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    Policy Swing Sends Chinese Preschool’s Share Prices Sliding

    China’s cabinet says listed companies like RYB Education can no longer operate for-profit kindergartens.

    The share price of Nasdaq-listed RYB Education, the Chinese private kindergarten franchise at the center of a high-profile child abuse scandal last November, tumbled by nearly 53 percent on Thursday. The loss was preceded by the release of a government guideline that prohibits listed companies from investing in for-profit kindergartens — an industry estimated to be worth $260 billion in China — through stock market financing.

    China’s cabinet, the State Council, published the guideline late Thursday. In addition to restricting private kindergartens from going public, it also restricts already-listed companies from owning or buying kindergartens. In addition, it pledged more government investment into public preschool education.

    RYB’s plunging stock price has resulted in a loss of $258 million. Around midnight — hours after the State Council issued its guideline — the company published a response: “We will carefully study the policy’s direction, adhering to the Party, while striving to provide preschool education that satisfies the people.” The company concluded by saying the government guideline has their “full support.”

    Founded in 1998, RYB Education has become one of China’s largest and best-known early education franchises, and was the first such company to go public on a U.S. stock market. As of June 2017, there were over 250 RYB kindergartens across 130 cities and towns in China. But the company’s reputation took a hit last November, when parents of children at an RYB school in Beijing’s Chaoyang District said they found needle marks on their children and suspected they’d been drugged and molested — claims the authorities later said were, for the most part, entirely fabricated.

    A 22-year-old teacher surnamed Liu was detained for using sewing needles to prick children who wouldn’t sleep during naptime, and three district education officials were investigated for their poor oversight.

    The case raised worldwide alarm and sent shockwaves through China’s private education sector. Amid the wave of controversy, provincial and local governments across the country began rolling out plans to prevent abuse, such as Beijing’s pledge to install surveillance cameras that would monitor every square meter of every classroom. Teams from the Ministry of Education were also dispatched to carry out surprise inspections at some kindergartens.

    According to official statistics released last month, China in 2017 had around 255,000 kindergartens, 37.1 percent of which were public. Moreover, 79.6 percent of children aged 3 to 6 attended kindergarten last year. Despite steady growth from the early childhood education sector in recent years, China still has a huge demand for kindergartens.

    Zhang Lufang, a market researcher at Tianfeng Securities Co. Ltd. in Shanghai, told Sixth Tone on Friday that the State Council’s new guideline will most certainly affect RYB Education’s everyday operations, and could possibly force the company’s hand by compelling it to delist. But she says only time will tell the full extent of the changes coming RYB’s way: The company may have to privatize or change its business strategy to one that offers services to kindergartens rather than provides education itself.

    “This document will have an enormous impact on the entire industry,” Zhang said.

    Editor: David Paulk.

    (Header image: Children sing during a class at a kindergarten in Wuhan, Hubei province, Feb. 2, 2016. Johannes Eisele/VCG)