E-learning in China set to take great leap forward with jump in demand, investments

A worker spraying disinfectant in a primary school in Huaibei, Anhui province, on Feb 19 ahead of the start of a new term. The Covid-19 pandemic and the disrupted academic schedules are making millions of Chinese parents shell out money to ensure the
A worker spraying disinfectant in a primary school in Huaibei, Anhui province, on Feb 19 ahead of the start of a new term. The Covid-19 pandemic and the disrupted academic schedules are making millions of Chinese parents shell out money to ensure their children receive quality online education. PHOTO: AGENCE FRANCE-PRESSE

BEIJING • Time was ticking, the day's deadline was just an hour away, but accountant Tang Zhumei suddenly stopped auditing dozens of financial statements that were piled on her desk.

Upon receiving a pop-up notification, the 39-year-old mother from Beijing reached for her smartphone and, in a jiffy, bought an online English-language course for her 11-year-old daughter.

The 60-session course set her back by 9,000 yuan (S$1,840), paid via WeChat Pay, but Ms Tang said she believes it is worth every cent of the money spent.

The Covid-19 pandemic and the disrupted academic schedules are making millions of Chinese parents think nothing of shelling out big bucks to ensure their children receive quality online education.

Online education providers are not complaining. Some of them, in fact, have been laughing all the way to the bank. And investors are chasing them for a slice of the education pie.

Industry data shows that a whopping 50 billion yuan was invested in the segment last year. That was more than what the industry had received from investors in the previous 10 years.

Things will only brighten up further going forward, said industry observers. China's 14th Five-Year Plan (2021-25) highlighted that the country is expected to "give full play to the advantages of online education, so as to improve the lifelong learning system and build a learning society".

It was the first time that the government's economic development plan highlighted the role of online education.

China's online education sector was expected to achieve sales revenue of 485.8 billion yuan by the end of last year. In 2019, the revenue was 387 billion yuan.

The total number of users will likely reach 351 million, according to consultancy iiMedia Research.

As both students and parents have deepened their familiarity with virtual classrooms, demand is rising for higher-quality lessons, more technological breakthroughs and more innovative e-learning methods.

"The epidemic is directly driving China's online education industry to take a big leap forward. It has now become a large-scale education experiment," said Mr Zhu Yongxin, deputy secretary-general of the National Committee of the Chinese People's Political Consultative Conference and vice-chairman of the Central Committee of the China Association for Promoting Democracy.

Buoyed by the government's policies, Zuoyebang, China's largest online education start-up in terms of users, raised US$1.6 billion (S$2.1 billion) in December in its series E-plus round of funding led by a slew of renowned investors that included Alibaba Group, Tiger Global, Softbank Vision Fund, Sequoia Capital China and FountainVest Partners.

The funding round followed that of Yuanfudao. The education start-up raised US$2.2 billion in two rounds in October last year.

Such capital infusions are a huge contrast to the less than US$500 million that top education start-ups could barely muster a year ago.

"Education firms' funding rounds have become fewer, but the average amount of money raised in a single funding round has grown larger than expected," said Mr Jiang Kaiyang, director of investment bank Taihecap. "There is extreme differentiation in financing in the education sector. While leading education firms receive funding easily, smaller ones are facing difficulty."

In 2019, there were 580 cases of financing to the tune of 16 billion yuan. The number of financing cases shrunk to 305 but 50 billion yuan was invested by early December last year, he said. "The average amount in a funding round rose about six times."

Agreeing, Mr Chai Mingyi, associate vice-president of New Oriental Education and Technology Group, said: "It reflected a change in attitude in the education sector where investors no longer chase short-term benefits. They prefer gradual investments for long-term value."

Mr Shen Wei, executive investment director of US investment firm Warburg Pincus, concurred. "This year, we will continue to increase investments in some follow-up projects which are select leading companies in the education field."

Mr Shen said two aspects characterise the education industry this year - the number of larger fund infusions has risen, and leading companies will receive funds more easily than in the past.

"Investors are concentrating on top companies in the field as they believe these companies have a competitive edge and will generate higher returns in the long term," he said.

And not just start-ups; even established players such as Nasdaq-listed TAL Education Group are the apple of investors' eye these days.

TAL said it is raising around US$3.3 billion through a private placement. Of the total, Silver Lake will contribute US$2.3 billion for convertible notes while the remaining US$1 billion will be raised by issuing new class A common shares.

"The capital market supported online education companies as investors are optimistic about the development prospects of the sector, which is essentially their estimate of the scale of a company in the field," said Mr Zhou Feng, chief executive of NetEase Youdao, the education unit of NetEase.

"It means that the online education sector is far from reaching the zero-sum stage. It is still an incremental market and has great room for growth," he said.

CHINA DAILY/ASIA NEWS NETWORK

  • 351 million

    Total number of users China's online education sector is expected to reach, according to consultancy iiMedia Research.

A version of this article appeared in the print edition of The Straits Times on February 24, 2021, with the headline 'E-learning in China set to take great leap forward with jump in demand, investments'. Subscribe