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One of China's hottest startups is a $3 billion education company — here's why education is such a big business in China
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One of the hottest sectors in the Chinese technology industry is education tech. Online English-tutoring is expected to grow to an $8 billion business by next year.
Education technology is such a big business in China because families are willing to invest more than a third of their income into their children's education, according to Dr. Zhang Weining, an associate professor at Cheung Kong Graduate School of Business.
Chinese society places an extremely high value on education and, more specifically, quality English language instruction, Zhang said. However, quality English teachers are in short supply in China.
VIPKID, a Chinese education tech company valued at $3 billion, has capitalized on this trend by connecting fluent English-speaking teachers with Chinese students through their online platform.
Earlier this year, Chinese education startup VIPKID raised $500 million at a valuation of over $3 billion. It's an eye-popping valuation for any startup, but particularly so for one in the education technology sector.
Such a valuation for an education startup is practically unheard of in the US. But not in China.
The online English-tutoring market is expected to hit $8 billion by next year, according to iResearch, a research group focusing on the Chinese internet.
The big numbers speak to a feature of Chinese culture, according Dr. Zhang Weining, an associate professor at Cheung Kong Graduate School of Business.
"Education is the top priority for every family in China. That comes from tradition," Zhang told Business Insider, who added that Chinese families are typically willing to invest a third or even half of their income into their children's education.
"Families will buy a very, very expensive instrument for a kid to learn music while living in a very, very small apartment and eating very, very simple food," Weining said. "They do this because the kid is the hope of the entire family. It’s a lot of pressure on the kids, but it means kids get a higher budget for education.”
As the country's middle class continues to grow and become increasingly affluent, it's no surprise that businesses around education would grow with it.
English speaking ability is a major focus of Chinese education, as it is seen as important in the job market and for future business opportunities. But quality English teachers are difficult to find in China, particularly outside big cities like Beijing and Shanghai, and lessons in brick-and-mortar schools can be expensive.
VIPKID has capitalized on the trend by connecting fluent English-speaking teachers with young Chinese students for one-on-one 25-minute virtual English tutoring lessons.
As of last year, the company had 296,363 students and 38,724 teachers, up from 3,305 students and 404 educators in 2015, according to Bloomberg. And the Beijing-based company's revenue has jumped from $300 million in 2016 to $760 million last year.
Zhang, who taught VIPKID's 34-year-old CEO and founder Cindy Mi at CKGSB, applauded Mi's efforts to use technology to expand access to education in China.
"She’s bringing these high-quality resources to another place, through the internet, to solve the problem of education," Weining said of Mi. "Previously, Chinese students couldn’t learn from American teachers. Just because of the location. But the internet can solve this problem.
VIPKID is far from the only company in China capitalizing on the education market. In April, one of VIPKID's competitors, iTutorGroup, began raising $300 million at a valuation of $2 billion. Other major competitors in the space include DadaABC and 51Talk, the latter of which is publicly traded.
Meanwhile, New Oriental Education & Technology Group, a public company founded in 1993, has seen its market value triple in three years to nearly $14 billion.
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