Rising median incomes and the unintended consequences of China’s multi-decade one-child policy have created an educational hothouse for single- or double-offspring families. Now more than ever, the ability to graduate to private schooling has become a badge of upward mobility for the country’s emerging middle class. Until recently this phenomena was focused on tier-1 cities, but affordability is now spreading to lower tier cities, expanding the addressable market.
Continued consumer income growth will, we believe, increase the number of pupils with the means to spend on after-school tuition, a sub-sector with excellent economics and lower regulatory risk. We therefore see structural growth remaining high for a long period of time, as demand continues to increase, with the best companies benefiting from brand recognition, scale and consistency.
Absent a substantial shock to the economy and hence consumer wallets, we would expect private education spend to continue to structurally increase as a portion of GDP in Greater China. Likewise, we believe the sector will remain a defensive one, as parents typically compromise big-ticket purchases such as cars and housing before compromising their child’s future.
For investors prepared to do their homework, we believe carefully selected exposure to the Chinese education sector could offer a strong domestic growth opportunity with returns relatively insulated from wider political and economic risks around the world.
Naomi Waistell, emerging market portfolio manager. Newton Investment Management – a BNY Mellon company