CHINESE shares fell sharply to their lowest levels this year yesterday as investor worries over the impact of government regulations kneecapped the education and property sectors, after the government barred for-profit tutoring in core school subjects.

The searing sell-off sent Hong Kong-listed Scholar Education Group shares crashing more than 43 percent. Hong Kong stocks of New Oriental Education & Technology Group Inc., which yesterday warned in a filing that the regulations will have a material adverse impact on the company, plummeted over 41 percent after U.S. shares lost over half of its value Friday. The company provides tutoring and test preparation services in China.

Sub-indexes tracking education and related sectors declined sharply. The CSI Education Index ended 9.31 percent down at its lowest close in 16 months and the Hang Seng Tech index slumped more than 5.5 percent, nearly erasing all gains since its inception in July 2020.

The shakeout in China’s US$120 billion private tutoring sector follows the government’s announcement Friday of new rules barring for-profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector through mergers and acquisitions, franchises, or variable interest entity arrangements.

Louis Tse, managing director at Wealthy Securities in Hong Kong, said the curbs were needed to prevent “chaos” in a profitable sector.

“The government...in a way it’s right, they try to regulate that industry to make it more acceptable,” he said. “Of course investors....I won’t say they suffer. They won’t earn that much anymore.”

“Curriculum tutoring firms should remodel their businesses or even switch to a different industry as soon as possible,” said Jiang Ya, an analyst with CITIC Securities Ltd. “These measures are just the beginning and there is potentially an abundance of follow-up policies and continued tight regulation.”

China’s blue-chip CSI300 index fell 3.22 percent to end at its weakest close since December, the Shanghai Composite Index declined 2.34 percent at a more than two-month closing low, and the Shenzhen Composite fell 2.28 percent.

Both the Shanghai and Shenzhen indexes were hit by heavy foreign-investor selling. Refinitiv data showed outflows of 9 billion yuan (US$1.39 billion) from A shares. (SD-Agencies)