Why China’s Middle Class Is Cutting Back On Private Daycare Centers

Economic

Summary:

Amid the job and income insecurity brought by the lackluster post-pandemic economic recovery, cheaper options are pushing costly private centers out of business.

It has been more than a year since China reopened from the Covid pandemic. But as evidenced by the latest wave of closures, the country’s childcare sector is still struggling to regain its footing.

In late December, Li Qing received a text message from her child’s daycare center, Learnroom Children’s House in Beijing’s Changping district, saying that it had suspended classes. The action was taken by the staff themselves after the institution failed to pay social security dues, along with part of their wages.

Soon, another Learnroom branch, located in Beijing’s Daxing district, suspended operation. Learnroom is an international education group that provides care and education for children up to 6 years old.

Hundreds of parents were caught off guard by the suspensions, who still had altogether more than 15 million yuan ($2.1 million) of prepaid service fees to be used, Li told Caixin.

Learnroom is just one of a number of childcare chains in China that have abruptly closed their facilities in recent months, with numerous parents having trouble getting their money back, domestic media reported. Besides Beijing, the closures have also occurred in provincial-level regions such as Guangdong, Jiangsu and Inner Mongolia, the reports said.

The closures highlight the struggles of China’s private childcare centers, caused by growing competition from low-cost rivals, weak consumer spending and government restrictions. They’re also feeling the impact of falling birthrates, which means the centers have to compete for fewer kids, Zhang Hua, executive director of the Chinese Association for Improving Birth Outcome and Child Development’s inclusive childcare working committee, told Caixin.

The once fledgling sector was hit hard by the pandemic, and the situation is not any better now. Childcare centers “closed one after the other during the pandemic,” and the trend has continued into this year, Zhang said. A batch of daycare centers shut down before the Lunar New Year holiday in February, he said, predicting that another batch may close by October.

The closures come as Beijing tries to expand childcare services to reverse the falling birthrates and foster a better-skilled population. The country has set a target of having 4.5 daycare spots per 1,000 people, or 6.3 million spots nationwide, by 2025. As the deadline looms, local authorities are scrambling to close the gap.

Parents cut spending

In the fall of 2023, Sun Yanyun told Caixin she was planning to close her childcare center in Beijing’s Chaoyang district, following the closure or sale of several of her centers elsewhere.

The center in Chaoyang occupies about 480 square meters (5,167 square feet) and pays monthly rent of 40,000 yuan a month. It has 10 non-management staff serving more than 20 children, half the number at peak times. It is operating at a loss.

Like Sun’s, many of the 200 childcare centers registered with the Beijing Municipal Health Commission are struggling to stay afloat, Wang Bing, head of a childcare chain, told Caixin.

One reason is parents’ declining ability to pay the fees after the pandemic. Sun said her Chaoyang daycare center was having a hard time recruiting students because parents think the center’s monthly childcare fee of more than 7,000 yuan is too high.

But the price is actually reasonable. Zhang explained that a commercial daycare provider must charge at least 6,000 yuan per child per month to barely survive.

Similarly, Liu Kelai, who runs a high-end daycare center in Beijing, has found that parents are no longer as eager to shell out money as they were before, and some are even comparing the prices of multiple providers before making a decision.

Liu said many large companies near her center have recently laid off staff or cut salaries. Some affected parents have also taken their children out or moved to cheaper ones.

These parents typically earn between 50,000 yuan and 60,000 yuan a month, but they are saddled with mortgages and car loans that are far higher than their salaries, she said, noting that just a pay cut would make it hard for them to make ends meet, let alone a layoff.

The plight of the daycare centers resembles some of the other industries that are languishing because of the lackluster post-pandemic economic recovery, with many firms being forced to resort to cost-cutting measures such as downsizing. This has raised concerns about job security and continues to weigh on consumer spending, including by middle-class families.

As a result, parents have increasingly opted for cheaper childcare providers. Wang’s daycare experienced a sharp drop in new students and suffered “its largest-ever refund wave” in the latter half of last year. The biggest challenge to the center came from competition from nearby kindergartens offering cheaper childcare services.

Intensifying competition

As of February, there were about 4.8 million childcare spots nationwide, 1.5 million less than the government’s target for 2025, according to National Health Commission (NHC) official Yang Jinrui.

Many parts of China, including Beijing, Shanghai, Guangdong and Zhejiang, have issued documents encouraging qualified kindergartens to also offer daycare services for 2- and 3-year-olds. In China, kindergartens usually provide education and care for children aged 3-6, while daycare centers take care of younger kids.

That’s because as the birth rate continues to fall, at least 10 million spots are expected to remain unfilled in kindergartens over the next few years, according to Su Dezong, an expert from a government-backed organization involved with the care for the next generation. Therefore, authorities can quickly increase the supply of childcare spots by utilizing kindergarten resources, Su said.

Additionally, kindergarten teachers are more likely than others to quickly acquire specialized skills needed to care for children aged up to 3 years old. Kindergartens also have advantages such as more outdoor space.

However, in reality, kindergartens are also facing difficulties such as a shortage of staff to run daycare classes. China overall lacks childcare professionals, while at the same time many kindergarten teachers are unwilling to attend to daycare work, because they feel that their salary wouldn’t match the extra effort, Caixin has learned.

The country’s kindergartens are already suffering due to problems such as the declining birthrate and a lack of government subsidies, with nearly 15,000 closing last year alone, recent government data showed.

The capital is also devising a system in which childcare-only institutions as well as community and workplace childcare sites can supplement the kindergartens in serving babies. The city will add 10,000 new childcare spots this year, after adding 6,000 in 2023, Yu Yingjie, a Beijing education official, said at a news conference last month.

Government restrictions

So, what can the struggling childcare centers do to stay afloat? One option is to become family daycare centers, Liu said, citing their trials. She shared with Caixin a vision that every residential community could have a family daycare center that enrolls 15 to 20 children. “It’s very feasible,” and the centers “don’t have to worry about enrollment.”

However, pilot rules published by national authorities including the NHC in October called for a maximum enrollment of five children per family daycare center and a maximum of three infants or toddlers per caregiver. The rules have drawn opposition from some industry insiders, who complain that daycare centers cannot operate sustainably under such conditions.

Many private childcare centers are trying to turn themselves into cheaper, “inclusive institutions,” thereby receiving government subsidies to reduce costs. However, this path is also challenging as they struggle to pass the necessary step of registering with the local health commission.

For example, as of 2022, only 200 of Beijing’s 627 childcare institutions had completed registration, a rate of just 31.8%, government data showed.

Research by Guangzhou’s legislature also showed that of the city’s 751 childcare centers, only 29.29% had completed registration, the local newspaper Guangzhou Daily reported in June.

Many heads of childcare centers are concerned that policies aimed at steering the industry toward standardization, quality and diversity may in practice have an undesired effect.

A childcare professional told Caixin the institution she works for is tired of dealing with frequent inspections by multiple departments. Another said their daycare center had been asked to submit at least one year’s worth of fire safety records — just signing off the papers took five hours.

“If there hadn’t been a pandemic or rapid changes in the external environment, everyone would have had at least three to five years to grow,” Zhang said. “But now it’s like being strangled right after birth without any space to grow freely.”

The way the government regulates the industry is debatable, considering that the industry is still immature, Wang said. “Regulations alone are not enough to help an industry thrive,” she said.

Cai Jianhua, who works with Zhang on the inclusive childcare working committee, called on governments at all levels to provide more subsidies to ensure that children in both urban and rural areas enjoy equal access to childcare services, and to achieve “high-quality population development.”

China’s childcare sector began to take off in 2019, thanks to a slew of government policies aimed at strengthening infant and toddler care, as well as tighter state controls on the investment in kindergartens. It was hit by the pandemic soon after.

Source：CaiXin

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