 367 private international schools, accounting for 50% of the total, 126 foreign children's schools and 241 international divisions of public schools. The schools are mainly concentrated in first-tier cities and economically developed provinces. The number of schools in Guangdong, Shanghai and Beijing is close to half of the total. The total market is currently around 30 billion CNY. The number of students in school is 480,000, compared with only 190,000 in 2011, with an average annual compound growth rate of 16%. According to the operating characteristics of the school, private international schools can be further divided into two categories. One is 12-year schools similar to the British public school (private school). It teaches internationally certified courses from the beginning of primary school, and the proportion of foreign teachers is high. The tuition fees are also high. Such schools usually do not teach the national outline courses in the basic education stage of China in the high school stage, but introduce the international courses more completely. After graduation, they directly apply to overseas universities, no longer obtain domestic high school diplomas, and do not participate in the college entrance examination; The other is dual private schools. In the primary school, the secondary school is still based on the national outline curriculum. It joins the Chinese-Western integration curriculum. In the high school stage, it partly introduces the international curriculum. Upon graduation, you can obtain a domestic high school diploma. You can choose to participate in the national college entrance examination or apply to an overseas university. In recent years, the main growth in this market has been concentrated in private boarding schools like the UK private schools which recruit Chinese and foreign students, as well as dual-track high schools that have introduced the international curriculum system.
Higher education China's private higher education industry can be divided into three categories: private regular undergraduate, private junior college and independent college. Independent colleges offer undergraduate programs run by non-government agencies or individuals through partnerships with public universities. According to the list of national higher education institutions issued by the Ministry of Education in 2018, as of May 31, 2017, there were 2,914 colleges and universities nationwide, and there were 735 private colleges and universities with national qualifications, including 416 undergraduates, accounting for 56.6%. Although the birth rate in China has declined in recent years, from 2011 to 2017, the number of enrolled students in higher education institutions has increased from 24.7 million to 29.6 million, a compound annual growth rate of 3%. According to the statistics of Frost & Sullivan report, in the same period, the total number of enrolled students in private colleges increased from 5.1 million to 6.8 million, with a compound growth rate of about 5%. According to the State Council's Medium and Long-term Youth Development Plan (2016-2025), by 2025, the gross enrollment rate of higher education will reach 50%. Due to the limited capacity of public universities, the future growth rate of higher education enrollment may need to be achieved through the growth of private higher education.
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From 2008 to 2017, according to the data from National Bureau of Statistics of China and the UN, China's urban per capita disposable income rose from 15,800 CNY to 36,400 CNY, maintaining a growth rate of 10% per year. The urbanization rate rose from 47% in 2008 to 59% and is expected to reach 60% in 2020. After the increase in household income and wealth in China, the importance of education has been increasing. Higher education can largely determine the future employment and long-term career of graduates. Therefore, the superposition of these factors has made Chinese families have strong willing to consume higher education, but they are not sensitive to price. The number of students enrolled in the university is allocated by the Ministry of Education. With the liberalization of universal two-child policy in 2016, the gap between the limited resources of education resources and the growth of demand for higher education will also be one of the foundations for the development of private education. The lack of investment in higher education and the poor development of private higher education in China are also important reasons for the emergence and development of private higher education. According to statistics, in 2016, China’s fiscal education funds were 3888.8 billion CNY, Only 5.23% of the gross national product (GNP) of the year. And only about 25% of this 5.23% was used for higher education. A considerable part of the education funds is concentrated in key national universities such as 985 and 211. This shows that the investment in higher education in China is seriously inadequate, and it is difficult to rely on public universities to make the historical responsibility of higher education popularization. In the past 20 years, with the expansion of universities enrollment, the admission rate of higher education has indeed increased (59% in 2000 and 74.5% in 2017). However, the candidates’ admission rate of 985 and 211 universities in the college entrance examination is only 3%. As of May 31, 2017, there were 2,914 colleges and universities nationwide. There are 39 colleges and universities in 985 in 2018, accounting for 1.34%, and 112 colleges and universities in 211, accounting for 3.84%. Excellent research universities are still scarce resources. Relatively speaking, the private higher education has increased in diversity and can develop to the direction of applied university. For example, many private higher education focusing on vocational training are actively expanding their influence and enhancing their specialization. At the same time, the rapid increase in demand for talents with application skills in many industries helps to promote the demand for private higher education. The Guiding Opinions on Guiding the Transformation of Some Local Undergraduate Universities to Applied Types issued by the Ministry of Education, the National Development and Reform Commission and the Ministry of Finance in 2015 encourage integrated education, practical application and school-enterprise cooperation. The government may also further increase its support for the development of vocational private institutions. The concentration of private higher education is low at this stage, and certain industry integration can be foreseen in the future. By the end of 2017, according to the number of students in the study, the top three private higher education groups are North Education Group, Hope Education Group and China Education Group, with a total market share of about 5%. Other listed higher education institutions include Minsheng Education, New Higher Education, Xinhua Education, Huali College, and 21st Century Education. According to the observations of Hong Kong-listed higher education groups, it can be found that Chinese private higher education has the characteristics of high profit margin and low return on net assets. Due to the low teacher- student ratio, the net profit margin of private higher education ranges from 45% to 65%, which is significantly higher than other types of private education (15%~30% in kindergartens and 20%~40% in primary, secondary and high schools). However, due to its large amount of fixed assets, the financial leverage ratio is generally low, and the return on net assets is only in the range of 10% to 20%.
Section 3 Education Market Segments – Education Training Early education The generalized early education refers to infant education from 0 to 6 years old, from birth to primary school. Because the education of infants and children aged 3-6 years is generally undertaken by kindergartens, the narrow early education refers to the education of infants and young children aged 0~3 years old. Early education is mainly to allow children to achieve coordinated development and growth in many aspects from the game and interaction with parents. Early education originated in Europe and the United States in the 1960s. China's early education industry started late and can be divided into the following three stages: the first stage (1998-2002): China's first early education center was established in Beijing in 1998 to train children's fine movements, and there is no
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integration of family education. The second stage (2003-2010): Under the guidance of policies and regulations and the support of the Women's Federation, there was a boom of parent-child parks in the first-tier city kindergartens, and a large number of commercial parent-child parks have emerged, although the number is numerous but the quality is mixed. In 2003, “SARS” made the domestic early education enterprises reshuffle, and the entry of domestic and foreign capital accelerated the development of early education institutions. The third stage (2010 to present): The attention from the market on the early education promotes the standardization of early education industry. The initial effect of corporate brand scale development emerges and the expansion of well-known early education brands accelerates. At present, the development of the early education industry has become healthier than the previous stage. The practitioners have presented a pattern in which local brands and international brands coexist, and large chain institutions and small and micro regional brands coexist. According to the statistics of the 2018 China Early Education Blue Book, the output value of the entire industry was more than 120 billion CNY in 2016. In 2017, the industry output value was190 billion CNY. The consumption level of Chinese parents for early education is on the rise as the child grows older. Among them, the expenditure of 500~1000 CNY/month on early education accounts for the highest proportion, reaching 41.3%. Early education can be divided into two categories according to the industry chain: the first category is the upstream content supply and software and hardware equipment providers, providing learning materials, teaching aids, sports materials, system design, etc. for early education institutions. The second category is the early education institution in the main part of the industry: a service organization that provides early education training guidance and assistance to parents or family members of infants and young children. According to the content classification provided by the early education institutions, it can be divided into: early education center and nursery institution. The emerging sector of the early education institution is an institution that provides services directly in the form of an online platform. It provides early education services directly to school-age children and parents through online forms such as e-commerce, forums, and apps. With the development of early education institutions in China, industry problems have become more prominent. The first is the lack of relevant laws, the industry has no unified standards, and the regulatory responsibilities are not clear. The current relevant laws and regulations in China mainly stipulate the kindergarten education in pre-school education. Early education institutions have a problem of high-priced fees and frequent moral hazard incidents. Secondly, the distribution of early education resources is uneven. At present, there are about 11,000 early education center outlets in the country. There are 1,768 teaching outlets in the first-tier cities, accounting for 13% of the total, while the birth population in first-tier cities in 2016 only accounted for 5% of the national birth population. The number of outlets in the early education center is much higher than the national average and the education resources are abundant. In the future, with the popularization of the concept of early education and the upgrading of the consumption of the second, third and fourth tier cities, the early education industry has a broad space for development in non-first-tier cities, and the problem of resource imbalance will be improved. The development of the early education center has different business models, typically with three models. The first is the model represented by RYB Education. The RYB Education with the main product lines of the parent-child park and the kindergarten forms the effective interaction and synergy effect of teachers, teaching materials and customers. It is a minority in the early education market which has the full value chain. However, the expansion of RYB Education by franchise stores lacks effective quality control and poses a potential threat to the brand image. The second is the model represented by Combaby, Oriental Baby Care. By developing early education products and enriching the industrial chain, Oriental Baby Care also launched self- employment services such as maternal and child products agents, books and VCD sales. Target customers not only include infants and young children, but also young parents. It provides family-centered early education services. The third is the international model represented by Gymboree and My Gym. The teaching methods and courses are American-style. The international curriculum is used to focus on international high-end education. At the same time, the price is relatively high.
K12 academic training - offline The off-campus education in the K12 stage is a supplement to the school's education. The “off-campus” does not have geographical significance here, but refers to the training services funded by the student family
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outside the formal courses offered by full-time primary and secondary schools. Students can be trained on campus or off campus. Meanwhile, the off-campus training can be divided into two categories according to the training content: subject tutoring for on-campus study and examination, and the courses which do not directly correspond to the on-campus course with the purpose of promoting the development of students' special interests and comprehensive quality, including scientific creation, art, sports and other aspects. The rapid development of off-campus education in the past 20 years has not only attracted more and more attention, but also brought some criticisms: 1) It has brought a heavy economic burden to the family. According to the data of China Education New Development Report (2017) Published by the China Education and Finance Research Institute of Peking University and the Social Science Literature Publishing House in Beijing, the overall participation rate of off-campus training for students in primary and secondary schools is 48.3%, and the average expenditure of students is about 5,616 CNY/year; 2) It further increases the student's academic burden; 3) It has an impact on the teaching order of full-time schools. According to the 2016 National Statistical Report on Education Development, there are 181.7 million students in primary school to high school in China. According to the above participation rate and per capita expenditure, the overall market scale of off-campus training is nearly 500 billion CNY, including the subject-based off-campus training with the market scale of 360 billion CNY and the interest-based off-campus training with the market scale of 140 billion CNY. In the context of extremely uneven regional educational resources, key schools have set many standards to select students. In the face of difficult screening criteria, a large number of families have increasingly demanded their children, which further broadens the content and boundaries of off-campus training. In the early years, extracurricular tutoring was mostly focused on supplements to school teaching. In terms of teaching content and progress, it often serve as the assistant and follower of school teaching. The training content provided was mainly for full-time school courses such as language, mathematics, foreign languages, physics, chemistry, biology, history, geography, politics, etc. involving courses for entrance exams. Nowadays, the content of extracurricular training is gradually transformed into extension. It aims to improve students' knowledge and ability on the basis of the existing coursework, mainly for various official or folk academic competitions, and part of it for foreign exams. In the 12-year compulsory education stage, the overall participation rates of all off-campus training are almost quite stable and close, which has remained at around 50%. If the off-campus training is divided into two dimensions: academic training and quality training, the out-of-school training in the quality training class at the primary school level is significantly higher than that in the secondary school and high school, both in terms of participation rate and per student expenditure. In addition, the off-campus subject tutoring of students from different regions is relatively close in terms of participation rate. Second- to fourth- tier cities are slightly higher than first-tier cities, but the per capita expenditure is much lower than that of first-tier cities. As the gap between the rich and the poor narrows, relatively underdeveloped regions will have relatively strong growth potential.
K12 quality training - offline In recent years, the training of interest and other quality development is becoming an increasingly important part of the off-campus training industry. However, compared with the average participation rate of 37.8% of the national off-campus academic training, the national average participation rate of quality development is only 21.7%. At the same time, the urban-rural difference in the participation rate of quality training (Urban areas are more than 5 times that of rural areas) is much higher than that of off-campus academic training (the urban areas are about 2 times that of rural areas). As far as the urban scope is concerned, there are also large differences between different types of cities, and as the age of students increases, the participation rate of quality training and the per capita expenditure are gradually reduced, which is contrary to the changing trend in the off-campus training in the subject category. In terms of assisting in school application, the motivational needs of off-campus interest development training are consistent with the causes of disciplinary education, but in some other areas, the development of off-campus interest development training also has its own unique drivers: 1) Pursue the comprehensive development of quality education “Quality Education” was first proposed in the 1980s and was written into the national major education reform document in 1999. This concept has been deeply rooted in the hearts of the people. The expectation of
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parents who are born in the 1980s has expanded from simple subject test scores to comprehensive quality education development. Traditional items include Music, Chess, Calligraphy and Painting. With the improvement of material conditions, minority subjects such as ice hockey, fencing, golf, and ice skating have gradually entered the public's choice. At this stage, schools are still quite lacking in cultivating children's comprehensive quality and promoting all-round development. Therefore, it is normal to actively seek out- school quality development training. 2) Improve health and enhance physical fitness “Physical health is in the first place”, and similar views are being recognized by the general public. Research data shows that the number of weekly sports of students at school is less than half of 30 years ago. The State Council issued in 2016 The Opinions on Strengthening School Physical Education to Promote the Comprehensive Development of Students' Physical and Mental Health. It requires that the development of physical education should be vigorously promoted within the school. At the same time, the inclusion of sports scores in the high school entrance examinations also increases the overall demand for sports-based off-campus training. 3) Solve the problem of after-class childcare Today's Chinese parents face a "half past three problem"; that is, "Before half past three, it is the time for the child to study at school, and the responsibility is on the school. After half past three, it is the time for the child to live at home. The responsibility is on the parents.” Extracurricular training services can provide sports, art, science, social activities, etc., which effectively alleviate the plight of parents.
K12 Academic training - online The K12 online tutoring originated from online courses and software-based learning tools similar to the online school model. The online course uses the Internet to realize the rapid dissemination of course videos, and the software-based learning tools enhance the learning efficiency through the computer terminal platform. At present, the K12 online tutoring is undergoing two dimensional changes. On the one hand, it has changed from the traditional online recording course model similar to publication to the one-to-one and one-to-many live tutoring model. On the other hand, the mobile Internet terminal combined with AI artificial intelligence technology enables the mobile platform to provide a more efficient software learning tool. K12 academic training as a supplement to K12 diploma education, its teaching activities are mainly concentrated in the evening and weekend. Due to the limitation of geography, the students who participate in offline tutoring are tired of running between schools, coaching institutions and homes. Learning and rest time have been squeezed. Online tutoring can help students make better use of fragmented time to learn, reducing the cost of transportation and time due to geographical gaps. The K12 online tutoring from the systematic courses and special courses covered in the online courses to the one-to-one and one-to-many targeted teaching in the live classroom model; and to the exercise counseling, material reading and memorization service provided by the software-based educational tools, online education resources are more abundant and diversified. At the same time as the diversification of educational resources, the price of online tutoring services is more flexible and covers a wider range than offline. Learning efficiency is the core shortcoming of online education. The problem of educational efficiency in a non-immersive environment is one of the important issues facing online tutoring. This efficiency problem is more obvious in recording courses and large live courses with low interaction. In a non-classroom environment, students' age and grade are positively correlated with concentration and concentration time. As the grade level of the students decreases, the concentration of attention is more difficult. The parental companion can reduce the influence of distraction to a certain extent, but this is not an efficient and common solution, so the online tutoring is faced with the prominent problem of low completion rate. The emergence of one-to-one and one-to-many live courses has improved the efficiency of online education to a certain extent. The important change is the increase of interaction. The substantial improvement of teacher-student ratio can provide better targeted counseling. In the K12 field, there are certain differences in the educational syllabus and the examination syllabus. The nationalized online education platform needs to be targeted at each region's educational syllabus and examination syllabus. Targeted teaching and research can better serve the students in the region. If the scale of the online platform is small, it is difficult to carry out regionalized education services, and the competitiveness of products will be weaker than the regional offline institutions.
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K12 online teaching assistant companies can be divided into three categories. The first category is the traditional online course platform. The second category is the live tutoring platform, and the third category is the software platform tool. Online course platform The online course is the birthplace of online education, and its mode has undergone certain changes in the process of development. From the complete pre-recorded course learning at the beginning to the live course formed by the teacher with the process recorded, students can choose to participate in the live class or watch the synchronized recording course. Although the live broadcast method adds some interactivity, on the whole, it is not fundamentally different from the recorded course, and is also discussed in the online course. The advantage of the online course is the extremely low marginal cost. The cost of the platform recording course is fixed cost. As the number of platform users expands, the marginal cost is only the added cost of the server and bandwidth added for the expansion. Its essential attribute is internet publication. Its intellectual property disadvantages are as obvious as other Internet publications, and piracy issues will seriously detract from the company's profitability. Recording courses are essentially video material products. It is quite difficult to limit piracy through technical means. Controlling the spread of pirated products also requires a lot of energy from the platform, and it is difficult to completely limit its dissemination. In addition, the more high-quality, high-priced courses, because of their high popularity and high course costs, higher substitution income, the greater the risk of piracy. The above problems have led to the existence of revenue ceilings in the recording courses, and there is a large resistance to the increase in the average sales per customer and the development of the popular products. K12 academic training itself is a supplement to K12 diploma education. In addition to the purpose of advanced learning, the need for making up for the missing and insufficient is the core appeal of K12 academic training. Online course is an educational process from 0 to 1. The online course can realize the making up for the missing and insufficient by refining the learning objectives. If students have a good understanding of their own learning, online courses that refine learning objectives can maximize and efficiently meet their needs. Due to its complete teaching system and curriculum arrangement, the online course has many overlaps with K12 classroom education. Repeated learning is common and the learning efficiency is obviously constrained. Therefore, the evolutionary demand of online education is mainly to refine the learning objectives, improve the pertinence of coaching, and transform the traditional offline tutoring into an Internet-based online tutoring model. This is also the logical starting point for the rise of the Internet live tutoring model, which is to improve the pertinence and efficiency of K12 course tutoring.
Live tutoring The live tutoring platform is essentially an extension of the tutoring model on the Internet side. Specific forms include one-to-one coaching and one-to-many tutoring. Usually, the number of people in one-to-many tutoring is no more than 4-6, which is mainly to avoid the significant reduction of the targeted and interactive effects caused by the excessive number of people. The emergence and expansion of the live broadcast platform mainly relies on the development of network technology and the increase of broadband transmission rate and popularity. The advancement of technology makes HD live video and multi-dimensional interaction possible. At the same time, for the tutoring form itself, the offline model is difficult to establish a standardized and large-scale platform because of the high cost and small scope of information circulation, resulting in the lack of sharing channels and evaluation systems for tutor resources. It is this shortcoming of offline tutoring that has prompted online and O2O tutoring platforms to become explosive growth in the field of tutoring. There are significant differences between their profit model and the recording course in online live courses. For one-to-one and one-to-many products, as the number of user increases, the number of teachers also needs to increase in the same proportion, and the cost of class for hiring teachers does not decrease with the increase of class hours, which means that online live courses do not have significant economies of scale. If the live broadcast platform needs to improve its profitability, it must increase the unit class price and reduce the unit class cost. In terms of average sales per customer, the current one-to-one price is higher than one-to- many, and one-to-many is higher than the live classroom and online courses. Compared to other models, the one-to-one price increase makes it easier to touch the ceiling of the user's ability to withstand the target customer's range. In addition to the limitations of the user's psychological price, the fierce competition for customers between the platforms has made it difficult for the platform to raise prices. In terms of cost, due to
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the rapid development of the industry, the demand for lecturers has also exploded. The supply of teacher channels is obviously difficult to meet the needs of the industry for teachers, so each platform has extended two dimensions in the recruitment channel. The K12 academic training platform extends recruitment channels to campus to reduce costs by recruiting university students as lecturers, while language tutoring extends the recruiting of instructor to part-time teachers who are the speaker of the language. The above methods increase the difficulty of the consistency of services and product standardization while reducing costs and expanding teachers, making it more difficult to achieve significant differentiation between platforms competition. If it is impossible to realize scale effect and the differentiation of products and services, and competition between live broadcast platforms tends to achieve monopoly by eliminating and reducing competitors, thereby opening up the room for average sales per customer and reducing costs. In addition, the business model of the online live broadcast platform has the risk of disintermediation. Online live education is essentially O2O and has strong platform attributes. Compared with the food-delivery, online ride-sharing and other industries, education O2O has more disinterest factors. At first, it is a single, continuous service relationship. The students want the teachers who provide educational services are stable. In this case, teachers and students form a relatively stable long-term binding relationship. Secondly, there is a need for students to reduce the cost of class. If the platform has a gross margin of 30%, it means that the service can be reduced by 30% from the platform, and the teacher's income will be improved. The problem that the platform must face when developing in the next step is that after the monopoly position is reached, whether the increase in the average sales per customer will promote the rate of disintermediation.
Software platform tool The online courses and live tutoring education products all have the attributes of software. The essential difference between software platform tools and online courses is that software platform tools provide more dimensions of learning methods, no longer only limited to online courses and live tutoring this way of video teaching. At present, our common software platform tools include word memory tools, exercise tools, oral practice tools, reading and material accumulation tools. The powerful development of educational tools is due to the popularity of mobile platforms and the fact that adaptive education has become a reality because of big data and artificial intelligence technologies. Through the mapping of test knowledge points, the labeling of test questions and content, educational tools can provide students with thousands of learning programs, and effectively improve the efficiency of education. For example, when the teacher arranges homework, he treats everyone equally. However, each person has different degrees of mastery of each knowledge point. In this case, some repetitive homework content occupies the effective learning time of the students. The students can’t make targeted compensation learning for the inadequacies, and through the adaptive educational tools, the assignments arranged by the teachers will be tilted in the amount of exercises and learning objectives, making the learning time of the students more rationally allocated. There are four main types of software platform tools: The exercise tool is the most prominent sector in development in the K12 online teaching aids in recent years. The exercise tool integrates a large number of questions and answers into the database, provides the students with the exercises to practice, and finds the tools for solving the questions. At the same time, the tools are provided to the teachers to group questions, distribute exercises and test papers and assign homework. This kind of teaching aids is based on the C-end. The original purpose is to provide students with tools for solving problems. Then it gradually expands to the school and teachers of the To B end, becoming part of the education informatization. After that, the C-end is covered and promoted by mastering the B-end resources. Finally, it realizes the value by the value-added service on the C-end. Reading and material accumulation tools are very helpful for language learning. The core of the tool is grading. After completing the evaluation of the students' reading ability, they recommend and push the appropriate reading materials according to their reading ability. For non-native language reading, the translation tools are embedded in the tool to improve reading efficiency. Speaking practice tools are a sector of rapid development that is accompanied by advances in speech semantic recognition technology. It uses technology to discriminate students' pronunciation and fluency, and helps learners to train their spoken pronunciation. There are currently no depth tools of language learning in small languages.
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The word memorization tools, combined with the memory curve, provide learners with tools for word learning and review.
K12 quality training - online The quality education in the K12 field mainly includes the scientific quality field with STEM education as the main embodiment and the art interest quality field with the Music, Chess, Calligraphy and Painting as the main embodiment. K12 quality education is not included in the entrance examination system, and its demand is not as rigid as K12 academic training. It is still mainly developed based on the cultivation needs of personal interests and comprehensive competitiveness. However, in today's increasingly diversified educational evaluation system, it will become an inevitable trend to incorporate the sub-educational category of K12 quality education into the entrance examination system. In 2015, in the Tenth Five-Year Plan of Education Informatization, the Ministry of Education introduced the STEAM concept into the guidance document for the first time. The STEAM education began to enter the national level education development plan. Later, with the Ministry of Education as the core, several documents were introduced to support the development of quality education. Offline quality education started early and the development was relatively stable. From the various interest training classes under the early youth palace system to the branding and chain training institutions gradually emerging in the middle and late stages, offline quality education has formed a relatively stable business format. Online quality education started relatively late. As quality education has become more and more valued by the national education system and online tutoring competition has become more intense, online quality education has attracted more attention from entrepreneurs and capital, showing an explosive growth trend. At present, there are obvious differences in development stages of quality education in the first-, second- and third-, fourth- tier cities. For example, STEM education has been rapidly spread in first- and second-tier cities, while third- and fourth-tier cities have not yet fully started. The quality education needs of the third- and fourth-tier cities are difficult to meet through the offline scenes. Online quality education is the solution to this pain point. Quality education requires more dimensional interaction than K12 academic training. For example, in the field of STEM education, it is necessary to assemble robots by hand. Sports, musical instruments and dances need to be guided and corrected for specific pitches and movements. The online one-to-one tutoring model can solve the inadequacy of the original recording course to a certain extent, but there is still a certain distance compared to the offline interactive experience. Scientific quality field The core of scientific quality education is STEM education, which originated in the United States in the 1980s and is an interdisciplinary comprehensive quality education concept. The four letters in STEM education represent Science, Technology, Engineering, and Mathematics. STEM education is different from traditional disciplinary education and exam-oriented education, emphasizing interdisciplinary and practical practice. Specifically, STEM education begins with encouraging students to learn these four types of knowledge, emphasizing that students can complete practical projects that are relevant to their own lives, so as to apply, understand, and further learn various subject knowledge in the process of the project. STEM education is still in its infancy and based on off-campus counseling. Although the State Council and the Ministry of Education have issued a number of documents to strongly support the development of makerspace and STEM education, China's STEM education is still in its infancy. STEM education can be divided into two types, on-campus and off-campus, depending on the educational scene. Off-campus STEM education is provided by professional STEM training institutions with places, teaching aids and teachers. On- campus STEM education is provided by the school with place, and professional STEM training institutions with teaching aids and teachers (or teacher training). Due to China's special test-taking and admission system, the development of on-campus STEM education is still relatively slow. At present, STEM education in China is mainly dominated by professional off-campus training institutions. Many provinces and cities have included programming into the college entrance examination system, which will force the primary and secondary schools to carry out STEM education. The industry will enter an explosive phase. In February 2017, the 2017 Work Focus of Education Equipment Research and Development Center of the Ministry of Education pointed out that we should actively explore new ideas and new ways,
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continue to pay attention to the impact of STEM education and creators on primary and secondary education and curriculum development, and carry out practical application research of mobile learning, virtual reality and 3D printing technology in education and teaching; in January 2018, in the General High School Curriculum Program and Curriculum Standards of Language and Other Subjects issued by the Ministry of Education, the first high school information technology selective compulsory course includes for the first time the three- dimensional design and creativity, Open Source hardware project design, Preliminary AI and other creator education content. The progress that STEM enters the admission system accelerates. For some developed provinces in education, such as Zhejiang, Shandong, Beijing and other provinces and cities, programming has been included in the college entrance examination content system. The test requirements force students, parents, and schools to pay attention to STEM education. The progress of STEM education into the K12 education system will accelerate, and the industry will enter an explosive phase. At present, the domestic STEM education programming course is highly homogenized. Most of them use the Scratch source code developed by MIT to build a course structure, which lacks core competitiveness. The capacity of investment in research of each institution is relatively poor, and it has not yet possessed a relatively complete curriculum design, teacher training, and teaching aids. Future STEM education has great potential for development in curriculum differentiation and teacher training. At the age level of the course audience, domestic STEM education is mostly concentrated in primary and secondary school children, and there are fewer courses designed for preschool children. This is still far from the concept that Scratch emphasizes that children who don't know words can also program. With the accelerated entry of STEM education into the admission system, STEM will extend to the stage of younger children like English education. The future development of STEM education for preschool children in China has great potential for development in the future. At present stage, STEM education courses are mostly concentrated in the fields of intelligent robots, 3D printing, and fun programming. In the future, differentiated competitive business models can be formed in the fields of VR and AR technology experience courses.
Artistic quality field Art education refers to the aesthetic education activities of literature, music, art, dance, etc. as artistic means and content. The main purpose is to cultivate students' aesthetic concepts, appreciation and creative ability. Under the background of the total elimination of national college entrance examination plus points like students with sports specialties, middle school students’ academic Olympic competitions, science and technology competitions, provincial outstanding students, outstanding deeds on ideological and political morals, etc. but the inclusion of students' artistic quality in the comprehensive quality evaluation of the college entrance examination, artistic quality education ushered in the development policy dividend period. After experiencing the high-speed growth period from 2009 to 2012, China's artistic quality education market has entered a relatively stable growth period with an average annual growth rate of about 20%. However, due to the difficulty and high cost of copying artistic quality education in different places, the current market concentration is relatively low, and no industry leader has yet formed. The recording and broadcasting network school platform is still the main battlefield of online art education. Interest education is more focused on humanities and art, with a focus on providing basic introductory courses for young people and adults. The basic introductory course is relatively uniform in terms of content, difficulty, teaching arrangement and assessment indicators, and the recording and broadcasting form can basically meet the teaching requirements. Online interest education is still concentrated in the field of amateur musical instruments and vocal introductory education. There are relatively few segments in painting, calligraphy, martial arts, and dance. This is mainly due to the difficulty in quality assessment of art education. In the future, with the gradual maturity of artificial intelligence technologies such as image recognition and voice recognition, art-based online education will gain development opportunities. Because the live tutoring platform is limited by the online interactive ability and cost, at present, it is concentrated in the field of piano education with higher average sales per customer. Interest education is mostly interactive education. In particular, art-based advance education relies on offline one-to-one tutoring. Online live broadcast is limited by interactive ability and high cost, resulting in slow overall development. As an art interest education with high input cost and high average sales per customer, piano education is currently the fastest growing sector of the one-to-one live education field. The teachers of online live interest education are mostly students studying in art colleges, and the cost is relatively low. At the same time, the single class
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price of online one-on-one live piano education is about half of the offline price, and it has a strong price competitive advantage. O2O education has strong ability to transform online entry level to offline advanced level, and the e- commerce development space for interest education tutoring is considerable. O2O is an important way to extend the industry chain of interest education. Transforming online entry-level student into offline advanced- level students can greatly increase the value of single customers. At the same time, for the fields such as woodworking and painting, the e-commerce sales of teaching aids and materials for online education platforms can further enhance the liquidity.
Other fields In addition to scientific quality and artistic quality, some startup companies also emerge in the field of emotion quotient, financial quotient and sports quality. They provide educational services through live tutoring and online courses. At present, online quality education in related fields does not form standardized educational content and education system, and there is a large room for development.
Adult education The adult education market is characterized by a wide coverage of the population, which can be distinguished according to the two major categories of vocational training and interest skills. The training market of interest skills is highly dispersed and the total market is small. Therefore, we focus on the segments of vocational education. Vocational education refers to an educational activity carried out to enable an educated person to acquire certain vocational skills or professional knowledge and form a good professional ethic to meet the objective needs of an individual's employment planning and position. Vocational education focuses on the development of practical skills and practical work abilities, with the aim of cultivating applied talents and workers with certain literacy and professional knowledge skills. Except for diploma education in vocational schools such as vocational high schools, technical secondary schools, and technical schools; non- diploma vocational education includes recruitment training for job opportunities, and professional knowledge and skills training to meet the requirements of a specific job, and the test-oriented training and corporate training for qualification exams that meet the needs of specific industries for qualifications or practice levels. There are many segments. As an important component of adult education, vocational education is deeply affected by changes in the demand for talent in the industry. The demand for talent brought about by the rise of a new profession will usually drive the relevant training business in the market. On the other hand, the increasing number of college graduates and the long-term disconnection between the education system of colleges and universities and the actual needs of enterprises are also promoting the development of vocational education. Overall, the growth of the vocational education industry has a strong correlation with the development of specific industries and the structure of the labor force. According to the report of Frost & Sullivan Consulting, the total market income of vocational education increased from 54.5 billion CNY in 2013 to 98.7 billion CNY in 2017, with a compound annual growth rate of 16%. In terms of policy, unlike other fields of education, adult education, especially non-academic vocational education, is less affected by education policies. Since it does not involve education equity, academic burden, and contributes to overall labor economic efficiency, in policy aspect adult education is supported. According to the Opinions of the State Council on the Implementation of Lifelong Vocational Skills Training System promulgated in 2018, it is required to promote the marketization and socialization reform of vocational skills training, give full play to the role of enterprises, encourage the participation of social forces, and establish institutional mechanisms for optimizing the allocation of training resources, diversifying the development of training carriers, selecting workers on demand, and strengthening government supervision services. At the same time, it is required to establish and implement a lifelong vocational skill training system covering all urban and rural laborers, running through the labors’ lifelong learning and working, adapting to the employment and entrepreneurship and talent growth needs, and economic and social development needs, to achieve the universal benefits for training objects, marketization of training resources, diversification of training carriers, diversification of training methods, and standardization of training management, and carry out large-scale and high quality vocational skills training. The document also proposes the need to improve the lifelong vocational skills training policy and organizational implementation system, and to improve the
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lifelong vocational skills training policy which runs from the labor preparation, to the realization of employment and entrepreneurship and through the whole process of learning and career. In addition, the Interim Measures for Special Additional Deductions for Personal Income promulgated in 2018 states that the continuing education expenditure of professional qualifications for the persons who receive skill training and professional technical personnel shall be deducted at a rate of 3,600 CNY per annum in the year in which the relevant certificates are obtained. This also promotes the demand-side growth of adult education to a certain extent. In the past two years, listing has remained the key word for the giants in adult education. In 2018, online adult education Sunlands was listed on the New York Stock Exchange. The two giants of recruitment examination training for civil servant, Huatu Education and OFFcn Education, respectively, landed in Hong Kong stocks and A shares. In 2017, the HXSD was acquired by Baiyang Co., Ltd. with a valuation of 974 million CNY, realizing the curve listing. From a macro perspective, there are significant differences between vocational training and diploma education. Vocational training is closely related to the demand for labor skills, and labor demand is closely related to industrial changes and industry development. Therefore, vocational training presents the marketization characteristics. The diversification of industrial employment demand has led to a large number of vocational training segments, including: (1) recruitment / qualification examination training (including civil servants, institutions, teachers, medical care, police, etc.): recruitment / qualification examination training is for the purpose of obtaining successful recruitment, qualification and professional title certificates, mainly in the public service category; (2) vocational skills training (financial and economics, engineering, IT, driving school, cooking, maternity and child care, beauty salon, job-seeking education, entrepreneurship counseling, etc.): vocational skills training refers to non-mandatory employment licenses, mainly used to improve professional skills to obtain certification. In many subdivisions, the training with a large customer base, such as examination training for public employment, IT training, motor vehicle driving training, and enterprise management training have produced some comprehensive giant enterprises, but the less demanding training, such as pilot training, fitness training, medical training, etc., subject to the ceiling effect, have relatively small size. We selected three large and more popular market segments for recruitment qualification examination training, IT training, and entrepreneurship training for analysis. Recruitment examination training The recruitment examinations are mainly in the public service category, which are divided into civil servant and public institution recruitment, financial and economic (all kinds of financial employment certificates and professional skills certificates), teachers (teacher qualifications, teacher establishment examinations), medical (licensed doctor, pharmacists, etc.), law (legal qualifications, judicial examinations), etc. The number of applicants is mainly determined by the recruitment policy, professional threshold and employment prospects, and the overall growth rate is stable. Among them, civil service examination training is the largest market segment. In 2018, the number of participants in the written test for national civil service examination was 1.134 million, an increase of 15.2%, and the number of recruits was 28,500, an increase of 5.6%. The overall written test acceptance ratio is 40:1. This year is the most competitive year in the past three years, and the competitive acceptance rate of individual hot jobs is less than 1/1000. According to the registrations disclosed by the provinces, the number of applicants for local civil service examinations in 2018 is more than 3 million, and the number of recruits is about 120,000. The acceptance rate of written test is about 4%, which is higher than the national examination. At present, the entire market is a duopoly. OFFcn Education and Huatu Education are the two leading companies in the market, and all of them have completed IPO in 2018. OFFcn and Huatu's revenue CAGR in 2015-17 was as high as 39%/30%, and the net profit CAGR was 80.5%/33% respectively. The main growth is due to the expansion of outlets, the growth of agreement classes, and the expansion of online channels. The current online users of both companies are close to 50%, but the online revenues are more than 10% of the total revenue, mainly due to low average sales per customer caused by the low-price competition of online courses. In general, the overall revenue is still based on revenue from the off-line face-to-face teaching. Including the Sunlands Education focusing on the cross-curricular courses, entrance examination for diploma education, vocational education and other fields, all courses are taught online, but the low average sales per customer is still the core issue that makes them unable to make profits.
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IT training A huge industrial cluster has emerged in the IT training industry. As a subdivision of vocational skills education, IT training conforms to the needs of the Internet community for IT talents, and at the same time effectively alleviates the difficulty of employment for graduates. It is primarily the training about the application of computer science and communication technology to design, develop, install and implement information systems and software. The rapid development of information technology has triggered a large demand for IT talents. Generally, higher education does not meet the requirements of rapid development. Therefore, graduates will need to use a lot of spare time to learn and update more professional knowledge even after successful employment. Non-diploma IT training institutions are mainly divided into certification and skills training. The former mainly includes various certification systems, such as Microsoft series certification, national computer grade certification, Oracle series certification, etc.; there are a wide variety of skills training, which is closely related to the development of the entire IT industry. It can be roughly divided into: game development training, software testing training, software development training, network operation and maintenance training, and timely popular artificial intelligence, big data, blockchain and so on. In the domestic IT training market, Tarena Technology (in 2017, the total net revenue of 1.97 billion CNY, net profit of 185 million CNY) as an industry giant, the market share is about 6%. There are also Emerald Education, HXSD, Itcast and other major training institutions. Although there is an industry pattern of “one super giant, many giants”, there is still no one company that can cover all the sub-divisions, and each has its own key training direction. The IT industry has always been in a dynamic development process, and new core technologies and industry hotspots emerge every five years. China has experienced several stages of computer popularization, Internet and mobile Internet. At present, VR/AR, artificial intelligence, big data, blockchain and other popular technologies are closely watched by the industry. The features of hotspot switching and rapid technical iterations have created the need for practitioners to continuously participate in training to enhance competitiveness; On the other hand, new technologies and fields are blank for all institutions, which is conducive to training institutions to break the market structure and seize market share. But overall, with the crazy development of the mobile Internet in the past few years, the heat of capital training for IT has gradually cooled down. In the future, more is the competition between course teaching and operational level, rather than price war and the way of over-expanding competition with capital.
Entrepreneurship counseling training Entrepreneurship counseling training is a relatively new subdivision in adult education, similar to corporate management services, but it is also in the adult training category because it is often aimed at founders or founding teams without relevant entrepreneurial experience. Compared with the traditional training services, the entrepreneurial counseling focuses on different aspects, mainly providing start-up businesses and managers of small and medium-sized businesses with training for growth and upgrading. Through multi-party resource integration, they can obtain effective counseling and training services in the process of development, which can improve business survival. Content is often experience teaching, business coaching, business management coaching, practical training, strategic coaching, etc. In terms of policies, the government has vigorously promoted and continuously improved the relevant supporting documents of “Mass entrepreneurship and innovation” policy system, which has ignited the “nationwide entrepreneurship” boom. In 2018, it is proposed to set up a science and technology board in Shanghai to encourage the technology companies to be listed. This has led to the springing up of entrepreneurial service organizations. The profit models of entrepreneurship counseling institutions are mainly the establishment of entrepreneurial camps, executive classes, and value-added services, but the overall revenue scale is still small. Take the industry leader Dark Horse which has already completed the listing as an example, the company's total revenue in 2017 was 1.84 billion CNY, and the income from entrepreneurship counseling training was only 94 million CNY. Current industry participants include professional counseling and training institutions (Dark Horse, Shengjing Technology, HunDun University), Business School (Hupan University, CEIBS, CKGSB), Capital institutions, incubators (wework, TusStar, local government investment platforms), the media (36Kr, CYZone) and so on. The core competitiveness of entrepreneurship counseling training is mainly the teachers such as outstanding entrepreneurs, investment institutions, professional scholars, etc. However, due to factors such as
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geography and time, excellent teachers cannot cover all courses, and traditional offline counseling training cannot expand and copy rapidly. In addition, the ability to integrate resources is also a part that the training participants value. Most entrepreneurs hope to get to know more capital parties and find business cooperation opportunities through entrepreneurship counseling training. Overall, the overall entrepreneurial environment of the society determines the development trend of the market segment. Under the background of continuous policy support, the growth momentum of this segment is still high, and more opportunities will sink from the first-tier cities to the second- and third-tier cities.
International education In the context of global integration, the circulation of human resources as one of the most important factors of production becomes more and more convenient and frequent, and the flow of students as a kind of growth human capital on an international scale will lead to the reconfiguration of innovative technologies and capabilities in the global market. China, as the world's second largest economy, the growth trend of overseas students is more obvious. In the postgraduate period, from 1993 to 2011, the number of Chinese enrolled students pursuing a master's degree in the United States has always ranked first; but at the undergraduate level, in 1993, the number of Chinese students studying in the United States was much lower than in Japan and South Korea. But in 2011, it has already ranked first, nearly 2 times that of the second Korean. In 2016, the number of Chinese students in the United States reached 328,000, accounting for 31.5% of the total number of overseas students in the United States in the year. From the macro data, it can be found that the trend of Chinese students studying abroad presents three characteristics: lower-aged, popularization and normalization. The so-called lower-aged, taking Chinese students studying in the United States as an example, in 2006, students studying for undergraduate degrees account for 14.87%, and for the graduate degree account for 76.09%. By 2015, the proportion of the data was 41.28% and 37.51% respectively. The number of students pursuing an undergraduate degree has exceeded the proportion of students pursuing a graduate degree. Similarly, the number of primary and secondary school students studying in the United States has risen from about 1,000 in 2006 to more than 30,000 in 2016, and the growth trend is obvious. The so-called popularization means the diversification of the socio-economic background of the overseas students’ families. More and more middle-class children have become the main force to seek study abroad. The so-called normalization is not only reflected in the increase in the number of students studying in different learning phase, but also in the career choices after studying abroad. More students return to China after finishing education. It also shows that studying abroad is no longer a springboard for overseas work and immigration, but is more likely to be regarded as an important experience and harvesting process in personal education experiences In terms of the reasons why students choose to study abroad, the primary reason is that the overall quality of domestic famous schools is generally not as high as that of foreign famous schools and the domestic competition for famous schools is too fierce. Secondly, studying abroad can cultivate international vision and help experience foreign life and culture has gradually become a factor recognized and valued by parents and students Looking at the overseas education market and other education sectors, the differences are: 1) it is inherently characterized by strong information asymmetry. Due to cross-border factors and language factors, consumers' understanding of educational products is limited, mainly relying on the introduction of product providers. 2) The families who choose to study abroad generally have certain economic strength, and the goal is very clear, which makes the promotional conversion rate of the market higher than other sectors. 3) The overall quality and background of the educated students are also high. Students who choose to study abroad tend to have strong family economic strength or outstanding academic performance, and are among the best in their peers.
Section 4 Education Market Segments – Education Related Informatization Education informatization refers to the process of comprehensively and deeply applying modern information technology in the field of education (education management, teaching and research) to promote education reform and development. The technical characteristics of education informatization are
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digitalization, networking, intelligence and multimedia; its basic characteristics are openness, sharing, interactivity and collaboration. Education informatization is an effective means to promote education equity and improve the quality of education. Equity and quality are the two major priorities of education reform and development, and one of the livelihood issues of social concern. Among them, education equity is particularly important. Due to the comprehensive influence of historical accumulation, geographical environment, population structure, and different levels of economic development, the education level of all school-age levels in China shows an obvious imbalance. The gap between the east and the west and the gap between urban and rural areas is obvious. . The important purpose of education informatization is to promote the transmission of quality education resources to poor and remote areas through the popularization and application of information technology in education, improve the quality and level of local education, and promote the balanced development of education. Policy is the most important factor driving the development of education informatization. From 2010 to now, the state has formulated and issued a number of important policies to promote the development of education informatization. Education informatization can break the scarcity of educational resources and is a good way to promote national education equity. In the future, the comprehensive coverage of education informatization is the general trend. At present, the comprehensive construction of education informatization is far from complete. The main body of education informatization is To B. Further, it is To G, that is, the government department is the main purchaser of education informatization, and it benefits from the strategic policy promoted by national related policy, so the policy direction has a strong directive effect on the industry. The development of the core policy of education informatization has been upgraded from Education Informatization 1.0 to Education Informatization 2.0. The core of China's Education Informatization 1.0 period is the "Three Links and Two Platforms." “Three Links and Two Platforms” was the goal of education informatization construction during the “Twelfth Five-Year Plan” period proposed by State Councilor Liu Yandong in the National Education Informatization Work Video Conference in 2012, namely “Every school can get access to broadband network; every class can get access to quality teaching resources; the network learning space will be accessible to everyone”, and the construction of educational resources public service platform and education management public service platform. The Education Informatization 2.0 Action Plan was pointed out on April 13, 2018 by the Education Informatization 2.0 Action Plan issued by the Ministry of Education of the People's Republic of China. The goal is to achieve the development of “Three full, Two high and One big” by 2022, that is, the full coverage of teaching application for all teachers, the full coverage of learning application for all school-age students, the full coverage of digital campus construction for all schools; high application level of informatization, high information literacy of teachers and students; big platform for internet + education. The education informatization industry chain includes five links: telecom operators, product suppliers, system integrators (channels), governments, and users. The telecom operators are mainly responsible for network infrastructure construction, Internet coverage and broadband access; product suppliers are mainly responsible for the provision of supporting terminal hardware products, software products and content; system integrators are mainly responsible for the integration of software and hardware products and sales of integrated products within certain areas; the government means that the education bureau or other jurisdictions are responsible for making purchasing decisions when the public education institutions in the system conduct education informatization procurement; the final users of the products are school administrators, teachers, students and parents. At present, the major product suppliers and system integrators on the market are classified according to the products they provide, including: (1) companies engaged in education informatization software business, such as Talkweb (acquisition of Sea Sky Land), iFLYTEK, etc. (2) Companies engaged in education informatization hardware/terminal business, such as IRTOUCH, Edustar, etc.; (3) companies engaged in education informatization system business, such as Qtone Education, Nenglong Education, Cultural Great Wall, etc. However, according to the operating income of each company, compared with the overall industry scale, it can be found that the sub-industry of informatization is still highly consistent with the dispersibility of the entire education industry, that is, the heading enterprise's share of the industry does not exceed 5%. Regarding the business model of education informatization, although the sales side is to B, considering the use feedback of the end users and the future profit demand, the education informatization is essentially B2B2C. Therefore, although the needs of the B-end market are not the same, the products or services need to
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be in line with the teaching needs of the institution or school. Only when informatization products or services improve the efficiency of their management, teaching, and learning, end users will have the motivation to continue to use, and guide the B-end and even the C-end to continue to pay, thereby lengthening the profitability of the company, not just earn low frequency fees for informatization installation or retrofitting. In addition, more and more enterprises in the field of traditional education informatization have gradually expanded their business to C-end teachers and student services. Even if they do not necessarily bring cash flow in a short period of time, a large amount of data accumulation will definitely have more advantages in the future new To B business and its own business innovation.
Media Educational media refers to the carrier for disseminating relevant information in the field of education. It can be an individual or a legal entity. In the Internet age, Internet media has emerged. From text to graphic to video, it provides a convenient and rich form of expression for the dissemination of educational information. The carrier of dissemination is also increasingly diverse, including traditional media (educational newspapers, People's Education Press, and Foreign Language Teaching and Research Press, radio and television education channels, etc.), online media (integrated portals, vertical professional website, video websites, social media and Apps, etc.), as well as we-media which publish information through social platforms such as WeChat and Weibo. In the future, with the advent of artificial intelligence, big data, and the 5G era, the business boundary of the educational media industry will become more blurred, multi-role management will become a common format, and the industry structure will be constantly subverted and reconstructed. At present, China's education media industry is experiencing a stage of comprehensive digital development. The major media are in the stage of transformation and innovation, acquiring users, and have not yet entered the stage of large-scale cashing the flow. Specifically, the following characteristics are presented: First, the traditional media are fully pursuing digital transformation. Traditional Education Press has transformed to the digital education media group with obvious advantages. On the one hand, the traditional education press has the largest data in China's education industry, and has a good relationship with the education system, and has a unique advantage in accessing government data resources; On the one hand, the publishing house has rich and authoritative educational content resources such as teaching supplements and reading. Meanwhile, the shortcomings of traditional educational media are also very obvious. The degree of marketization is not high enough. It needs to cultivate the ability of using advanced technology to express guidance. In order to solve these two problems, the traditional media’s strategy is to upgrade through technical cooperation and outreach merger and acquisition. Second, social media has become the main channel for accessing education information. According to the report of the 2018 Weibo education and training industry, 64.3% of users have learned about education and training information through social media. Early education and K12 users are more dependent on social media to obtain information, reaching more than 70%. Obviously, all kinds of social media platforms represented by WeChat official account and Weibo Blue V have occupied half of the total market. As an open platform, Weibo and WeChat provide educational institutions with core resources (customers), products and services, and build a strong educational content ecosystem. Finally, in the vertical field of education, the boundaries between data companies and media companies are blurring. Good media companies are trying to generate new capabilities and values in the media value chain. For example, Jingmeiti is a vertical media organization focused on the education industry. It provides in-depth industry analysis and news views, uses artificial intelligence and big data capabilities to capture information across the network, and monitors and analyzes the information in the education industry and companies in the industry in real time, and generate relevant reports for delivery in the first place
Publishing Educational publishing refers to the publishing categories related to learning, education and training. Due to the characteristics of the Chinese education system, students must use nationally-recognized teaching materials. The content of educational publishing must meet the teaching requirements. Only products that serve the educational system will be accepted and used. Therefore, education press need to fully cooperate with the education system. In 2017, the market size of the education publishing industry was approximately RMB 110 billion, accounting for 60% of the overall size of the book publishing market in China. The market
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size of education publishing is mainly influenced by the number of students in the school. The huge use of teaching material and its rigid demand make education publishing the main pillar of China's publishing industry and the main source of profit for the publishing industry. From the perspective of participating enterprises, education publishing enterprises are mainly state-owned enterprises, because only state-owned publishing houses have copyrights, and the way in which private enterprises enter the education publishing is mainly to provide content and distribution. Education publishing consists mainly of two major sections: teaching materials publishing and teaching supplements publishing. The teaching material is the textbook, which is the most important product type in the field of education publishing. The Party Central Committee clearly defines the construction of teaching materials as national task and responsibility. In 2017, the Ministry of Education organized the unified compilation of new textbooks for three subjects. The compilation of textbook for three subjects is a major decision-making arrangement of the central government, which means that the state has further strengthened the top-level design, overall planning and overall management of textbook construction. The bidding system is implemented in the publication and distribution of other subject textbooks. At present, the country's largest education publishing enterprise is the People's Education Press. With the implementation of the requirements of the unified compilation of new textbooks for three subjects, the textbooks for the national primary schools and the first and second grades of secondary schools will be published by the People's Education Press. Secondly, China's major publishing and distribution groups are divided by province. The textbooks with large circulation are basically issued by provincial state-owned issuing unit, such as Jiangsu Phoenix Publishing & Media Group, Anhui Publishing Group, Jiangxi Publishing Group, Hunan Publishing Investment Holding Group, etc. The total assets and business income of these provincial publishing groups exceed 10 billion CNY. In addition, there are also university presses relying on school resources and professional publishing house with professional expertise to distribute professional textbooks. Compared with the teaching materials publishing, the teaching supplements publishing is more marketization. The publication of teaching supplements serves students. The market demand is determined by the national examination and admission system. At the same time, it also depends on the development of teaching materials publishing. Before the 1980s, the publication of textbooks for primary and secondary schools in China followed the principle of “one teaching outline, one textbook version”. All textbooks were published by the People's Education Press. Therefore, the market for teaching supplements publishing is relatively simple. In the 1990s, due to the rise of "one teaching syllabus and multiple textbook versions", the phenomenon of a hundred schools of thought contending in textbooks appeared. With the deepening of the test-oriented education thought, the market demand for teaching supplements publishing has increased significantly. After 2000, the publishing house was transformed from the original institution to the enterprise to realize market-oriented operation. At the same time, with the advancement of education reform in China, the demand for the teaching supplements market broke out, and the publishing house concentrated on the publishing and distributing of teaching supplements. China's teaching supplements publishing has a market size of about 30 billion CNY, and 90% of the country's publishing houses are involved in teaching supplements business. However, since 2010, the state has successively introduced management measures and implementation opinions to carry out special rectification, clean-up and regulation of the teaching supplements market. In 2017, it has introduced new policies to further clean up and rectify, including the market-based teaching supplements, which were prohibited from being ordered by schools, being recommended to buy by teachers and being promoted on campus by institution. The original market sales channels and ecology have been broken. Therefore, since 2018, the Education Press’s teaching supplements revenue fell sharply. In summary, the state-owned education press not only has rich and authoritative educational content resources such as teaching materials, teaching supplements, and reading, but also masters the core distribution channels of the education industry, and has core competences and advantages in the education industry chain. In the future, with the advent of the Education Informatization 2.0 era, the upgrading of paper teaching materials and teaching supplements publishing to comprehensive digital publishing is an inevitable trend. Although in the short term, supplementary books will not be affected by digital publishing as well as popular books, the digital education publishing industry will develop rapidly. Among them, digital supplementary books will develop with the development of online education industry. The content providers with unique educational resources will have unique advantages.
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Chapter III Investment Status in China's Education Market With the implementation of the Private Education Promotion Law and the slowdown in the growth of other industries in recent years, the enthusiasm of investment institutions for the education industry is high. We have counted 2,307 financing events from 976 educational companies. In terms of time series, the number of financing events of educational institutions was less than 100 before 2013, reaching 250 in 2014 and 487 in 2015, so it is not too much to say that 2015 is the “year of investment outbreak”. The number of financing events in 2016 and 2017 remained the same as in 2015. The number of financing events in the first eight months of 2018 also reached 281, and it is expected to reach around 500 in the whole year. It can be seen that the investment heat in the education market continues unabated, but with the increase in the industry entry threshold and the fierce competition in the market, it is expected that the number of investment and financing may decline in the future. Chart 3.1 Number of financing events in education market in China 2010~2017
The data shows that 869 investment institutions have invested in the education industry. Among them, ZhenFund, TAL Education Group, BE Capital, Sinovation Ventures, Matrix Partners China and Tencent are the most active, with more than 30 investment events. It is worth noting that some of these active investment institutions in the education industry are themselves listed companies in the education industry, such as TAL Education Group and New Oriental. In addition, some of the heads of institutions have had years of experience in the education industry, such as Xu Xiaoping of ZhenFund, Ning Baiyu of BE Capital. They have deep feelings and understanding of the industry. These investment institutions tend to lay out on multiple educational segments, such as ZhenFund, which has layouts on all segments, and Tencent mainly lays out various segments of online education. These investment institutions will choose one or two companies in each segment to support. Chart 3.2 Representative investment institutions in China’s Education Market No. Investment institution name Investment events 1 ZhenFund 61 2 TAL Education Group 55 3 BE Capital 36 4 Sinovation Ventures 34 5 Matrix Partners China 31 6 Tencent 31 7 New Oriental 29 8 Sequoia Capital 28 9 IDG Capital 26 10 Shunwei Capital 25
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In terms of market segments, online education training has the largest proportion of financing events (64%), followed by education-related (21%) and offline education (14%). There is less financing event in diploma education due to government regulation. In the market sub-segments of online education training, language and K12 academic training accounted for half of the demand because of its universality and rigidity; early education and adult training followed, accounting for 15% and 13% respectively; There are a variety of trainings in other categories, including STEM, study abroad, sports, finance, etc., all accounting for less than 5%.
Chart 3.3 Financing events in China’s education market segments (2017)
Online training Offline training Education- Diploma education related educationeddjf dkfjdfdfdfeduc Chart 3.4 Financing events in China’s online education training marketationeducation (2017) educationeduc ation
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Langua K12 Early Adult Abroad Other ge academic training
From the perspective of financing rounds, more than 60% of the financing events in the first eight months of 2018 occurred in round A or before round A, indicating that the entire market is still in the early stages of development, new educational institutions are emerging, and the pattern of industry monopoly and oligopoly has not yet appeared. The new innovative institutions still have the opportunity to become the leader in their
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respective segments. The education group listed companies in the entire Chinese market are still few. It is expected that there will be a large number of new listed companies in the education industry in the future.
Chart 3.5 Rounds of financing events in china’s education market (2018)
Angel/seed A B C D Other
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Chapter IV Prospects for China's Education Market Section 1 Macro Environment Market size China's education industry is in a stable development period, and its market size and investment potential are still huge. The number of births in China remained at around 16 million between 2003 and 2011. Due to the selective two-child policy implemented in 2013 and the universal two-child policy implemented since 2015, the peak of births occurred in 2014 and 2016. The current number of births has remained above 17 million. The huge population base is the driving force for the development of the education industry. In addition, with the economic development and the improvement of people's living standards, people pay more and more attention to education, and per capita education expenditure will continue to grow. Moreover, there is still a big gap between China’s current per capita education expenditure and developed countries. The current Chinese education market is still highly dispersed. Except for leaders in a few segments, many other segments are still in the early stages of development and there are many good investment opportunities. So far, there are still few listed companies in China's education industry. In the future, more private education companies are expected to land overseas or even domestic capital markets.
Chart 4.1 China’s birth population 2000~2017 (unit: 10,000 persons)
Policy development Industry supervision will be further enhanced, and the standardization of private education market will be greatly improved. China's education industry supervision is gradually strengthening. In 2018, a series of important policies have been issued, including the Private Education Promotion Law (draft for review), the rectification notice of the off-campus training institutions issued by the four ministries, opinions on deepening reform and standardized development of preschool education and other policies. From the perspective of policies and regulations that have been issued, the positioning and regulatory attitudes of various segments have been clarified. In the short-term, the segments with smaller policy risks are vocational education and higher education. The segments with strong policy supervision include K12 private education, K12 off-campus
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training and pre-school education. The government's attitude toward private education policy is "support" and "normalization"; the attitude to K12 off-campus training is that K12 counseling institutions need a school running permit; the attitude to pre-school education is to give play to the universal benefits of preschool education and curb excessive profit. In 2019, the final clause of the Private Education Promotion Law (draft for review) is expected to land. The problems, such as the classification management of private schools, group-run schools, and the legality of the VIE structure and the operability of protocol control will be further clarified. Secondly, the K12 off- campus training rectification achieved phased results and policy risks have been released. According to the latest report of the Ministry of Education, by December 12, 2018, a total of 400,000 off-campus training institutions were investigated nationwide, and 273,000 institutions with problems were found. Now, 248,000 have been rectified, and the completion rate of rectification has reached 90%. It can be seen that the stricter policies help the standardized development of the off-campus training industry, which is conducive to the long-term healthy development of the industry. Finally, the new rules on pre-school education have made it clear that kindergarten education is universal and non-profit. In the future, the comprehensive implementation of public welfare kindergartens is the key to policy implementation, and the capitalization of kindergarten assets is more difficult. In general, with the successive implementation of key policies and regulations in various fields, the education industry will develop towards standardization and fairness. Through the classified management, the entire industry can clarify the positioning and boundaries of each field, so that there are rules to follow and laws to abide by.
Section 2 Education Market Segments – Diploma Education Kindergarten Chain kindergarten brands with high degree of feasible standardization will rapidly gain their market share A sound curriculum system, a mature management and operation system, and an experienced director are the key to the success of the kindergarten brand. Large-scale chain kindergartens with standardized and mature management and operation systems will usher in rapid development. Kindergarten management and operation systems can be divided into internal systems and external systems. A mature internal system should first include a complete service system, at least a personnel system, a security system, a financial system, etc.; secondly, a complete information system and curriculum system; and finally, a complete faculty training system to help improve the timeliness of the professionalism and knowledge of kindergarten teachers. In addition to the internal system, the external open system must also be standardized, such as the brand communication system and material procurement system. Top chain kindergartens can form a good scale effect through system construction, and the establishment of new kindergartens can also be more profitable and gain the reputation effect. Several Opinions on Deepening the Reform and Normalizing Development of Pre-school Education further clarified the qualifications of for-profit kindergartens. In the long run, this will help improve the quality of chain kindergartens. Meanwhile, under the new policy, private kindergartens are not allowed to be packaged separately or as part of assets to be listed. Listed companies may not invest in for-profit kindergartens through stock market financing, and may not purchase for-profit kindergarten assets by issuing shares or paying cash. The direct result that these policies have resulted in is that the growth of top chain kindergartens that are ready for capital market is slowing, but this does not fundamentally incite the competitive advantages of these kindergartens. Under the market environment and industry format in which the private kindergarten’s way to go public is cut off, the kindergarten groups that are currently listed may become a scarce target in the medium and long term.
Primary, Secondary and High school Western-style international high school and the dual high school integrating Chinese and Western education will grow rapidly The potential market demand for the 12-year boarding international school with orientation of high-end western style education and the private international high school that introduces international courses is huge. The main driving forces are the following factors: First, the overall improvement of China's education level.
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The compulsory education and high school education continuously improve and popularize. People's demand for quality colleges and universities has increased significantly. Although domestic colleges and universities are quite a lot in terms of overall quantity, high-quality colleges and universities are still scarce. The college entrance examination competition is becoming fiercer. The attraction of overseas universities is increasing. Second, the acceptance of the introduction of international courses in the high school stage has been improved, and the path of further studies can be greatly expanded. Taking the most common IB, A-Level, and AP courses as an example, the IB program is a curriculum system offered by the International Baccalaureate Organization. It has the highest global recognition. Studying the IBDP course in high school and achieving good test scores will be a stepping stone for applying to internationally renowned universities; the A-Level course is a British high school certificate program, which is recognized by 11,000 universities in 170 countries around the world; the AP course is a university-led course in American high school, and 3,600 universities in 40 countries recognize AP credits as a reference for admission. Third, the ability of citizens to pay for education has increased significantly, and the number of potential families who can afford their children to go to university overseas has increased significantly. Therefore, in the high school stage, the Western-style international high school and the dual high school integrating Chinese and Western education, and studying international courses to apply for overseas universities, will be an alternative to the college entrance examination, and become the choice of more and more families. Therefore, the overall market size and penetration rate of international high schools and high schools integrating Chinese and Western education are expected to accelerate. In addition, after the introduction of the new Private Education Promotion Law and supporting policies, school sponsors can legally obtain school-running income through the establishment of "profit-making" high schools. They not only have more autonomy in tuition fees, but also can directly carry out paid English training, arts training, camps, overseas education consulting and other services, and through the introduction of various online and offline resources in the teaching content and models for innovation, increase profitability.
Higher education Private college and university leaders will continue to expand market share by acquiring independent colleges After the private colleges and universities are promoted by capital, the quality of education and brand awareness increase. The leader of private higher education may be stronger in the future. Private colleges and university leaders have a first-mover advantage, and it is simple for them to open new schools. Although the specialized courses are different, the management synergy potential in the system construction, such as the administrative management, educational administration, logistics support, and brand promotion in the background is large, which can be quickly copied to improve operational efficiency. Due to the higher barriers to entry in the industry, there are limited participants in higher education. According to regulations, ordinary undergraduate schools should cover an area of more than 500 acres, the number of university students should be no less than 8,000, and the total construction area should be no less than 150,000 square meters. Independent colleges should also be implemented according to the standards of ordinary undergraduate higher education institutions. The college campus covers an area of more than 300 acres, the school building area is not less than 66,000 square meters, and the per capita construction area is not less than 16 square meters. If the price of science and education land is 300,000 CNY/acre, and the cost of building is 2000 CNY/square meter, the construction investment of an undergraduate school requires at least 450 million CNY. The income of colleges and universities mainly depends on the average income per student and the number of students. The average income per student is mainly from tuition fees, but the annual increase in tuition fees is limited. The increase in the number of students is subject to the upper limit of the number of students enrolled in a single school. Therefore, the main path for the expansion of college assets is to increase the number of schools within the group system. M&A is the most convenient and direct way to achieve scale expansion. Therefore, M&A have become the standard for many private listed universities. In addition, the draft of the Private Education Promotion Law also proposed that "public schools must not obtain income through brand output." This regulation has made it necessary for independent colleges that emerged in the 1990s and existed in the form of "school in school" to accelerate the separation from public universities. These independent colleges will become ideal M&A targets for private higher education groups.
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Section 3 Education Market Segments – Education Training Early education The rapid growth of the early education market will usher in an inflection point, and the scale effect of the brand will be presented. The universal two-child policy has stimulated the birth of the population to the peak in 2016, and the birth population declined in 2017 and 2018. In the absence of new population incentive policy, the number of births is expected to decline further. On the other hand, the continuous emergence of related vicious social events highlights the lack of supervision in the early education industry. In November 2018, the State Council promulgated the Several Recommendations of the Central Committee of the Communist Party of China and the State Council on Deepening Reform and Standardizing Development of Preschool Education. Article 6 clearly stated that it is necessary to improve industry supervision. In the future, the supervision of the early education market will be included in the management of the education sector. The strengthening of supervision will speed up the process of cleaning out substandard early education institutions and increase barriers to entry. However, the early education institutions of big brands benefit from standardized operations and significant scale effects, and the market share will continue to expand, and the concentration of the industry in the entire market will continue to increase.
K12 Academic training - offline The intelligent teaching system will be promoted from language training to other disciplines and widely used. In the offline teaching, there must be differences in the learning situation between students in large classes. However, under the traditional teaching and counseling model, students who are in different learning stages and master different learning methods face the same teaching materials, homework and training models, which will inevitably lead students to repeat the knowledge they have completely mastered. Those knowledge points that are half-solved are neglected, and the learning efficiency is low. In order to improve teaching efficiency, more and more training institutions have introduced intelligent homework and intelligent teaching systems. On the one hand, the real-time assessment of students' mastery of current knowledge points can dynamically adjust the focus and difficulty of homework to achieve better training objectives. On the other hand, by splitting the entire teaching process into several observation points, the curriculum and teaching progress are dynamically adjusted according to the mastery of the students. There are also a number of teaching supplements providers, through intelligent monitoring, customizing reference books, and teaching aids and so on. In the field of language training such as English, the trend of intelligent content is most prominent. Because English learning is highly quantifiable, the evaluation accuracy is high, and the content available for it is more abundant, it has also become the forefront of the scientific and technological teaching content. With the maturity of artificial intelligence technology, speech recognition, semantic understanding, knowledge mapping and other technologies will be able to replace the manual evaluation of educational achievements, and finally achieve adaptive teaching aids.
The dual-teachers model will become an important way for offline training institutions to expand in different places. The lack of excellent teachers is a major problem and bottleneck in the expansion of offline training institutions. In order to open up the market in the third- and fourth-tier cities, the training institutions can use the dual-teacher classroom to project the outstanding teachers of the first-tier cities to the third- and fourth-tier cities, that is, the offline classroom + online recording/live broadcasting, so that the students in the offline classroom can enjoy the resources of online teachers and receive the auxiliary teaching services of the offline teachers, thus successfully solving the dilemma of excellent teachers who are not willing to go to the third- and fourth-tier cities. It becomes the wedge for training institutions to enter the third- and fourth-tier cities.
K12 quality training - offline The business model of the training institution will be extended from B2C to B2B2C The "half past three problem" caused by the mismatch between parents and students' work schedule has become a social problem. With the increasing cost of getting customer, some training institutions no longer
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limit their eyes to the individual marketing and promoting quality training to student’s parents, but try to cooperate with agencies such as government departments and schools to solve the "half past three problem" and their own development bottlenecks. While providing education products and solutions for schools, this model has opened up new and broad markets for training institutions. There are also many obstacles and uncertainties in the widespread application of this model. For example, whether local governments can stimulate local schools to use external education resources through financial and administrative methods greatly affects the attitude of public schools to external cooperation; the actual situation of schools and students in different regions makes this cooperation model difficult to be standardized.
The strategic focus of quality education training institutions in the future will shift to third- and fourth- tier cities The growth of the offline training industry in the future will mainly come from the third- and fourth-tier cities. Similar to traditional manufacturing, the education industry also has a migratory bird effect, that is, the migration of the education industry chain. In the past, the utilitarian education industry, such as standardized language test training, subject competition counseling, and famous teacher tutoring, which has been popular in the first-tier cities, has migrated to third- and fourth-tier cities. At the same time, the quality education training of humanistic literacy and mode of thinking training in the first-tier cities will also spread to third- and fourth- tier cities in the future.
K12 academic training - online The live broadcast platform will form a monopoly pattern The live broadcast course has gradually changed from a one-on-one live broadcast to a one-on-two to one-to-four model. The core reason is that the 1-to-1 live broadcast is uneconomical and has low competition barriers. These two factors raise the problem of low gross profit and high marketing costs, that is, the expansion of the user scale will cause the platform to fall into a larger loss. The positive significance of the gradual rise of the 1-to-many model is to improve the profit model of the live broadcast platform. The platform enhances the gross profit margin by reducing part of the learning experience. Although the live broadcast platform does not have a strong demand for intellectual property protection like the online courses, it lacks the ability of nonlinear expansion. The homogeneous competition between peers will lead to sustained price wars and sustained high marketing expenses in the industry. Finally, the company whose cash flow is unsustainable will go bankrupt or be merged, and the industry will eventually move toward a monopoly pattern.
Advances in intellectual property protection will enhance the investment value of online courses In recent years, the state has successively introduced laws and regulations related to intellectual property protection. In April 2017, the Supreme People’s Court first published the Outline of China's Intellectual Property Judicial Protection. In September 2018, the General Office of the CPC Central Committee and the General Office of the State Council issued important documents such as Opinions on Strengthening Several Issues Concerning Reform and Innovation in the Field of Intellectual Property Trial. This shows that the government's protection of intellectual property rights is gradually increasing. For the content development platform in the field of education, the intellectual property of educational products is its core competitiveness, and intellectual property protection is the core guarantee for encouraging all platforms to carry out research and development and innovation of educational content. With the further improvement of intellectual property protection, the platform will focus more on the development of educational products to ensure the continued competitiveness of the platform, enhance the profitability of the platform and increase the investment value of the industry.
K12 quality training - online STEM and other quality education content will be included in the admission system, and the development potential is huge. As a global education reform direction, STEM education has also developed rapidly in China, but this development is now more based on interest and the need to improve comprehensive capabilities. With the strengthening of the state's emphasis on STEM education, the gradual inclusion of STEM education in the teaching program and the admission system has become a high probability event. At present, Zhejiang
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Province has included the information course into the scope of the college entrance examination; in the future, more regions will gradually pilot the STEM related fields such as programming and information technology into the college entrance examination, which means that STEM education will be further extended to secondary school and primary school classrooms. The rigid need for STEM education has made STEM online education programs and products, teacher training, educational software and other fields have huge room for growth. In addition, sports, art, finance and other quality education content will also be included in the admission system as a part of indicators to assess the students’ comprehensive quality, and become a new industry outbreak.
Adult education Cross-border training by industry companies will stimulate new market demand and impact on relevant traditional training institutions As the development of mobile internet enters a mature stage, platform-based service providers also have a focus effect in various fields. Enterprises that have been or are growing into top ones in the industry are becoming exporters of industrial talents, e.g. the fitness coach training - Super Monkey coach and e-commerce operation training - Taobao University have extended their industrial boundaries into the training field. The underlying logic is that industry leaders use their original internal training system to build a curriculum system. On the one hand, they provide candidates for the internal talent pool, and on the other hand, they can export talents and content to the society to build reputation and achieve bigger brand advantage. It is foreseeable that with a series of changes in the residential consumption field such as consumption upgrades and new retail layouts entering the stable development period, more and more emerging companies in consumer industry will carry out training business, such as in coffee, anchor, driving training, e-sports and other industries. Emerging segment industry leaders will set up various colleges to provide training services and become the “Huangpu Military Academy” in the segment.
Population aging activates the elderly education training market China has gradually entered an aging society. The new older generation is generally more educated than the previous generation. The mainstream of adult education researchers believe that the more people receive education, the more they want to be educated, and the more they participate in further learning activity. On the one hand, the elderly have curiosity, and hope to reduce disconnection from the society and the children's cognition, and adapt to the rapidly changing society through continuing education. On the other hand, the elderly can also join new communities through learning and education, which brings social convenience to them. Therefore, as the education of the aging population is getting higher and higher, the demand for the elderly education will rise in the future. At the same time, the new generation of the elderly is accompanied by the rapid development of the entire national economy. Those with strong consuming ability are more willing to pay for education, which also provides a basis for the initial development of the elderly education training market. At present, the elderly education institutions in China are mainly public and private university/ school for the aged. Due to their original public welfare, the charges of private schools for the aged in the localities are low and the operations are difficult. In October 2016, the General Office of the State Council issued the Elderly Education Development Plan (2016-2020) to make arrangements for accelerating the development of elderly education, expanding the supply of elderly education, innovating the system of elderly education, and improving the modernization level of the elderly education. It clearly proposes to promote the running of universities for the elderly for the society, encourage social forces to participate in the elderly education, and promote the linkage between the elderly education and related industries. Policy guarantees and the release of market demand will activate the Chinese elderly education training market.
International education The young age and popularization of overseas education promote the extension of industrial services The age group of mainstream international students has changed from the earliest graduate students, to undergraduates, to high schools, and even to secondary schools and primary schools. On the one hand, this is due to competitive pressures. On the other hand, parents hope that the younger children will go abroad, the sooner they will integrate into the local community. The young age of overseas education has spawned a large
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number of related young-age overseas education service companies, such as overseas education guardianship services and boarding services. Through technical means, these institutions provide an integrated homestay and overseas education guardianship service, which enables students, parents, schools, application counselor, and host families to have a closer and more transparent relationship, which not only fills the current situation of information asymmetry at home and abroad, but also solve parents' concerns about the safety and academics of their children. With the continuous expansion of the number of students studying abroad, many overseas education companies began to provide cross-border services based on their existing customer group, expanding upstream and downstream needs and providing integrated solutions. For example, some overseas education companies provide cross-border financial services: from simple exchanges, remittance services, to overseas financial management, overseas real estate investment, and even to cooperation with banks, insurance, and real estate companies to provide Liuxuebao, overseas students insurance, school district houses and other products; there are also companies that have crossed the border into the human resources industry, turning from the overseas education consulting institutions to headhunters, employment agencies, and entrepreneurial bases, and recommending qualified students to work on suitable platforms.
Section 4 Education Market Segments – Education Related Informatization The closed loop of hardware, system and content trinity will become the strategic choice of education informatization companies The gross profit margin of hardware products is low. If traditional hardware product manufacturers rely solely on hardware products, it is difficult to continue to win in the price war. The manufacturers who produce system alone will face compatibility problems on the one hand, and on the other hand face the risk of falling revenue from a single product portfolio. Education informatization companies often need unique hardware to build their differentiated competitive advantages. Hardware is the foundation for them. Therefore, the hardware + system (software) model becomes the usual choice for the manufacturers of China's first round informatization construction. With the continuous deepening and advancement of education informatization, the hardware + system model is not enough to stand out from the competition. The informatization closed loop of hardware, system and content trinity can enhance customer stickiness to a greater extent. Education informatization companies can connect high-quality educational resources (content) with teachers, students and parents through the “every class can get access to quality teaching resources” and “the network learning space will be accessible to everyone”. In this way, they can not only introduce the content resources of third-party companies for platform sharing, but also do content production through self-built team. They can obtain data advantages by providing systems and hardware services, and produce more targeted and forward-looking content. Education informatization manufacturers will provide a total solution that includes management consulting, process reengineering, hardware implementation, software deployment, digital learning resources, training, and support services.
Media We-media products like short video are expected to be the most efficient means of educational information dissemination With the advent of the 5G era, short video, as a form with richer information carrying capacity than graphic and audio, will become another important media for educational information. At present, the market size of China's online education industry is still small compared to off-line education, and there is still huge room for development in the future. When online education and off-line education models alternate, on the one hand, huge online users’ needs for educational information acquisition and the experience of famous teachers’ class have not been met; on the other hand, the comprehensive digital upgrade of the off-line education resources has not been completed, and the resulting gap of demand can be met to some extent by We-media products like short video. Through the rapid dissemination of short videos on communication carriers such as WeChat, APP, website and Weibo, excellent teachers and high-quality educational resources have become Internet celebrity, transforming from the ordinary sharing education model to the open communication model.
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Short videos can be used to reach users in the segment by means of big data, and promote the sales of online education courses or off-line education courses.
Publishing The publication of digital teaching materials and teaching supplements will be the main incremental market for the education publishing industry From content production to processing and production to dissemination and preservation, a new publishing format, digital publishing, is produced by digital technology participating in all aspects of publishing. With the implementation of the Education Informatization 2.0 Action Plan, the demand for digital teaching materials and teaching supplements is expected to show explosive growth. Its popularity and application will inevitably change the product form, production methods and operational processes of traditional industry players, who are shifting to digital publishing. Although the form of the education publishing industry has changed, in essence, regardless of how the publishing and reading technologies change, the educational content is always the core of the value chain. Publishing companies with high-quality content can be invincible both online and offline.
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About CFA China Shanghai CFA China Shanghai was established in October 2008. Its founding members are mainly financial professionals with CFA charters. They are committed to integrating financial technology with asset management to promote the highest ethical standards and professional ethics in the financial industry. The main goal of improving the professional level and research methods of financial investment and analysis is to support and lead the global investment community to build Shanghai International Financial Center. CFA China Shanghai has a volunteer team with more than 100 people, with several senior members from securities, funds, exchanges and regulatory agencies as the core, and assisted by a number of professional groups to provide quality services to nearly 2,000 local Shanghai members, including continuing education lectures, building social platforms, promoting ethics and professional standards, and promoting the application of financial technology in the investment area, aiming to create close ties between financial professionals and investment communities in Shanghai and contribute to building a talent environment in Shanghai's financial center CFA China Shanghai will continue working hard to build an internationally influential CFA Society Shanghai, continuously promote the cultivation and introduction of financial talents in Shanghai, enhance the standardization, specialization and internationalization of Shanghai's financial industry, and make its own contributions to build Shanghai into an international financial centers and world cities with Chinese characteristics as soon as possible.
About CFA China Shanghai Crowd-Research Project The CFA China Shanghai Crowd-Research Project is a public welfare research project initiated by the CFA China Shanghai Further Education Group and funded by the CFA Asia-Pacific Research Exchange (ARX). It aims to promote in-depth research in the industry, provide development advice for industry companies, and help investors to judge investment trends. The members of the research team are recruited among the members of CFA China Shanghai. All members do not receive any remuneration and contribute their time and energy to complete the research work for free. This research topic is China education industry market insights, which took about 6 months to complete. The research team leader is Zhang Shuguang, CFA, and the research team members include: Feng Hao, CFA; Han Xu, CFA; Li Chen, CFA; Wang Yingren, CFA; Xu Shenjun , CFA; Ying Yi, CFA; Zhang Chen, CFA; Zhao Yang, CFA. If you have any questions or suggestions about this report or the CFA China Shanghai Crowd-Research Program, please contact: [email protected].
Acknowledgments During the writing of this report, interviews and communications were conducted with experts and scholars in the industry. Thanks to the industry insiders who gave us professional guidance, including Guo Tao, CFA; Xu Dongjiang, CFA; Scott Lee; Yin Ling; Lin Zheqing and Gao Yanying made an important contribution to the successful publication of this report. In addition, we would like to thank the School of Economics of Fudan University for providing site support for this study. We would like to express our sincere gratitude to all those who have given valuable time and experience to this report!
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