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Chinese EdTech Firms Tank On Report China Wants Them Non-profit

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By Dhirendra Tripathi

Investing.com – Shares of Chinese edtech companies tumbled by a massive 60% each on a Bloomberg report that said their home country is considering asking companies that offer tutoring on the school curriculum to go non-profit.

GSX Techedu (NYSE:GOTU), TAL Education (NYSE:TAL) and New Oriental Education (NYSE:EDU) all fell. The news also inflicted collateral damaged on Didi's (NYSE:DIDI) stock, which was down 18%.

According to the report, the platforms will likely no longer be allowed to raise capital or go public. Listed firms may be barred from investing in or acquiring education firms teaching school subjects while foreign capital may also be kept out, the Bloomberg report said.

Following the news, JPMorgan (NYSE:JPM) analyst D.S. Kim sharply cut the target prices of the three companies that are listed on the NYSE. The target for GSX is now set at $3.50, TAL Education at $7.60 and New Oriental at $3.50. Ratings for all were cut to neutral due to "unprecedented uncertainty”.

The industry is under scrutiny as part of the Chinese government’s push to ease pressure on school children and the cost burden on parents.

If the Chinese government indeed takes the step, it will mean a loss of billions of dollars for American investors. It couldn’t have come at a worse time for some of those investors as they recently had their fingers burned in Didi and some other Chinese tech platforms.

Didi, which listed on the NYSE last month, has barely traded above its issue price, thanks to the probe it is now under.

According to a report in The Wall Street Journal in June, Chinese regulators had asked it to defer its listing, pending a review of its data policy. The company ignored the advice then, a step that didn't go down well with the authorities. Many other Chinese tech platforms are under scrutiny now for their data privacy policies.

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