China’s ‘Godfather of education’ faces existential test


When he is an old man in a wheelchair, Yu Minhong once said, he wants to roll himself into the classroom to tell students: “I’m the founder of this university.”

Today, however, the 58-year-old “Godfather” of Chinese education is fighting for the survival of his empire.

New Oriental Education — the New York-listed group that Yu reared from a single classroom in a rundown building in Beijing in 1993 to the biggest private sector education provider in the world’s most populous country — has been brought low by sweeping reforms spearheaded by Xi Jinping, China’s president.

Beijing has restricted tutoring for primary and middle school students to a “non-profit” basis, striking at the heart of Yu’s business model.

The crackdown stunned students, teachers and parents across China, and investors around the world. Stock prices have dropped sharply amid forecasts the tutoring industry’s annual earnings will fall from $100bn to less than $25bn.

Investors, along with Yu’s friends, colleagues and former students are left grappling with two key questions. How did he fall foul of the Chinese government? And, can he stage a comeback?

“Yu told me a few days ago that he was becoming a poor man as his wealth has shrunk dramatically. But that it wasn’t a big deal, he said, he’s been through life and death situations before,” said a close associate.

Yu’s rise is legendary in China: from rural poverty to a blockbuster public listing of New Oriental in New York in 2006. His prestige was further buoyed a decade ago after the company weathered an investigation by the US markets regulator, the Securities and Exchange Commission, and a high-profile attack by short seller Muddy Waters following claims of accounting irregularities.

His story personified the dream of a generation: that education could offer a pathway out of poverty. His company sold the means.

By May this year, the group had about 70,000 employees as well as 12,000 contract teachers in more than 100 cities. Since launching, its schools have enrolled almost 65m students in total.

In conversations with students and frequent interviews and speeches, Yu often talked about the hardships he had overcome. He was pained by his parent’s illiteracy and failed repeatedly in school and university, never earning the grades or the money to allow him to study in a prestigious US university.

“He said he was once evicted by his landlord and had to sleep under a piece of plastic cloth in the open air,” said Michael Li, a former student. “His biggest dream that night was to have an apartment in Beijing.”

His early students admired his determination. One former student said Yu turned up late to teach only once; after the birth of his daughter he was 30 minutes behind schedule.

But what students paid for was the content; initially his courses more or less mirrored the language proficiency assessments required by foreign universities. This highly test-focused approach was expanded to cover China’s entire education curriculum across all age groups.

“What really set his class apart is its use of real test questions, which Yu had his staff memorise while taking exams. You couldn’t find that elsewhere,” another former student said.

Yu became something of an education icon, spawning a number of imitators. His timing was not only good in China, but he also tapped into a deep vein of international investor enthusiasm for fast-growing Chinese companies.

Ahead of the 2006 initial public offering in New York, he was told by the bankers underwriting the share sale — Credit Suisse and Goldman Sachs — that the share price would be about $8. After an investor roadshow, they lifted it to $15.

Despite the windfall, Yu exuded humility and insisted he and his wife lived a “simple life”: “We don’t buy luxury cars, we don’t buy luxury yachts — if I want to use a yacht, I have lots of friends [who] have yachts,” he said in 2009.

He also developed philanthropic interests, mostly in education and child welfare. “Unlike many Chinese philanthropists, who either want to take full control of their donation, or write a cheque and then stay away completely, Yu didn’t attach strings as long as it delivered actual results,” the Beijing associate said.

At times Yu flirted, dangerously, with criticism of government policy and China’s society. In 2009 he said an entire generation was growing up in an environment of “unhappiness”. “Chinese students, they study very hard, they get very high scores, but they are not happy.” In 2018, his public image was dented after sexist comments about Chinese women came to light.

He did not neglect to curry favour with the Chinese Communist party, via donations to the Communist Youth League and his membership of the Chinese People’s Political Consultative Conference, a Beijing advisory body that meets in parallel with the country’s parliament.

Yet those close to him say he lacks strong links with the top echelons of government. “Yu’s political connections could only help him in small areas,” the associate said.

Indeed, his divergence from the course charted by Xi — or a misreading of the president’s warning in March that the tutoring sector was “a chronic disease” — are likely to have played a role in his downfall, critics said.

“He has for many years been focused on providing for-profit training and didn’t link his business with national policy — how can you run such a big operation without making yourself part of the state interest?” said a consultant who has worked closely with Yu.

Under Yu’s leadership, the consultant said, New Oriental has essentially competed with public schools for students and teachers: “That is the part of the business that couldn’t be allowed under China’s political system.”

Yuen Yuen Ang of the University of Michigan, and an expert on the intersection of China’s business and political elite, said, however, that the broader problem was unequal access to education, which Xi was trying to combat. The “real issue here is that rich families have privileged access to education through private tutoring,” she said.

Regardless, Yu’s personal wealth has been hit very hard by the market backlash. The value of his 12 per cent stake in New Oriental has fallen from about $3bn to $500m. His next steps are unclear. This week the company scrapped a planned earnings release citing regulatory uncertainties. The company and Yu declined interviews.

“There is no way for him to recover,” one former student said. “It is a disaster.”

Others believe the Godfather will not be so easily beaten.

“He will recreate the whole concept of the tutoring industry — with more social responsibility and less market-driven behaviour,” a close friend told the Financial Times.

Additional reporting by Sherry Fei Ju in Beijing

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