China's private education market set to reach $330 billion by 2020

27 April 2018 5 min. read

China’s private education market is booming, set to grow at 9% year-on-year until 2020 to reach a value of $330 billion. This market growth will occur not just in the quantity of education but also in quality, according to a recent study by management consulting firm  L.E.K. Consulting.

The private education market in China is booming. The market is currently worth $260 billion and will continue to rise to $330 billion by the year 2020. A recently released report by management consultancy L.E.K. Consulting titled “The Ultimate Consumer Good: Education Trends in China” identifies the main drivers of this market development and was carried out by the L.E.K. Global Education Practice team.

With the world’s longest ever period of sustained economic growth and an increasingly affluent urban and cosmopolitan population, Chinese parents are turning to private education at an unprecedented rate. The demand for quality education is driven by three factors: seeking advantage in hyper-competitive field, an increasing international outlook, and a strong preference for premium branded goods. Combined these factors have led to continuous and sustainable growth in the sector. An increase in demand for private education has also led to an increase in quality and availability.

Driven by the consumer desire for world-class education, private schools that offer English language and bilingual education are filling a gap that the state does not provide. Outside of official schooling, parents are spending big on other forms education to give children a competitive edge, including after school tutoring, study abroad counseling, and pathway programs.Estimated spending of affluent parents on a child’s educationAffluent parents in China are spending more than double that of their counterparts in other similar emerging economies. The overall household spending for this section of Chinese society is approximately 9%, whereas elsewhere the figure is much lower at roughly 4%. The difference is stark when you consider that Chinese households have one or two less children in the household. Affluent parents in tier-1 cities can pay anywhere between $400,000 and $600,000 on one child’s schooling, from childcare to university-level education.

The sheer amount of competition to access top universities in China and also abroad is one of the fundamental factors driving growth. Chinese parents are aware of the competition which their children will face when applying for university, as well as when they enter the work force, and students and parents alike are looking to gain an advantage over others in the same position and are willing to spend top dollar.

China, as the world’s second largest economy, is having an increasing presence in global affairs. Moreover, the Chinese are beginning to dominate the transnational education market, making up roughly 20% of the global marketplace. This is creating a paradigm shift in the Chinese mindset as students increasingly search for foreign elements in their local education. That growing international outlook is having an effect on the types of education offered, with international schools, ELT and premium K-12 schools teaching elements of the national curriculum in English.

The desire in China for premium does not only apply to consumer goods and luxury experiences. According to the L.E.K. study, “Approximately 50% of Chinese consumers report they will always buy the most expensive product across categories.” What would ordinarily be a trend in the top segment of society is now considered a social norm across the board, impacting consumer behaviour and driving new luxury sectors such as boutique education.
Total value of eductation deals in ChinaThe private education sector in China is setting the foundations for scaling up their activities. Within the past decade, the private education landscape has been consolidating and maturing. Building on continuous growth and unprecedented demand for quality education, there has been significant movement within the sector in terms of mergers & acquisitions.

Spurred on by a frenzy of investment activity in the past couple of years, the number of deals made rose dramatically. Within the two year period of 2016-2017, upwards of 75 deals were made worth approximately $7 billion in total. In 2018 alone, the report suggests that there will be more than 40 deals worth altogether $3.5 billion.

Investment has been heavily centred around core segments of education. Whilst K-12 schools, early years and higher education continue to dominate the deal flow, education technology is emerging as a key investment theme. Aside from Edtech, English language training is another emerging sector to watch – the sectors currently worth 30-40% of total investments combined.

The sustained growth has also made the industry attractive to China-listed companies which are becoming increasingly exposed to the sector. Furthermore, as the sector is still in its teenage growth phase, providers who have just become publicly listed are trying to capitalise early.
Market capitalization of 15 largest listed education companiesAnd this recent rise predicted to be just the beginning. Five years ago, only two of the world’s largest 15 education companies were Chinese owned. Today, however, that number has grown to ten. TAL & New Oriental, the world’s two largest listed education companies are both Chinese, with TAL being worth just over $19 billion – double that of the next foreign competitor.

Looking towards the future, the sector will continue to grow substantially, attracting more investments and adapting to the desires of the consumer. Further, Edtech is becoming increasingly important in the industry and will become a commodity within itself.

The L.E.K. study also suggests that key areas which will be affected by this acute shift in education are not only local to China. With China going global, private education operators are likely to develop unique and exportable techniques. Armed with local experience, homegrown companies wishing to expand quickly will look outside Chinese borders for opportunities.