Shares of New Oriental Education & Technology Group Inc. (EDU) fell -24.23% to $2.22 in premarket trade at last check. The New Oriental stock closed Friday session at $2.93, down -54.22%. There were 806.73 million shares of EDU stock exchanged on the day, a volume which was greater than the average daily volume of 56.9 million shares for the past 50 days. Following China’s introduction of new education regulations, the price of EDU has plummeted.

What are those new rules?

Among China’s largest providers of private education services, New Oriental offers a range of educational programs, services, and products to students throughout the country. Educational programs, services, and products that EDU stock provides are: after-school tutoring, test prep, foreign language classes for adults, pre-school education, elementary and secondary education, education materials and distribution, online education, and more.

China’s official state media, which includes the Xinhua News Agency and China Central Television, announced on July 24, 2021, a new policy to help alleviate the burden of homework and after-school tutoring on compulsory education students (the “Opinion”), announced EDU stock in a press release. The CPC Central Committee General Office and the State Council General Office issued the Opinion.

In this Opinion, high-level policy directives are set out regarding requirements and limitations related to tutoring programs after school.

• Academic AST Institutions, which provide tutoring services to students after school in China’s compulsory education system, will have to be registered as non-profits, and will not be given approval for any new Academic AST Institutions;
• Foreign ownership is not permitted in Academic and Scientific Research Institutions, including contractual arrangements, and those currently possessed by foreign entities must repudiate their ownerships;
• Companies listed on the stock exchange are prohibited from raising capital to invest in businesses that teach academic subject matter in the compulsory education system;
• AST Institutions are forbidden to provide tutoring services in compulsory education during public holidays, weekends, and holidays; and
• Academic AST Institutions need to follow fees standards that have been established by the relevant authorities.

Also provided in the Opinion is the requirement that organizations providing tutoring services to high school students on academic subjects (that is, those outside of China’s compulsory education system) should take the Opinion into account when conducting their activities.

How EDU stock will be facing it?

As part of providing educational services, New Oriental (EDU) decided that it will adhere to the Opinion and relevant regulatory requirements. Tutoring services related to academic subjects in China’s compulsory education system will be materially adversely affected by any such compliance measures being taken by EDU stock. When it comes to complying with the Opinion and any related rules and regulations, EDU will actively seek guidance from and cooperate with government authorities.