The “4+2+1” Phenomenon

As the single-child generation, those coming to maturity in the 1980s and 1990s in most Chinese families are coping with the inverted pyramid structure of “4+2+1”, under which they, being the only children, bear the responsibility of supporting both of their parents and all four of their grandparents. Thus, “Begin winning from the starting line” has become a common wish that parents have for their children.

Given that parents devote almost all their effort into nurturing their children, private kindergartens in China have witnessed more than a decade of robust development, where more emphasis has been placed on development if children’s intelligence over price sensitivity for children’s education.

CFCG (stock code: 1269), a company primarily engaged in education investment and financial services, has announced in mid-February that it would subscribe the shares of G8 Education, the largest profit-making child care service provider in Australia, through First Capital Australia Education Master Fund. CFCG stated that it would evaluate ways to introduce the G8 brand into China, with the view of leveraging its reputation and extensive international child care and education management experience to seize the development opportunities in the domestic child care and education market To understand the opportunities within China’s child education market, one must first look at the development history and driving forces of the country’s kindergarten industry.

China’s child education sector experienced rapid growth from 2003 to 2009 when kindergarten investment saw a significant influx of private capital. At the time, private kindergartens made a great leap in quality by formulating better teaching philosophies and attracting better teachers in China and the rest of the world. Consequently, the number of private kindergartens exceeded that of public kindergartens in 2004, and by 2008, more than 60% of kindergartens were private. Private kindergartens have been receiving strong policy support and have been entitled to preferential treatment for land use and tax since 2010. During this golden age of development, four main childhood education philosophies, namely Montessori, Waldorf, Froebel and DAP, came to China. Outperforming public kindergartens in terms of hardware and software resources, private kindergartens became major purveyors of pre-school education.

In 2014, there were 210,000 kindergartens in China providing education to 40.5 million or 66% of the total number of children. China’s implementation of the two-child policy is expected to boost the number of children aged between 0 and 6 from 113 million in 2014 to 130 million in 2020. Due to the increase in population and spending power, by 2020, there would be approximately 320,000 kindergartens in China, significantly more than the current figure. By that time, the market size would expand to RMB250 billion and the industry would grow at a compound annual growth rate of 12% in the next five years.

Currently the concentration of the market is low in the kindergarten sector in China, with the top seven suppliers accounting for only 2.3% of the market volume. The general expansion of spending in education and the “4+2+1” family structure will continuously increase the share of kindergarten education in total spending. Meanwhile, high-end and branded kindergartens will attract intense interest from parents.

For parents, as mentioned previously, “4+2+1” means to have their children “winning at the starting line,” while for education investors, it represents immense opportunities in China’s early childhood education industry. In the next issue, we will share more insights about the early childhood education industry, business models of private kindergartens and their core competitiveness.

  • Data from First Capital Funds Management Company Limited, the Ministry of Education of China and WIND