U.S.-listed Chinese education stocks dip as Beijing regulators crack down

BEIJING (Reuters) – Two U.S.-listed Chinese education stocks dipped sharply in pre-market trading on Friday after reports of a government crackdown on the sector that included bans on foreign investment.

TAL Education shares fell 55% in extended early hours exchanges. Shares of New Oriental Education and Technology fell more than 60%.

The reports come as Chinese authorities in recent months have tightened restrictions on the private education sector and increased scrutiny of domestic companies listed overseas in the United States.

Caixin, a leading Chinese financial news site, reported on Friday that new Chinese government restrictions on the education sector were starting to be implemented in Beijing and other cities across the country.

Copies of the policy document were circulating online Friday afternoon.

Teacher training institutions are prohibited from raising funds through stock quotes, while foreign capital cannot invest, according to a copy of the Chinese document seen and translated by CNBC. It was dated July 19 and emanated from the highest executive body – the State Council – and the Central Committee of the Communist Party of China.

One of the foreign investment bans included variable interest entities, a common structure that Chinese companies use to register in the United States.

Existing violations of capital bans must be addressed, according to the document.

CNBC did not independently verify the document. The Education Ministry did not immediately respond to a request for comment sent by fax outside of Beijing office hours.

A policy document of the same name – referring to reducing the costs of after-school tutoring – was among five approved at a May 21 meeting chaired by Chinese President Xi Jinping. The version released on Friday banned advertising of out-of-school tutoring companies and said they could not operate during public holidays, weekends, and winter and summer vacations.

New Oriental Education declined to comment on CNBC, and TAL did not immediately respond to a CNBC request for comment.

The pre-market plunge in stocks followed sharp declines in Hong Kong-traded education stocks, which began to fall in the afternoon.

Shares of Hong Kong-listed New Oriental subsidiary Koolearn fell 28% on Friday.

UBS analyst Felix Liu said in a note on Friday that the company was putting its ratings on TAL, New Oriental and Koolearn under review “given the potentially significant impacts on fundamentals and regulation reported pending official confirmation.”

– CNBC’s Michael Bloom contributed to this report.