Educational enterprises welcome new developmental opportunities through leveraging local capital markets

EY Chen & Co. Law Firm jointly organized the seminar on “Education Enterprises’ Financing in Domestic Capital Market under the New Regulations” with the Shanghai Stock Exchange, on 20 May 2016, to push forward the growth of the Chinese education sector.

Chen & Co. Law Firm jointly organized the seminar on “Education Enterprises’ Financing in Domestic Capital Market under the New Regulations” with the Shanghai Stock Exchange on 20 May 2016. Participants came from curricula education enterprises, training agencies and early learning centers in the private education industry and EY professions from various sub-service lines. The seminar served as a platform to push forward the Chinese education sector growth by taking a deeper look into the current state of the industry, exchanging ideas and considering the impacts of reforms of education laws on non-governmental education enterprises’ financial operation as well as remedial measures.


The revised “Education Law” no longer follows the traditional principle that education shall be non-profit-making. The deliberation of the “the Law of the People's Republic of China on the Promotion of Privately-Run Schools” lead to separated registration and management of private schools based on their nature of being profit-making or non-profit-making. Those changes constitute a tremendous reform to the education industry and will lead to a new top-down master plan for private education development and bring new opportunities to the industry.


1. Going back to the local market – new opportunities for educational enterprises


Experts from the Shanghai Stock Exchange introduced the development of multi-level capital markets as well as different options of going public from the perspective of setting up the service platform for capital markets. Due to the constraints faced by non-governmental educational enterprises, it was difficult for them to meet the various requirements in order to go public, including the legal status and profitability. As a result, only a few of them were able to become A-share listed entities. As the mainland China legal environment as well as the financial market undergo continuous reforms, educational enterprises will face new opportunities for going public locally. In terms of means of going public, IPO may become one of the most popular options for educational enterprises.


2. Reforming education laws – bringing challenges as well as opportunities


Legislators revised relevant laws to effectively solve issues related to education through fundamental institutional changes. Professor Wu Hua, doctoral advisor and director of the Research Center of Private Education in Zhejiang University, expressed that there is no reasons that would prevent completion of the reform by June of this year. He then moved on to explain the underlying reasons and policies of the reform from an institutional perspective, putting forward the view that the new mechanism of differentiated management of schools is to ensure the uniform implementation of the national legal system in the educational sector.


Professor Wu’s view met with approval and invoked further in-depth thoughts among the audience. He proposed that compensations and transition periods for current non-governmental schools should be handled by regional legislation. On top of that, he pointed out that compensations and preferential policies were the focus for policy design, and that after the amendment of the Education Law, legal obstacles hindering the establishment of profit-making non-governmental schools should be eliminated. As a result, regardless of whether differentiated management would be adopted, the emergence of such schools is certain.


Through years of experience and observation, Jiang Xiaoyong, Director at Shangde Education, provided his insights on the bottleneck faced by the development of non-governmental educational enterprises. Among capital, teaching staff and curricula, he identifies lack of capital as the constraint for their development. In order to overcome the limitation, it is essential that schools are allowed to make profit. He also remarked that the effects of the “Non-governmental Education Promotion Law” remain uncertain and would take time to be assessed.


3. Finance, internal control and legal: one-stop service for the development of educational enterprises


Frida Sun, Partner at Chen & Co. Law Firm, held a keynote speech on “Legal Implications of the new framework on non-governmental educational enterprises’ operations in local capital markets”. Frida focuses on corporate financing, corporate restructuring, mergers and acquisitions, private equity and venture capital and she is experienced in solving legal problems faced by educational enterprises. By combining practical experience and cases educational enterprises could make reference to when going public, she explored possible options for educational enterprises in the capital market as well as the legal structures of educational enterprises under the new legal framework.


William Huang, Partner at Ernst & Young Hua Ming Certified Public Accountants, provided a detailed analysis on common financial and accounting issues faced by educational enterprises as well as auditing problems while going public. He identified several major areas to which educational enterprises should pay attention, including the authenticity and fluctuations of income, accuracy and variations of costs, adjustment of cost of revenue, accounting practices for government subsidiaries, substantial fluctuations in financial statements and differences between source documents and finalized statements.


Batty Cao, Partner at Ernst & Young (China) Advisory Limited, introduced and analyzed the internal control standards for companies going public. He emphasized that internal control mechanisms are implemented not solely to comply with the law, but also to achieve the practical objective of ensuring smooth operation within the companies. Compliance with the law is merely a by-product which helps companies improve by protecting assets and assures efficiency.


4. Optimistic Prospects for Educational Enterprises entering the capital market


Anip Sharma, Vice President of the global consulting firm Parthenon a related enterprise to EY, shared his views on the Chinese education industry’s situation and investment patterns. Using extensive data, he showed that China is the second-largest spender on education worldwide where most international students come from. At the same time, Chinese families’ education-related expenditure has been growing. Taking into account the typical case of prestigious pre-school education, non-governmental primary schools, international secondary schools as well as studying abroad, the amount spent on each student could reach up to US$ 400,000. According to conservative estimates, the potential market for non-governmental education in mainland China is valued at US$ 30b with an annual projected growth rate of over 10%, reflecting great demands and opportunities.


Tony Mao, Principal Partner at Ernst & Young Hua Ming Certified Public Accountants, believes that the reform in education law carries both opportunities and challenges, allowing traditional educational enterprises to participate in capital operations. He pointed out that EY has been actively involved in the educational field and has provided comprehensive services covering various sectors such as auditing, consulting, tax, transactions and legal services, providing a one-stop solution for educational enterprises to overcome challenges in entering the capital market.


The discussion session was hosted by Frida Sun and participants included Jiang Xiaoyong, Director at Shangde Education, Li Xuecai, CFO at Hunan International Economics University, Feng Jiuguang, principal at the WLSA High School affiliated to Fudan University, Shi Wenxin, General Manager at First Capital Fund Shanghai, Professor Wu Hua, doctoral advisor and director of  the Research Center of Private Education in Zhejiang University, Wu Qiang, Director at Stickman Innovative Education, Wang Ping, CFO at Beichen Education, William Huang , partner of Ernst & Young Hua Ming Certified Public Accountants and Andrew Chen, Partners at Ernst & Young (Shanghai) Certified Tax Agency Company Limited.


The in-depth discussion between various professions was inspiring and intellectually stimulating, covering a wide range of common concerns of educational enterprises. Topics included balancing the focus on assets in establishing schools, the differences between non-governmental bilingual schools and governmental schools, factors to be considered when international curricula are brought into the local context, incentives for teachers in non-governmental schools, the considerations of investors related to the education field, possible ways of implementing innovative education into the Chinese education system, core competitive strengths of the after-school tutorial industry, the implications of the reform on non-governmental school’s taxation and how non-governmental high schools are able to expand under stringent monitoring.


For further information, please contact:




Chen & Co. Law Firm

Phone: +86 21 22288328



Frida SUN

Executive Director 

Chen & Co. Law Firm

Phone: +86 21 22288320



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