Chinese edtech unicorn downsizes amid scrutiny, withdrawing job offers from 2,000 graduates

Yuanfudao is among the latest cohort of companies to be issued the maximum fine of 2.5m yuan as Chinese regulators race to standardise the nation’s e-commerce sector and quell the industry’s ‘chaotic’ growth

Yuanfudao, the Tencent-backed Chinese edtech unicorn worth US$15.5bn, is among a handful of companies embroiled in the nation’s latest technology industry scandal, most recently hitting headlines for its attempt to withdraw or defer employment offers made to more than 2,000 new university graduates.

On Tuesday (1 June), state media the People’s Daily reported that China’s market regular had fined 15 private tutoring firms a combined sum of 36.5m yuan (US$5.73m) – of which 2.5m yuan (US389,000), the maximum issuable fine, went to Yuanfudao alone – for alleged false advertising and pricing fraud.

Alibaba-backed Zuoyebang and New Oriental Education & Technology Group are also among the corporations that have been issued fines, said the People’s Daily, citing a news briefing by the market regulator.

The scandal has fuelled Yuanfudao’s efforts to downsize and retract recent offers to new pre-school tutoring hires, who are mostly fresh graduates, as local media Phoenix Weekly‘s business section reported on Monday (31 May).

Under a false name, Zhang Yun, a recent graduate, told Phoenix Weekly that the company asked her to choose between postponing her offer until September or scrapping it altogether. She had already declined alternative opportunities in favour of the position with Yuanfudao, and had committed to renting a home in a new city in preparation for the role. She is unfortunately not alone, since ovarious regional news platforms reported on other graduates in similar situations.

A Yuanfudao spokesperson told Tech Node that the organisation has now established a special unit to support graduates who are consequently facing “real difficulties” financially – including those who have signed accommodation contracts or rejected alternative offers. He also claimed that the company has reneged a number of withdrawals, allowing some new hires to start work as initially planned.

The news comes as Beijing-based regulators continue to tighten their grasp of the country’s technology sector, with their efforts now closing in on private education businesses. The latest string of fines and admonitions have targeted the e-commerce, gaming, video streaming and food delivery industries, this week also shifting focus to online tutoring start-ups.

In other news: Inadequate websites could be harming universities’ ability to attract prospective students

The move is significant and poses a threat to the nation’s global edtech presence and impact, since China holds eight of the world’s 15 edtech unicorns (meaning a privately-owned start-up valued in excess of US$1bn) as of early 2020, with the global industry’s other seven unicorns located in the US. The recent changes and resulting complications mean venture capitalists and individual investors are now likely to approach the nation’s edtech sector with caution, fearful of industry instability.

According to a WeChat article published by the State Administration for Market Regulation (SAMR), both Yuanfudao and Zybang are among those accused of publishing false information on their websites. Zybang, for example, has been charged with misleading consumers by falsely claiming  it is “cooperating with the UN” and posting inauthentic customer reviews online. Yuanfudao, on the other hand, has publicly circulated non-existent teaching experiences online, also displaying a cost discount tag of 9 yuan (US$1.4) on some of its digital offerings, despite never selling them at such a price in real life. Such practices breach the terms of China’s Anti-Unfair Competition Law, said the SAMR.

Image source: tirachardz/Freepik

Both Yuanfudao and Zybang have accepted the financial penalty and claim they are reviewing internal business practices.

Shenzhen-based Bond Education has also been accused of inflating a trial class package to 420 yuan (US$65.59) and offering it for a discount rate of 12 yuan (US$1.87), according to state broadcaster CCTV.

GSX Techedu, TAL Education-backed Xueerxi, Koolearn Technology, and Goasi Education were also fined for fraudulent pricing strategies last Month (April 2021).

E-commerce giant Alibaba Group Holding also recently fell victim, with China’s antitrust regulator imposing a fine equivalent to US2.8bn, claiming the company had been abusing its dominant position over rivals via various online platforms.

The nation’s bid to tackle after-school institutions, including digital education providers, follows February’s speech by Chinese education minister Chen Baosheng who warned that this year, regulators would be investigating after-school training institutions to shield students from gruelling extracurricular classes.

In March, President Xi Jinping also warned against the excessive pressure placed on students in Chinese education.

A change implemented in July 2019 in a bid to help standardise online education now means all foreign teachers in Beijing must hold valid professional credentials and requires all companies to make related information – such as certificates and work experience history – openly available to the public.

Earlier this week (1 June), an amendment to China’s Minors Protection Law prohibited kindergarten and private tutoring firms from delivering elementary school-level programmes to pre-school students – a change that affects other edtech corporations such as Vipkid and Bytedance.

Regulators believe the misleading practices employed by online education providers have been used to tempt parents into splashing their cash on extra classes in a bid to get their children ahead in China’s competitive education system.

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