Tutoring crackdown: Parents and employees line up outside OneSmart, demand repayment

Business & Technology

Another Chinese for-profit after-school tutoring company is in trouble after Beijing’s blanket ban on the industry.

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Illustration by Alex Santafé

On Monday, parents and employees lined up in the rain outside the Shanghai headquarters of embattled tutoring company OneSmart Education (NYSE: ONE) to demand refunds and unpaid salaries.

OneSmart Education (精锐教育) is one of a group of U.S-listed Chinese after-school tutoring companies that are in deep financial turmoil after Beijing banned for-profit tutoring this summer in core school subjects and offering classes on weekends or holidays.

Since the crackdown, education giants such as U.S.-listed New Oriental Education and Gaotu Techedu have tried to pivot their business, including offering lessons in drama and even parental training, in a desperate attempt to recover even a fraction of a formerly lucrative business.

The efforts at reinvention may assuage Beijing, but not parents who paid significant sums for classes that will no longer materialize. Before Beijing stepped in, private education companies encouraged parents to pay months of tuition in advance in order to fuel their expansions. Now, with those plans prohibited, courses banned, and cash running dry, parents are lining up to demand their money back.

Founded in 2007, Shanghai-based OneSmart Education provides K-12 after-school education services. It went public on the New York Stock Exchange in 2018, and is led by its founder, Zhāng Xī 张熙, a Peking University and Harvard Business School alumnus. As of October 8, the share price of OneSmart Education was down to $0.394, down nearly 98% from its all-time high of $21.97. According to financial statements, the company as of this February had accumulated 2.7 billion yuan ($420 million) in debt from tuition fees alone.

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Parents lined up outside OneSmart Education’s headquarters

On Thursday, a reportedly leaked WeChat screenshot from the CEO, Zhang Xi, circulated across Chinese media. In it, he told a group chat of close friends, relatives, and employees that he had “poured his heart and soul into education” but admitted that the company’s liquidity problems were due to an “aggressive expansion plan” and “negligence in investment and financial management.” The phrase “OneSmart Founder poured out his heart and soul” soon went viral on Weibo, garnering 80 million views.

OneSmart immediately denied the authenticity of the screenshot. Zhang Xi sent a message to his circle of friends, which was promptly leaked: “I am fine, OneSmart is fine. I and the 10,000 partners of OneSmart are going to be the first educational enterprise to transform successfully with the help of the government,” it read.

But further leaked screenshots have continued to paint a bleak picture. In one alleged conversation, an employee told a parent group that employees had not been paid and that OneSmart may be about to go into bankruptcy.

OneSmart is not the only education company going viral for the wrong reasons: Videos have also surfaced of sudden closures at Zhangmen, another education company. Employees have been asked (in Chinese) to forcibly resign so the company can avoid severance payments.

“I sold my life working here for more than five months, clocking out every night at around 11 or 12 p.m., being asked to produce results every day…now I’m dismissed without a single word,” wrote one employee (in Chinese).

OneSmart’s headquarters look a lot like Evergrande’s headquarters did last month: both protests were caused by liquidity crises resulting from a government crackdown on debt-fueled growth. (Property developers, too, used pre-payments to finance expansions and acquisitions.) If Beijing’s posture on Evergrande is any indicator, neither OneSmart nor Zhangmen should expect a lifeline from the government.

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