Will China's Education Reforms Help India's Booming Edtech? The bigger funds that had earlier earmarked capital for deployment in Chinese edtech space will have to alter their strategy and start looking at other geographies

China recently announced a set of reforms for its private education companies. Its governing body, the State Council, has banned after-school tutoring companies from making profits, raising capital, or going public. It has also said that these companies cannot take online or academic classes for children under the age of six.

The move is being looked at as a setback to China's booming $100 billion edtech industry, backed by large investors such as Tiger Global Management, Tencent, Alibaba, Temasek and SoftBank.

The move is being looked at as a blessing in disguise for India, as investors will now be keen on diverting the funds to the second biggest edtech market in the world.

Reasons Behind China's Move

The Chinese government has taken such a drastic step to ease pressure on school children and reduce the cost burden on parents. "The recent move is driven by the thought that it is promoting an unequal society and is against the spirit of a level playing field with respect to enhanced learning skills for only the rich and the affordable and hence the move," said Yagnesh Sanghrajka, founder and CFO, 100X.VC.

China is facing the obstacle of an aging and declining population. To combat the concern, China aims to encourage more childbirth. And, on average, Chinese families reportedly spend 11 per cent of their annual family expenses on their children's future. So, the latest reform is in line with Chinese President Xi Jinping's priority to address the issue of the declining birth rate in China, as making education affordable is one of the key drivers to encourage parents to have more than one child.

"Also, the pandemic has disrupted the education system all over the globe. This decision will help the students to focus on their studies more. This step can also increase the revenue generation inside the country as the pandemic has shaken the economy of all the countries," added Ankit Shyamsukha, CEO, ICA Edu Skills.

How India's Edtech Can Gain

According to the World Economic Forum report, about 1.2 billion students across 186 countries were out of school in 2020 due to COVID-19 and related restrictions. The global investment in edtech will grow from $18.66 billion in 2019 to $350 billion by 2025. So, when China is shutting its doors, experts believe, investors such as Tiger Global, SoftBank, Temasek will look for opportunities in countries like India, which has a large population of students and early career professionals. "Also, during the pandemic edtech market has enjoyed a lot of opportunities and profits in India and India is still a niche market as digital education still needs to reach a deeper level, into the rural areas," Shyamsukha added.

Indian founders are expected to benefit from the fact that the bigger funds that had earlier earmarked funds for deployment in Chinese edtech space, will have to alter their strategy and start looking at other geographies. "Considering Indian demography and a large free English-speaking market where edtech companies are helping in making people more employable with offerings right from K-12 to higher education, India seems to be the natural beneficiary. Also, Covid-19 has triggered the adoption of edtech in India which has further propelled investor interest," said Ankur Bansal, co-founder and director, BlackSoil.

India is an emerging market, which is very similar to the Chinese market. But, unlike the saturated Chinese market, investors believe India has untapped potential that has to be harnessed properly. "With this move, the Chinese government has essentially throttled the edtech market in their country. At the same time, the Indian edtech space has proved to be a hub of innovation and transformation. Thus, global VC firms are now more likely to redirect their funds towards the booming edtech market in India," said Nishant Chandra, co-founder, Newton School.

Will India's Founders Tap Into This Opportunity?

Given the anti-China sentiments, some believe, Indian edtech founders will hesitate to use this opportunity. "China has been using illegal practices in acquiring technology for the last few decades. And we have several examples around it, like when Chinese firms were involved in illegal activities around Apple's self-driving solution. They are now trying to exert their dominance over the neighborhood Asian countries. Therefore, it's crucial for Indian companies to focus on Aatmanirbhar Bharat," said Shyamsukha of ICA Edu Skills.

After the announcement of Atmanirbhar Bharat by our PM, our startups have become self-sufficient in running their business and have been generating funding as well. Therefore, we believe that Indian start-ups founders do not need to tap into the opportunities in China. They still have India's market to explore.

Sanghrajka of 100X.VC, however, believes that Indian founders should see it as an opportunity and tap into these large funds' capital allocation. "Indian edtech startups will attract much more funds and easier access to large capital to grow the education sector which spans widely across academic, extracurricular, and the entire skills market, which the Indian Government is keen to promote, and as a result, this will create numerous employment opportunities for young professionals," he said.