CHINESE WHIP HORSE – FIIs BOLT FROM STABLES!

China is now trying to get out of the morass which it dug itself into and for now, it seems to be digging deeper.

In a bid to boost birth rates and help families save more money so that they can afford more children, the Chinese Govt, probably reading tuition expense are being the biggest inhibitor, has struck down hard on the $100 billion education industry.

China is banning for-profit tutoring in core school subjects like math, science and history, as well as tutoring on weekends and holidays, and all online tutoring of children younger than 6.

Not just that, these tutoring companies will now have to register themselves as ‘non-profit’ and will not be allowed to raise funds or get investments from any foreign company. And by the way, it has used this opportunity to ban all foreign tutors and all foreign curriculum.

President Xi’s thinking behind this move – bringing down the role of tutoring outside school, where like in India, the Chinese spends millions of dollars, which in turn will induce Chinese couples to have more children. Money saved on tuition fees will be inducement for another child – that’s the bizarre, round-about way to increase the falling birth rate.

At the same time, there is news that the Govt is also looking at measures to bring down real estate prices, especially in desirable school districts in China’s wealthy cities.

That’s not all – spearheading the anti-monopoly drive against China’s tech sector, the State Administration for Market Regulation slapped millions of dollars’ worth of fines on more than a dozen educational startups backed by Alibaba Group Holding, Tencent Holdings and others.

These two moves have made the foreign investors anxious and the newly launched Hang Seng Tech index in Hong Kong has earned the dubious distinction of being the biggest tech losing index.

Many fear that as long as the overhang of Chinese regulations continue; till there is no end in sight to these “tightening” measures, the foreign investors will remain wary.

There are many today arguing that if something like this had been done in India, the FIIs would have packed up, lock-stock-and-barrel. Well, two arguments for that – firstly, India is (supposedly) democratic while China is authoritarian – so we cannot compare apples with oranges. Secondly, FIIs are traders, they have no love and no loyalties – wherever there is the lure of money, they will go there. They know fully well the character of the Chinese Govt so this sell-off is just a knee-jerk reaction. Once things settle, they will be back.

At the end of it all, every country is to its own – each needs to do what works the best and sometimes, FIIs interest and their reaction cannot be taken into account. For all those worried about FIIs selling in India – this Chinese story should give some solace. Know the truth – as long as markets exist and there is money to make, FIIs will remain; something like jab tak rahega samosa mein alu….