In H2’10, such issues as difficult kindergarten admission and high cost attracted attention from all walks of life. In response, relevant departments of central and local governments adopted a series of policies and measures for the issues.
Above all, the State Council issued the Comments Concerning Current Development of Preschool Education (publicly known as the “Ten National Measures”) in efforts to address the current problem of “kindergarten crunch”, with the view of catering for the needs of pre-school age children for kindergarten admission and promoting the development of preschool education in a scientific way.
Next, the “Ten National Measures” require all counties nationwide to make three-year action plans for preschool education, in which they shall make clear local preschool education resources and current demands, set three-year development objectives and raise some basic measures for advancing the development of preschool education. To date, the formulation of mid-term action plans for 2010 has been completed. According to the incomplete statistics released at the news briefing held by the Ministry of Education in September, through three years of practice of action plans, encouraging progress was made in all areas as evidenced by the fact that there would be more than 90,000 kindergartens built or extended and above more than five millions of children admitted to kindergartens in the coming three years. In a word, China is expected to achieve its objective for the development of preschool education during the 12th Five-Year period in advance.
Thirdly, the Interim Administrative Measures for Charging of Kindergartens came out in January 2012, defining the charging standards for kindergartens and explicitly prohibiting kindergartens from collecting sponsorship fees and other charges in the name of interest classes. It aims to relieve the problem of expensive kindergarten admission by standardizing charges.
In spite of more policies formulated for preschool education and more attention given to the infant and children industry from the capital market, there have been still less VC/PE investments in kindergartens in recent years. See the table below for typical investment deals for recent years.
For example, 2011 that just passed witnessed the investment in RYB Kindergarten alone (strictly speaking, RYB provides the combination of early learning and preschool education). There are two reasons for less VC/PE investments in kindergartens as follows:
Firstly, kindergartens that were given powerful support and encouragement from policies were mostly general ones for public welfare. To enjoy preferential financial and tax policies, such kindergartens might be registered as non-profit organizations which were not permitted to distribute their operating balances to shareholders, because their shareholders could not make a profit directly from running non-profit organizations. This regulation would have a direct impact on exit options of investment institutions.
Secondly, private kindergartens came into unfair competitions with public counterparts in that private kindergartens gained less financial aids than public ones, and their teachers were not treated as equal as staff members of public institutions and unqualified for formal status. Though corresponding policies gave support to the development of private kindergartens, it seemed there is still a lack of equal competitive environment.
Despite of less VC/PE investments in kindergartens for some reasons, Zero2IPO Research Center argued that the preschool education sector remained a goldmine worth digging in consideration of the progress in urbanization and the enhancement of public awareness to input more in their children's education. Besides, there are more investment potentials in upstream and downstream links of the industrial chain and diversified educational modes.
First, children’s talent enlightenment trainings (for example painting, music, sports and English). Today, children of urban families take some special training for arts and sports more or less. In particular, with the demands for selecting junior or senior secondary schools, talented students in arts and sports have more opportunities to select schools. In order to be qualified as talented students before specific time points (such as passing the grading examination for certain musical instrument before grade six of primary schooling), these children have to begin learning the specific skill in arts or sports as early as possible, because some arts and sports subjects require practices to shape children's behaviors while others require to learn at an appropriate age to achieve better effects, such as piano and violin have to be learned before the school age. These all demonstrate a larger demand market for children’s talent enlightenment trainings. As for the choice of category segments, Zero2IPO Research Center believed that trainings in small class or by collective teaching, such as dancing, painting, ball game and English trainings, generally set more requirements for brand building and a higher barrier for entry than the one-on-one model, and thus becoming more worthy of investment.
Second, information technology products and services in kindergartens. Information technology and Internet become the general trend in the development of all industries, and so is it for the preschool education. Presently, telecommunication operators provide information technology services to schools and kindergartens. With the further progress in information technology, we saw a larger room for development of more diversified products and services. For instance, the video monitoring service for child care and security has been currently adopted by some kindergartens, through which parents and teachers could monitor children and their activities in kindergartens at anytime. Zero2IPO Research Center considered that preschool education-related services and products have certain development potential with the development of the Internet of Things.
Third, professional kindergarten teacher trainings. According to the three-year action plans made by different regions, more kindergartens and their admissions require most strictly for teaching staff strength. Specifically, new kindergarten teachers are required to receive certain professional trainings, while existing teachers also need to take refresher courses for improving their teaching quality. The “Ten National Measures” also advocate improving the teaching staff training system for preschool education, sending 10,000 kindergarten presidents and backbone teachers to take national-level trainings within three years, and providing professional trainings to all kindergarten presidents and teachers in all counties within five years. Zero2IPO Research Center predicted that vocational training institutions and secondary vocational schools and higher education institutions would invest more in professional trainings for kindergarten teachers, while professional kindergarten teacher training institutions would also have room for development. Therefore, the investment value created in these fields is worth noting.