Law change may allow more listings

For the first time, China's private education sector may obtain access to the domestic stock market, because the top legislature will review an amendment of the law on the promotion of nongovernmental education next week in Beijing.

The Standing Committee of the National People's Congress is scheduled to discuss the third version of the law from Oct 31 to Nov 7. If the revised law is approved, it may go into force early next year. This law would allow educational companies to choose whether they will operate as nonprofit entities or as commercial companies and will remove the prohibition on listing of commercial education companies.

"It is not surprising the law would reaffirm the social fairness function of the nine-year compulsory education, which would still be under strict supervision. But it would also let go of other parts of the education system like preschool, high school and international education, " Liu Zhangming, an analyst at Tianfeng Securities.

Private educational institutions that have clear asset ownership and a tax record would directly benefit from the change, he said.

Education-related stocks have been rising since early October. For example, Shanghai-based Xin Nanyang Co Ltd reached 34.3 yuan ($5.12) on Wednesday, a record high for the year.

"Once approved, the law would help create a healthy education industry ecosystem," said a staff member from the investor relation department of Xin Nanyang, who declined to give her name. "And we do not worry about healthy competition, even though more players would join in."

She disclosed that the company would keep focusing on its main business of education and may expand the business in the coming years.

Xin Nanyang, backed by Shanghai Jiaotong University, is a leading education company whose main business includes vocational education and language and management training. Its revenue in the first half of 2016 reached 654 million yuan, up 24.96 percent from the same period last year.

Statistics from CITIC Securities show that China's education industry market was about 6.8 trillion yuan in 2015. But, there are only 23 education-related companies listed on A-share market as of the end of this June. And, their main businesses are not teaching, but textbook publication and information products sales.

The leading companies in the teaching sector, like New Oriental, 51talk and Tomorrow Advancing Life, all transferred to US stock markets in the past years.

"Investors should be cautious about the law due to China's special education management system. We should not jump to a decision but wait for the final result," said Hu Yali, a researcher at CITIC Securities.