On the one hand, the education population has a large base and the market has broad prospects. Encouraged by the second-child policy, the number of children in private kindergartens is expected to usher in a period of rapid growth. In 2020, the number will reach 60 million, and the market scale will exceed 607.9 billion yuan.
On the other hand, thanks to the continuous improvement of household income levels, there is an ever-growing and impending need for high-quality private education. In addition, the post-80s parents and the post-90s students pursue differentiated education, which provides strong impetus for the development of international schools and overseas study services.
The Catalogue of Industries for Guiding Foreign Investment (Revision 2017) encourages foreign investors to invest in non-school training institutions in China. In addition, the 2018 Government Work Report mentioned that China will further expand the opening up of the education sector.
The Interim Measures for the Administration of Sino-Foreign Cooperative Joint Venture Training Institutions in the China (Shanghai) Pilot Free Trade Zone released in November 2013 allows such institutions to register as limited liability companies in China (Shanghai) Pilot Free Trade Zone, providing a new opportunity for foreign investment in the Chinese education industry.
Currently, foreign investors often employ the following two models for investment. The first is the "VIE" (Variable Interest Entity) model, which means that an onshore entity invests in domestic education and training. Foreign investors do not directly own the domestic entities, but control them through a series of agreements. Typical examples of this model include the TAL Education Group and New Oriental. The second is the "Joint Venture/Cooperation” model, in which foreign investors establish joint ventures/cooperatives based on relevant provisions.