27 April 2020

COVID-19 and Hong Kong private education

This article was written by Neil Carabine and Ike Kutlaca.

With schools closed for more than three months, the Hong Kong private education market has faced significant challenges from COVID-19.

In this article, we examine the impact on Hong Kong schools and recommend strategies for schools and their operators during these difficult times.

COVID-19 impact on the Hong Kong private education market

  • Hong Kong kindergartens and schools have been closed by order of the Education Bureau (EDB) since the start of the Chinese New Year holiday on 27 January 2020
  • This closure comes shortly after significant disruptions in late 2019 to ordinary school operations in connection with Hong Kong’s disturbances, which saw classes being periodically suspended by order of the EDB, parents being permitted to choose whether their children would attend school on certain days, and schools themselves deciding to suspend classes
  • The experience gained with virtual classrooms in 2019 gives Hong Kong school operators a distinct advantage over those in other countries who are now implementing ‘school from home’ programmes for the first time
  • We have already seen Hong Kong school operators using their experience to develop and market commercial products to schools in other jurisdictions that assist with transitioning from physical to online classrooms, and expect this to continue as schools look to diversify revenue streams

Worksheets aren’t enough

  • Hong Kong schools continue to operate (online) and receive usual revenue from parents – in cash flow terms at least, compared to other local businesses, they have been relatively unaffected by COVID-19 – but calls from parents for discounted fees or refunds are growing
  • Implementing a rigorous online teaching programme takes significant school resources – but is critical to retaining students – schools that work to ensure students have as uninterrupted learning experience as possible are largely seeing satisfied customers, and few requests for withdrawals of refunds
  • Schools who simply send home worksheets, without teacher contact, and ask parents to effectively take over responsibility for their children’s education, have already seen significant dissatisfaction from parents and will come under increasing pressure to reduce or refund fees, along with declining enrolments
  • Complicating this is the fact that school fees are approved by the EDB and cannot offer a discount without consent from the regulator which can take several months to obtain – but schools can offer ‘scholarships’ to effectively reduce fees paid by parents

One more year?

  • The IB and IGCSE examinations for this school year have been cancelled, although it seems likely students will be permitted to start university as scheduled (as with students of Hong Kong schools teaching US curriculums who have already attracted enough credits to graduate)
  • Schools are now indefinitely deferred, with the EDB to provide three weeks’ advance notice of any reopening
  • Given the disruptions to ordinary learning over the past 10 months, if schools remain closed when the new academic year is scheduled to commence (in August, for most private schools), there is a material prospect of all students (other than the most-recent graduating year) being asked to complete an additional year of education – will would be a  boon for school operators, who will capture one extra year of revenue without significant additional costs (albeit, at likely discounted fees)
  • Schools can also run optional “summer school” over the long June / July holidays – with classes offered to students of all Hong Kong schools – to boost their revenue and assist in meeting educational goals

The future of the private education market in Hong Kong

  • Traditionally, parents are ‘sticky’ customers – but with parents working from home and having greater visibility of the teaching being offered to their children, we expect a significant number of students to change schools as the new academic year approaches
  • A complicating factor is that school closures were announced during the Chinese New Year holiday, when many Hong Kong families were overseas – due to COVID-19 fears and travel restrictions, many are yet to return to Hong Kong – faced with extended online learning, some of these parents may decide to enrol their children in overseas schools (should they remain open)
  • Similarly, the 25,000 mainland students who made daily journeys to Hong Kong schools (predominantly in the New Territories) are likely to face an extended period before they can return to school premises – we expect many parents will reconsider whether this remains viable, and should Mainland schools open before Hong Kong schools (or the Hong Kong-PRC border), we expect many of these students will not return 
  • As Hong Kong has seen relative success in combatting COVID-19, schools have enjoyed a rise in applications for students previously educated in UK or US boarding schools
  • As a result, schools are facing significantly less visibility over future enrolments and will struggle to make budgeting decisions
  • Adding to this difficulty, Hong Kong’s largest operator of international schools has announced they will freeze fees for 2021 (rather than the traditional 3-6% annual increase) which has put pressure on other operators, many of whom have followed suit under pressure from parents
  • Compounding this issue, in January 2020 the Hong Kong Government Ombudsman released a report into the EDB’s mechanisms for approving school fees, suggesting that the costly debentures charged by some Hong Kong schools to secure enrolment may not have been permitted under law, and should never been received EDB approval – adding further financial pressure, international schools are expecting some expat families to leave Hong Kong, which will make places available for students that would ordinarily be unavailable without a debenture
  • COVID-19 has distracted from the Ombudsman’s report, but there remains a risk that school operators will no longer be permitted to raise funds from parents by debenture, which would leave the long term financial viability of several schools under a cloud
  • Given the economic climate, we expect cost-competitive ‘middle-market’ private schools (who offer international education, but without the expensive facilities of other schools) to be the main beneficiary – one such school completed construction and licensing of its Hong Kong campus several months ago but has not yet been able to open the physical doors – nonetheless, they have enjoyed strong enrolments for online classes given their pricing
  • Regulatory approvals from the EDB will likely continue to see significant delays as the EDB’s focus remains on COVID-19 and while staff are working from home – we expect the preference of international operators will switch to acquiring existing schools with the requisite licences – especially as some schools are likely to face financial difficulty and the market undergoes likely consolidation

Our top tips

  • Schools must invest now in developing effective online learning programs and keep close contact with parents – retaining existing students is more important than ever
  • Schools with successful online programmes should consider selling their experience to schools in other jurisdictions, or running additional classes over the summer break
  • Foreign school operators should carefully consider their Hong Kong expansion plans – acquiring an already registered-school and re-branding may now be the best way to enter the Hong Kong market (especially with a number of schools expected to face financial difficulty)
  • Debenture-charging schools must reassess their budgets to prepare for a world in which debentures would no longer be approved

Key contacts

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    We examine the latest statements from the Secretary of Education about debentures, capital levies and other non-tuition fees.

    12 June 2020

    ICMA speaks to Richard Mazzochi and Minny Siu, Partners at King & Wood Mallesons about China’s new Securities Law.

    27 May 2020

    Watch now for a recording of our webinar on COVID-19's impact on alternative funds.

    15 May 2020

    We examine the impact of COVID-19 on the Hong Kong M&A market, outline some likely trends and provide our top tips for dealing with the impact.

    28 April 2020

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.