Chinese education stocks plunge as Beijing reportedly wants to turn tutoring companies into non-profits

• Shares of Chinese tutoring companies are crashing Friday after Bloomberg reported that Beijing is targeting the sector.
• China is considering asking education tech companies in the $100 billion sector to turn into non-profits.
• Shares of Tal Education Group and Gaotu Education were among those being hammered in the US market.

Shares of Chinese education companies sank Friday, losing more than half their value following a Bloomberg report that China may ask companies that offer school curriculum tutoring to become non-profits, a move that could severely damage the country's $100 billion education technology industry.

Beijing is considering rule changes that could lead to platforms being blocked from raising capital or going public, the report said, citing unnamed sources. Listed firms will likely no longer be allowed to invest in or acquire education firms teaching school subjects and foreign capital investment into the sector may be banned, according to the report which also said an education ministry spokesman said relevant policies are still being formulated.

NYSE-listed shares of Tal Education Group, which runs after-school tutoring programs for primary and secondary school students, tumbled by 55% in premarket trade and New Oriental Education & Technology Group slid 62%. Gaotu Techedu, formally known as GSX Techedu, dropped 59%. In Hong Kong, Koolearn Technology sank 28%.

NYSE-listed shares of Alibaba fell 3% as the e-commerce heavyweight has invested in the online education industry.

The report said China is taking aim at the sector in part because parents pay expensive fees for tutoring and the country, in serving a top priority of lifting the birth rate, last month released measures aimed at encouraging births and lowering child-related expenses. China in June said couples will be allowed to have three children.

The potential threat to the education tech sector also comes as China has been cracking down on companies with listings in the US and foreign equity markets, with Beijing's concerns ranging from data security and disclosure requirements. Investment banks are moving to steer Chinese IPOs away from the US market and into Hong Kong, according to a Financial Times report.

Ride-hailing giant Didi Global is among Beijing's targets, with regulators launching a cybersecurity review just days after the company's shares began trading in the US on June 30. Didi shares fell 13% early Friday, extending losses from Thursday on news that China is considering serious penalties for the company following its IPO.