An aversion to exam-oriented culture and demand for private education in urban areas means market competition in K-12 is intensifying, according to Entry Strategies for China’s K-12 Market, published by market intelligence company, Emerging Strategy.

The number of private K-12 schools in Shanghai, China grew from just five in 1992 to 138 in 2015, not including a further 146 catering to the children of migrant workers.

And New Oriental, one of China’s largest private education providers, has reported that its K-12 business has now overtaken its English language learning division as its biggest growth sector, with annual revenue growth reaching a record 36%.

“We were surprised by the dedication of the Chinese government towards education reform”

Along with high per capita education spending, the improvement of the policy environment is another reason as to why international interest is drawn towards the K-12 market.

“We were surprised by the dedication of the Chinese government towards education reform,” Eric Skuse, Emerging Strategy’s research manager and one of the report’s authors, told The PIE News.

“We all hear quite a bit in the media about the current leadership’s antipathy towards Western ideas, particularly in education, so it came as a surprise to hear that they encourage [these] types of partnerships.”

The number of private schools is expected to “skyrocket” once a draft law allowing private schools to assume profit-seeking status for the first time, published last year, is officially passed, the report says.

And China’s five-year plan, which lays out social and economic development to 2020, calls for market competition in edtech, which is being reflected in increased venture capital investment in the sector.

The biggest share of venture capital investment in edtech during the first quarter of this year has been for this sector, according to data from Chinese education technology companies. Out of 33 deals in the industry, just over a third (36%) were in the K-12 space, as well as nearly two-thirds (62%) of the $320m invested overall.

This means that on average, VC deals in K-12 edtech were nearly triple the size of other edtech VC deals.

The growth of K-12 provision, combined with policy changes, opens the doors to international vendors, the report notes. More flexible purchasing processes and a desire to attract students with state-of-the-art facilities means private schools may be more likely to buy educational content and technology from foreign providers.

“The takeaway from our research is that local partnerships or joint ventures are a necessity”

“The magnitude of [the five-year plan] is a clear signal that the government will allow and even encourage K-12 public schools to cooperate with the best vendors to explore and experiment with new products and models,” it says.

As such, partnerships between foreign companies and local organisations are also on the rise. The US and UK are two big sources of investment in China’s K-12 sector at the moment, with recent market entrants including Pearson, Blackboard and K12 Inc, along with Asian markets such as Taiwan and Singapore.

“The takeaway from our research is that local partnerships or joint ventures are a necessity,” Skuse said. “Market access without these types of relationships in China is not possible.”

“It appears [international companies] must rely on these types of relationships to a very high degree.”

The report points to Pearson as “textbook example of how to increase market access by forming local partnerships with institutions”. Pearson’s initiatives in China include a fully localised STEM programme, providing textbooks, training and other resources and delivered through mainly public schools.

China is now the company’s second largest market, although it accounts for only 6% of its sales.

“Your average international company, Pearson notwithstanding, doesn’t have its own China operations team built up to such a degree and so must rely on external partners,” added Skuse. Local companies provide on the ground resources, connections and know-how that foreign partners would not otherwise have access to, he pointed out.