China Education Law: Foreign Investment in Schools and Education Services

The following is general information on Chinese education law and foreign investment regulation, not legal advice for a specific project. The rules on private education, tutoring and cooperative schooling change frequently and are enforced with local variation; consult qualified PRC counsel before committing capital or signing documents.

The negative list sets the outer boundary

The first question for any foreign investor in Chinese education is not which structure to use but whether the sector is open at all. Under the Foreign Investment Law, in force since 1 January 2020, foreign investment in China is governed by national treatment plus a negative list — the Special Administrative Measures (Negative List) for Foreign Investment Access. Sectors on the list are either prohibited or restricted, and education appears in both columns.

• Prohibited. Foreign investment in institutions providing compulsory education — the nine years of primary and junior secondary schooling — is barred outright, as is investment in religious education institutions.
• Restricted. Pre-school, general senior high school and higher education are open only through Chinese-foreign cooperative education, and the Chinese side must take the lead in running the institution.

Two consequences follow. First, a foreign investor cannot hold equity, directly or indirectly, in a school that delivers compulsory education, and the prohibition is policed through ownership and control rather than through the label on the documents. The revised Implementing Regulations of the Private Education Promotion Law reinforce this: foreign-invested enterprises and social organisations actually controlled by foreign parties may not establish, co-establish or actually control a private school implementing compulsory education, which closes off nominee and control-arrangement workarounds. Second, for the stages that are open, the mandatory vehicle is a cooperative-education structure, not a wholly owned school.

How cooperative education works — State Council Order No. 372

The governing instrument is the Regulations on Chinese-Foreign Cooperative Education, State Council Order No. 372, in effect since 1 September 2003 and subsequently amended. "Cooperative education" means education jointly conducted by Chinese and foreign institutions, and the Regulations set both the promise and the limits of the structure.

• Approval is the gateway. Cooperative institutions and projects must be approved by the education authorities; higher-education cooperative institutions and projects are approved by the State Council education administration, while other levels are approved by provincial authorities.
• The Chinese side leads. Consistent with the negative list, governance and key decision-making positions are arranged so that the Chinese party takes the leading role, subject to the latest official rules.
• Qualified parties only. The foreign party must be a bona fide educational institution or other qualified entity; the Regulations bar arrangements that would undermine state sovereignty, security or the public interest, and prohibit the use of cooperative education to conduct religious or missionary activity.

In practice this is the only lawful route for a foreign university to deliver its own degree programmes onshore. The Sino-foreign cooperative universities — NYU Shanghai, Duke Kunshan and Xi'an Jiaotong-Liverpool University among them — are all built on this framework, with a Chinese university as the lead partner and Ministry of Education approval for the institution itself.

The Private Education Promotion Law and the profit question

The Private Education Promotion Law draws the line between for-profit and non-profit private schools. A private school may be run for profit or not, with one hard rule introduced by the 2016 amendment to the law (effective 1 September 2017): no for-profit private school may implement compulsory education. For-profit schools at other stages register as companies and may distribute profits; non-profit schools register as private non-enterprise units and may not. The 2021 revision of the Implementing Regulations for the Private Education Promotion Law (State Council Order No. 741) tightened the surrounding rules — for example, barring compulsory-education private schools from using overseas textbooks and restricting related-party transactions.

For a foreign investor the profit question interacts with the negative list. Because compulsory education is closed to foreign investment and the other stages require a Chinese-led cooperative structure, the for-profit option is relevant mainly at the pre-school, senior high school and higher-education levels, and it must be structured through the cooperative vehicle rather than a direct subsidiary.

Training, tutoring and the 2021 "double reduction" policy

Education services outside formal schools — tutoring, training and online instruction — are regulated separately, and the pivotal event is the July 2021 "double reduction" policy, the Opinions on Further Reducing the Homework Burden and After-School Training Burden of Students in Compulsory Education, issued by the General Office of the CPC Central Committee and the State Council. Its effect on subject-based tutoring for the nine compulsory years was decisive:

• No new subject-based tutoring institutions for compulsory education may be approved, and existing ones were re-registered as non-profit organisations.
• Such institutions may not be listed or raise funds through capital markets, and listed companies may not finance them through capital-market vehicles.
• Because re-registration as a non-profit forecloses equity returns, the policy in practice closed K-9 subject-based tutoring to foreign investment, and it restricted the use of foreign teachers located abroad for such tutoring.

What remains open matters for structuring. Non-academic training for children — arts, sports, science and technology literacy — continues, as does adult education, vocational training and language training for adults. EdTech companies that sell software, content, platforms and systems to Chinese schools (business-to-business) sit outside the tutoring prohibition, provided the products are not themselves unlicensed K-9 subject tutoring. Each permitted activity still carries its own licences — principally a school-operating permit for training institutions under the Private Education Promotion Law and provincial rules — so diligence should map the specific activity to the specific licence.

Practical structuring for universities, schools and EdTech

• Foreign universities should consider a cooperative-education institution or project under Order No. 372 for degree programmes, or a non-degree training vehicle for executive and professional education.
• Foreign school brands cannot operate compulsory education; for pre-school or senior high school they need a Chinese-led cooperative structure, and in some cases a brand licence to a qualified Chinese operator is the practical route where equity is off-limits.
• EdTech companies should favour B2B sales to schools, adult and vocational training, and non-academic enrichment, and steer clear of K-9 subject tutoring.
• Screen every transaction against the current negative list and ask whether a foreign investment security review or merger-filing analysis applies.
• Plan for data. Education apps and platforms process minors' personal information, which attracts the Personal Information Protection Law's heightened-consent rules for children and the separate regime for minors' online protection; online services also need ICP and related licences.

For the parallel question of whether a school or education-services acquisition may be subject to government review, see our guide to China's foreign investment security review, or contact our international practice to structure an education venture in China.

The rules summarised here are current as of the date of writing; the negative list, cooperative-education approval thresholds and the training-sector rules are subject to the latest official versions, so confirm the operative requirements with qualified PRC counsel for any specific project.