China’s Online Education Industry Overview

Overview

China’s online education industry includes K-12 education, adult education, preschool education and art training. The online adult education industry can fall into two categories, non-academic education and academic education. Online academic education relates to education necessary to prepare for the self-taught examination and the adult college entrance examination for higher education. The online self-taught examination business is a major part of China’s online academic education. The cost of online self-taught education is far lower than that of the education in offline classrooms, which is also convenient for students using spare time.

China’s Online Education Industry and Sub-Sectors in 2016

In China, the online education industry (which generated an aggregate of RMB 156 billion in 2016) is divided into the online adult education sector (which generated an aggregate of RMB 89.7 billion in 2016) and others (which generated an aggregate of RMB 66.3 billion in 2016). The online adult education sector includes the non-academic education sector (which generated an aggregate of RMB 48.5 billion in 2016) and the online adult academic education sector (which generated an aggregate of RMB 41.2 billion in 2016). Online adult academic education can be further divided into the online self-taught higher education sector (which generated an aggregate of RMB 23.4 billion in 2016) and others (which generated an aggregate of RMB 17.8 billion in 2016). Online self-taught higher education is divided into the B2B2C sector (which generated an aggregate of RMB 543.3 million in 2016) and others (which generated an aggregate of RMB 22.86 billion in 2016). The chart below illustrates the various sectors and sub-sectors included in China’s online education industry:    

Source: Research Report on China’s Online Higher Education Industry, 2017-2021 (the “CRI report”)

China’s online self-taught education sector has been growing quickly as Internet technology continues to develop in China. The cost of providing online self-taught educational services is much lower than that of offline classrooms, and this has fueled the transition of self-taught education in China from offline classrooms to online classrooms. The market size of China’s online self-taught education industry reached RMB 23.4 billion in 2016, with the compound annual growth rate (“CAGR”) up to 22.2% from 2012 to 2016. China Research and Intelligence Co., Ltd. (“CRI”), a leading independent company providing industry/market research reports for initial public offerings and mergers and acquisitions in China, forecasts the market size will achieve RMB 41.24 billion in 2021, representing a CAGR of about 12% between 2017-2021.

Market Size of China’s Online Self-Taught Education Industry, 2012-2016

Year     Market Size (RMB in billion)
2012 10.51
2013 12.60
2014 14.97
2015 18.38
2016 23.40
2017F 26.21
2018F 29.36
2019F 32.88
2020F 36.83
2021F 41.24
2012-2016 CAGR 22.2%
2017-2021 CAGR 12.0%

Source: the CRI report

 

Industry Chain of China’s Online Adult Academic Education 

Source: the CRI report

Analysis of China’s B2B2C Service

 Service models in China’s online adult education sector include “Business to Business” (“B2B”), “Business to Consumer” (“B2C”), “Business to Business to Consumer” (“B2BC2C”), “Online to Offline” (“O2O”) and “Consumer to Consumer” (“C2C”).

Most companies that operate in the online self-taught education sector have adopted the B2B2C service model. B2B2C emerged in China in 2010 and was developed to integrate online education, examination and evaluation into one platform. This service is only offered in several regions in China. Each college that uses this service must be approved by the provincial education examination authority that has jurisdictional authority over such college. The Chinese government is implementing policies to optimize educational resources, and according to CRI the B2B2C service model will remain widespread to in the online self-taught education sector in the future.

According to the CRI report, the market size of the B2B2C service model has been fast-growing, with a CAGR of 79.4% from 2012 to 2016. This growth rate is expected to decline, as the CAGR is expected to remain steady (around 50%) between 2017 to 2021.

 

China’s B2B2C Service Market Size, 2012-2021

 

Year   Market Size (RMB in million)
2012 52.5
2013 130.5
2014 272.7
2015 393.9
2016 543.3
2017F 815.0
2018F 1,222.4
2019F 1,833.6
2020F 2,750.5
2021F 4,125.7
2012-2016 CAGR 79.4%
2017-2021 CAGR 50.0%

Source: the CRI report

Competition Landscape

 

According to the CRI report, there were less than 100 companies providing B2B2C services as of the end of September 2017. Annual revenues of most of these businesses are low because they are limited to certain provinces. The number of such businesses is also small because of the high barriers of entry in this industry, such as:

 

Brand Awareness and Subscribers: a company that provides B2B2C services depends on brand awareness and a customer base to sustain its business. If it lacks either, it will be less likely to attract new customers.

 

Resources of Universities and Colleges: it is necessary for online education companies to cooperate with authorized universities and colleges in China in order to operate in the B2B2C sector. It is difficult for new entrants in China to establish cooperative relationships with universities and colleges.

 

TOP 5 COMPANIES OPERATING IN CHINA’S B2B2C SECTOR

 

Ranking   Name   Online Self-taught Education B2B2C
Business in China in 2016
Revenue (RMB in million)   Market Share
1 Beijing Huaxia Dadi Distance Learning Services Co., Ltd. 29.96 5.51%
2 China Distance Education Holdings Ltd. 12.10 2.23%
3 Beijing Open Distance Education Center Co., Ltd. 10.60 1.95%
4 ChinaEdu Technology Development Co., Ltd. 9.25 1.70%
5 Beijing Sunlands Online Education and Technology Co., Ltd. 8.93 1.64%

 

Sources: the CRI report

 

With respect to companies using the B2B2C service model, Beijing Distance Learning has a much higher market share than that of its competitors. Beijing Distance Learning is a pioneer and leader in this sector.

 

Development Environment

 

The Education Level of the Average Chinese Person is Low

 

According to the statistics provided by the National Bureau of Statistics of China, the number of college graduates in China (including junior college) was 170.93 million, accounting for only 16% of China’s population in 2015. Globally speaking, this rate is very low, so there is great potential for the self-taught education market to grow in China.

 

Fast Growth of Internet and Mobile Internet Subscribers in China

 

According to the CNNIC report, as of June 30, 2017, the number of China’s internet subscribers and mobile internet subscribers reached 751 million and 724 million, respectively. The popularity of the Internet is conducive to the development of online education. As use of the Internet in China grows, this will facilitate development of the online education industry.

 

Number of Internet and Mobile Internet Subscribers in China, 2012-2017 (units in millions)

  

  Dec. 2012     Dec. 2013     Jun. 2014     Jun. 2015     Dec. 2016     Jun. 2017  
Internet Subscribers 564 618 632 668 731 751
Mobile Internet Subscribers 420 500 527 594 695 724

 

Source: the CRI report

 

Number of Regions and Colleges Approved to Operate B2B2C services in China

 

According to the CRI report, 16 out of 31 provinces were approved to operate B2B2C services in China by September 2017. The market has potential to expand. The number of universities and colleges entering the B2B2C sector increased from 7 in September 2010 to 106 in September 2017, representing a fast growth rate.

 

Number of Universities and Colleges That Currently Offer B2B2C Services in China, 2010-2017

 

  

Source: the CRI report

 

Supporting Polices from Government

 

Since 1999, China’s Ministry of Education approved 68 universities and colleges to launch long distance education. These universities and colleges were approved to operate academic and non-academic education businesses through modern communication networks. Modern distance education has become a major part of China’s higher education industry. It may cause a paradigm shift in China’s education system and lead to China having a more well-educated society. In 2015, the number of college graduates with online degrees reached 1.8 million representing 24% of the total number of college graduates, which was 7.49 million in 2015.

 

Opportunities and Challenges

 

Driving Forces and Opportunities

 

Cost and Technology Advantages: Universities and colleges are not required to invest in online platforms through the B2B2C service. Recruiting and daily management of students and online courses are maintained by third party platform suppliers. This convenience attracts more universities and colleges to our market.

 

Demand for Education Degrees from Recruiting Market: Companies seek employees with higher education degree as the economy and society develops. The enrollment requirements of self-taught examinations are low but the social recognition is high so the market is full of potential.

 

Promotion of “Internet Plus”: The Chinese government’s development and promotion of its “Internet Plus” policy has improved cloud service technology in China, resulting in greater efficiencies in the online education industry, such as the improvement of the online grading systems used by companies in this industry.

 

Elimination of Tier III Universities and Colleges: Since June 2015, the Chinese provincial governments have gradually eliminated the tier III category of universities and colleges and integrate them into the tier II category, which require students to obtain a higher score on their college entrance examinations. This may cause college acceptance rates to decline, as students with lower scores that would have been able to attend college prior to the elimination of the tier III category may no longer have the opportunity to do so. Consequently, more students may turn to the self-taught examination market in order to continue their education.

 

· Internet Use: The number of Internet subscribers, especially mobile Internet subscribers, is increasing daily, which benefits companies that provide B2B2C services.

 

Working Professionals’ Large Demand for A Second Education Degree: Certain majors are more popular with students than others. According to the statistics provided by the Ministry of Education of the PRC, the total number of graduates from the most popular 10 majors offered by universities and colleges in China, including accounting and law, was approximately 1.195 million, accounting for 15.7% of the number of all such graduates in 2016. The number of graduates majoring in each of the following majors (which also rank in the top 10 most popular majors in China) exceeded 100,000 in 2016: accounting, English, art design, civil engineering, computer science and technology (. Many graduates take jobs in areas that are different from the majors they studied. Some graduates may find their true interest after they get some working experience. Therefore, many people are eager to get a second degree through self-taught examinations in order to gain job promotions and salary improvement in China. We believe that due to this, the potential for the self-taught education market is huge.

 

Online Courses by Qualified Teachers: Online self-taught education provides more opportunities for students to communicate with qualified teachers. Offline tutorial agencies for self-taught examinations are limited in teacher resources. It is very difficult for students to communicate with qualified teachers. Even though they provide such opportunities; the price may be very high. Online self-taught education guarantees higher coaching qualities through recording and replaying videos of qualified teachers, as well as the low cost to students.

Challenges for the Industry

 

Besides the college entrance examination and self-taught examination, there are other ways to enter college or obtain junior college courses, e.g., by taking adult college entrance examinations and correspondence education. Once a person chooses the self-taught examination as the way to gain the education degree, the other ways lose the customer. Apparently, there is certain competition among them.

 

The ability of Chinese families to pay for education has been growing as China’s disposable income per capita increases. More high-income families choose to study overseas over the college entrance examination, which may reduce the number of persons choosing self-taught examinations.

 

The cost of marketing and advertising is continuously increasing so businesses in this industry may encounter the risk of rising customer acquisition costs.

 

Key Factors for Success in China’s Online Self-taught Education B2B2C Service Market

Public Praise and Brand Awareness

Beijing Distance Learning had fewer than 100 competitors in the B2B2C service market in September 2017. Consumers will choose proper companies through comparison of public praise and brands. Through an online search conducted in September 2017, CRI found no complaints about Beijing Distance Learning and that customer satisfaction was very high. However, some of Beijing Distance Learning’s competitors have experienced a high number of complaints, which drive potential consumers to choose our company over others.

Cooperation with Several Universities and Colleges

The more universities and college with whom we cooperate, the more options we can provide to our customers and the more customers we may gain.

Excellent Course Development Capacity

Businesses can provide more online courses for consumers and attract more customers if they are capable of course development.

Forceful Marketing and Promotion

Businesses that market and promote their services (whether through online and traditional channels) have the ability to target more potential consumers.

Excellent Human Resources

Businesses can succeed in the market because of excellent talents in operation, management, IT technology, course design, marketing, etc.

Prospect of Online Education Industry in China

B2B2C service market

Our business is still in an early stage. Presently, there is a limited number of universities and colleges that are authorized to provide online self-taught education B2B2C services. We believe that our services will be gradually accepted by more universities and colleges between 2017 to 2021 and that the market space is huge.

Adult college entrance examination – B2B2C service market

From the education policies of the Chinese government, the adult college entrance examination tutorial business will transfer from offline classrooms to online learning including the B2B2C service in the future. Obviously, the market is full of opportunities

B2C service market

Our B2C service has been operating longer than our B2B2C business, and the B2C sector is more mature. However, we have not marketed this business as much as our B2B2C business. There remains a large number of self-taught students who prefer offline classrooms to online learning. Online education companies can enlarge the market size if they can promote those students to online education through the B2C service in the future.

Online adult non-academic education service market

Adult non-academic education includes vocational skill training, art training and living skill training ( i.e. , classes that teach students how to cook). Our target consumer group mainly includes students in vocational and technical schools and working staff. We believe that China’s human resource market is in need of individuals with a more sophisticated skill set as China’s economy continues to develop. Students that use this service are able to attend courses through online education platforms after school. Working staff that use this service can improve their interpersonal skills and salary range and attend courses though such platforms after work.

 

Source: WAFU prospectus