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China on Saturday banned academic training agencies from raising capital through IPOs and from foreign investors a move that an expert said may deal a fatal blow to many Chinese education companies. Some US-listed Chinese tutoring companies even face delistings.

Academic training agencies are banned from going public for financing and capitalizing operations, according to an overall guideline to ease the burden on school students in compulsory education issued by the General Office of the Communist Party of China Central Committee and the General Office of the State Council on Saturday.

Foreign capital is not allowed to control or participate in academic training agencies through methods such as mergers and acquisitions, entrusted operations, and franchise chains. Those agencies who have violated the regulations will be cleaned up and rectified, the guideline read.

The stringent  supervision measures verified a market rumor which caused US-listed Chinese education stocks to plummet on Friday, wiping out billions of dollars for renowned companies such as New Oriental Education & Technology Group and TAL Education Group.

The regulation measures may deal a fatal blow to Chinese off-campus education companies as the measures have almost cut all financing channels for them except funds returning from their own earnings, according to an expert.

Some Chinese education companies with weaker financial foundations may fail this time, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies, Renmin University of China, told the Global Times on Saturday.

Given foreign investments are also banned from participating, rectification is required for existing violations, many US-listed Chinese companies may even face delistings, Dong added.

Reports that Chinese authorities planned to further tighten regulations on the private education industry caused TAL Education to fall 70 percent and New Oriental Education and Technology to drop 54 percent on Friday.

Briefing the guidelines to ease the burden on school students in compulsory education on Saturday, an official from China's education ministry said that the guidelines were  issued because off-campus training is still overheated, and the problems related to excessive and over-standard training have not been fundamentally resolved yet.

The negative effects of capital-driving operations in the tutoring industry have long existed, Dong said, adding that pushing tutoring companies into not-for-profit operations is a due measure to correct disorderly competition.

Global Times