• Dr Gerard Lyons

My take on China's intervention in education

There is much focus on China and government intervention

The main issue today for the markets is the focus on government intervention in a large and profitable area for the private sector: private tuition.

The education market is very competitive in China, and it is reported that 3 out of 4 children (and in urban areas, it is more likely all children) attend after school extra lessons.

The authorities appear to have placed a halt on extra tuition over weekends, and the holidays, which is a very profitable area for these private sector tuition firms.

This has led the market to cut their view of expected earnings for private firms involved in education.

Indirectly, perhaps, although this has not been commented upon much, it may raise wider concerns about government intervention more generally. This, for the moment, though, is a very specific intervention in this sector. But, if they need to, they will intervene elsewhere, as we saw previously in the financial and tech areas.

First, it should be said that nothing can be separated from the political context in China.

2021 and 2049 were always the key dates cited in China.

2021 was the 100th anniversary of the CCP.

2049 is the 100th anniversary of the People’s Republic.

And in recent years, President Xi has added 2035, which conveniently sits between the two. (Xi will be 82 by then)

Recent interventions have been interesting.

They are indicative of a very intrusive state.

It is possible, also, to argue that recent interventions can also be seen in wider economic terms as well.

The latest interventions on curbing private tuition over holidays and weekends, for instance, could be seen as a desire to help reduce the pressures and costs of having more children – consistent with the recent policy towards trying to raise the birth rate.

Thus, in terms of this intervention in education, this may be part of the official policy towards trying to raise the birth rate.

A slowing birth rate will be an important contributory factor towards China’s future slower rate of trend growth.

China’s working age population is set to shrink significantly in coming decades. This has been part of their focus on moving up the value curve, and away from a focus on low cost production. Since 2013, the authorities have continued to ease the previous one child policy, including a few months ago saying three children could be possible in urban areas. Recently there have been stories that they would not implement this fully, just as they did not implement fully the previous one child person.

There is also a huge gender problem in China. This is less talked about, but there is a surplus of boys. In 2014 when I looked at this the ratio then (in my book the Consolations of Economics) it was 118:100 of boys to girls; normally it is 101:100.

The issue then is why people are not having enough babies. One is probably cost. The latest measures on education reform is – it seems – aimed at a key area of parental cost.

In the past one additional area of cost cited has been the cost of housing.

One might ask whether this could become another focus for the authorities

After all, in recent years the authorities have tried to curb property price inflation largely for financial stability reasons. Perhaps they might try to do so now to help ease the costs of bringing up a family. There is, for now, no suggestion they will, but future intervention in different areas of the economy is always possible.

The increased risk of intervention has added to recent market volatility – another factor has been the likely deceleration of the economy this year.