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After-class War

China’s English training market has been expanding rapidly, especially for children, and despite the shortfall in qualified teachers, it is attracting a lot of investment, especially to the online-only market

By NewsChina Updated Jan.1

Walk into any shopping mall in Zhongguancun, Beijing’s Silicon Valley, and you are sure to be handed a fistful of leaflets advertising English language teaching. English teaching institutions, scattered in department stores or among residential quarters, mainly target students between three and eighteen, referred to as K-12, or from kindergarten to 12th grade.
RISE is one of the largest extra-curricular English lesson providers in Zhongguancun, and it debuted on the Nasdaq Stock Market on October 20, 2017. In the first half of 2017, RISE registered revenues of 437 million yuan (US$66m), up 38.7 percent year-on-year. Its net income in this period exceeded that of the whole previous year.
K-12 language training has become a major area of investment in China in recent years. According to recent statistics from Jingdata, a financial data provider, at least 466 rounds of financing were conducted in the education sector over the past 12 months, and competition in the after-class English training market has become increasingly fierce. 

Booming Business 

According to a survey on China’s education industry conducted by Deloitte in May 2016, China’s education sector has expanded rapidly, and the market scale is expected to reach three trillion yuan (US$454b) in 2020, up from 1.6 trillion yuan (US$240b) in 2015. Meanwhile, the market size of the country’s English training industry was 104.2 billion yuan (US$15.7b) in 2015, and it is projected to exceed 220 billion yuan (US$33b) by 2020, according to Bosi Data Research Center, a Beijing-based market consultancy.
51Talk, one of China’s largest online English education providers, went public on the New York Stock Exchange in June 2016. Huang Jiajia, its CEO, told NewsChina that the market potential reflected the growing demands for after-class English programs. 
Before 2000, she said, exam-oriented training programs such as TOEFL and IELTS – mostly taken for immigration or university entrance purposes – dominated the English teaching market nationwide, but latterly, Chinese parents have attached growing importance to English communication skills.
“Nowadays, most parents of primary school students in China were born in the 1970s or 80s,” Huang said. These parents were mostly just taught English reading and writing skills when they were at school, and they don’t want their children to follow in their footsteps. 

Bai Jiaoyu, chairman of English First (EF) China, told our reporter that the changing mindset of Chinese parents started in 2005 when the concept of a “critical language learning period” was prevalent. It stated there is a crucial moment for children to master a language, and it will yield twice the result with half the effort. 

“The critical period hypothesis was proposed through studying children’s mastery of a second language after they emigrated to an English-speaking country,” said Gong Yafu, head of the foreign language education branch of the Chinese Society of Education. He said that it aimed to discover the best period for children to master a second language in a new language environment. From this perspective, he said, the theory is not suitable for China. To this day, however, virtually all after-class English training schools nationwide still use the concept to promote their classes. 

In recent years, new education policies that aim to relieve the burden on elementary school students also contributed to the popularity of extra-curricular English training programs. In 2011, the Ministry of Education announced that English would not be taught at elementary schools before the third grade. In 2013, it announced there would be no required exams for elementary students before the third grade. In 2014, however, Beijing’s municipal education authorities announced that both the city’s high school entrance exam and college entrance exam will emphasize the language use capacity of students.  

Hu Min, CEO of New Channel, a major English training institution in Beijing, argued that because of the limited hours of English classes at school, students have to take after-class English programs to practise their language skills, which has “reshuffled the English training market.” 

Huang Jiajia, CEO of 51Talk, told our reporter that when the company was established in 2011, its main business was teaching adults oral English using instructors from the Philippines. After 2015, the company began to switch the business to K-12, and in the first half of 2017, K-12 accounted for nearly 72 percent of the company’s revenue. 

According to Zhang Yu, PR manager of VIPKID, an English training institution targeting K-12, the company has trained over 200,000 people as of July 2017, securing revenues of two billion yuan (US$300m) from January to July 2017. 

Teaching Shortfall 

Nowadays, many English language training institutions promote their K-12 programs to both children and their parents. “The English training industry is heavily dependent on selling dreams, and the dream is for parents rather than for children,” a senior English teacher at a training institution told our reporter, on condition of anonymity. 
“The promotion strategies of many training institutions are virtually the same – once they are admitted to an English program, children are more likely to succeed,” she said. 

Many institutions have also introduced other subjects, including math, science and history, which are taught in an immersive English environment. What’s more, some institutions have introduced complete curriculums from overseas elementary schools. 

Yuan Xue, a senior manager at RISE, told NewsChina that the most difficult part of training is to change the mindset of teachers. RISE has introduced several courses and textbooks directly from the US. She said it is crucial in American education to train students’ critical and creative thinking, but many teachers at RISE are Chinese who were not raised or educated in the US, and so do not find it easy to teach this way.
Gong Yafu told our reporter that the direction of learning English through subjects at training institutions is good, but textbooks have to be simplified. He added that most Chinese parents want to send their children to English-training institutions with teachers from the UK or US, claiming that foreign teachers from native English-speaking countries have purer accents than those from home or other countries. 
The huge market and prevailing attitudes of parents have boosted the demand for foreign teachers at training institutions, but a recent survey found that most foreign teachers working at English training institutions in China do not have the required qualifications, according to the Beijing News.
China’s State Administration of Foreign Experts Affairs recently announced that foreigners who work at English training institutions in China should come from English-speaking countries and have a work permit. 
In addition, foreign teachers must have an undergraduate degree or above and at least two years of teaching experience, unless they have teaching certificates, which can include either TEFL or TESOL, qualifications that certify someone as competent to teach English as a foreign language.  

“English classes taught by qualified teachers from the UK and US are very expensive,” Gong said. “And not everyone from the UK or US can teach English.” Nowadays, some online English training institutions advise that all their teachers have a TESOL certificate. Gong argued that with the certificate, teachers have a more theoretical background, but to be a good teacher, it is more important to have teaching experience as well as a scientific curriculum.
Many online English training providers announced that their curriculums are designed in accordance with the Common Core State Standards in the US, or the Common European Framework of Reference for Languages (CEFR), a guideline mainly used to describe the achievements of learners of foreign languages across Europe.
Gong said that these language evaluation criteria are actually unfit to measure the language skills of Chinese students. For example, CEFR is designed for adults in the EU, and it is the basic requirement for adults to introduce themselves, including talking about their job, education and life. It is, according to Gong, not appropriate to measure the language skills of a three-year-old Chinese child. 

Capital Inflow 

in Lu, investment manager at Northern Light Venture Capital, said investments began to flow to the English training sector in China in 2013. He said his company has always kept an eye on the vocational training market, and then they switched to English training, particularly K-12. 

According to a National Bureau of Statistics report on the Chinese market for English training for children, the market size of English training for children is 60 billion yuan (US$9b), up by 20 percent year-on-year. According to another report on the children’s English training sector in 2016 conducted by iResearch, a private consultancy, 87.2 percent of Chinese parents are in favor of children studying English before the age of five, and 63.9 percent of parents would send their children to study English at training institutions. 

“Parents know very well how important English is, and this is the biggest characteristic of the English training market,” Lin told NewsChina. “There is no need to make an effort to explore the market. As long as a company provides a different training program [from others], it can enter the market quickly.”
Lin told our reporter that back in 2013, at least two new online education websites started up every day, and by 2014, several of them obtained revenues of over 100 million yuan (US$15m). “It revealed that capital is optimistic about the great market potential of online English education programs,” he said. 

In addition, the high proportion of children continuing to study program after program plays a big role in drawing in capital. “English training programs that target adults usually last one or two years. But programs for children last much longer, even from kindergarten through to the end of elementary school,” said the senior English training teacher who declined to be named.
Nowadays, many English training institutions provide overseas study tour programs to brush up children’s English skills in foreign countries while increasing revenues. In September 2017, RISE snapped up a study tour company in Hong Kong for HK$30 million (US$3.8m). 

New Oriental and Tomorrow Advancing Life, two of China’s largest extra-curricular training providers, have seen a rise in their stock price of 191 percent and 117 percent respectively. A survey conducted by Frost & Sullivan, however, showed that EF, New Oriental and RISE accounted for only 3.6 percent of the market share. 

“It is because of the characteristics of education,” Lin said. “Apart from money, consumers have to spend time to study, which means if they choose to study at one institution, they can’t find the time to study at another.” 

Lin is very optimistic about the English training market in China, but he argued that in the future, the best company could at most secure a market share of 20 percent. 
“The opportunities to invest in online education are shrinking, but online education, as a new investment category, has just started.”