Summary of Key Points
Five years after the implementation of the "Double Reduction" policy, the once-prohibited one-on-one tutoring services with foreign teachers from abroad have not disappeared. Instead, they have made a comeback through a "foreign shell" model that involves "attracting students domestically, collecting payments overseas, conducting lessons through overseas entities, and using domestic shell companies for contracting." Platforms like 51Talk and VIPKID have seen business growth, but they face compliance risks (such as avoiding regulations, data security issues, and foreign exchange problems), financial vulnerabilities (with prepaid fees far exceeding cash reserves and net assets consistently being negative), and difficulties in refunding payments (due to a lack of assets). Courts have established clear rules to support parents in getting their money back, but enforcement is challenging. Regulations are being strengthened, and this model may face stricter constraints in the future.
The Secret Behind the "Resurrection" of Foreign Teacher Tutoring: Using a "Foreign Shell"
The original foreign teacher tutoring services have not vanished; they have simply adopted a new approach to circumvent regulations:
- Attracting Students Domestically: Parents find the courses through domestic advertisements and social media (for example, the VIPKID courses purchased by Ms. Qiu).
- Collecting Payments Overseas: After payments are made, the money is transferred to a company account in Singapore (Ms. Qiu's payment recipient is VIPTEACHER in Singapore).
- Conducting Lessons Overseas: Children use accounts registered with a Hong Kong area code (+852) to take lessons, avoiding domestic supervision.
- Signing Contracts Domestically: The contracts are signed with domestic companies (such as Beijing Dami Technology), but these companies have only a nominal capital of 1 million RMB, no employees enrolled in social insurance, and no teaching qualifications—typical shell companies, meaning parents cannot identify a responsible entity in case of problems.
This approach essentially moves the tutoring services overseas and then sells them to domestic children, with the aim of bypassing the ban on foreign teachers teaching domestic primary and secondary school students.
The Policy is Clear: These Practices Violate the Rules
Many parents think it's just a matter of whether the fees exceed 5,000 RMB, but the issue is more serious—foreign teachers teaching domestic students is strictly prohibited:
- The "Double Reduction" policy explicitly states, "It is strictly forbidden to hire foreign personnel from abroad to conduct training activities and to offer overseas education courses," and this ban has not been relaxed in the past five years.
- The latest "Out-of-School Training Service Contracts for Primary and Secondary School Students" (2025) still includes these prohibitions.
- Lawyers point out that these practices may involve "evading domestic approval and supervision," "data security issues" (child information being transferred overseas), and "foreign exchange management issues" (using RMB to exchange for US dollars for refunds may be illegal).
In simple terms, this is not just a matter of compliance; it's borderline illegal behavior.
Financial Reports Reveal Hidden Risks
A look at 51Talk's financial reports reveals underlying issues despite the apparent growth:
- Prepaid Fees Triple Cash: As of March 2026, prepaid fees (amounts paid by parents in advance for lessons not yet taken) amounted to 78.9 million US dollars, while cash and equivalents were only 35.5 million US dollars. This means the platform uses money from new parents to pay for lessons taken by previous parents, similar to a Ponzi scheme, leaving no funds available for refunds if new enrollments stop.
- High Sales Expenses: Sales expenses account for nearly 60% of revenue, indicating that the platform relies on continuous new enrollments to survive.
- Negative Net Assets for Three Years: Net assets from 2023 to 2025 were -8.34 million, -15 million, and -31.36 million US dollars, respectively. The company owes more than it owns, and since the domestic entity is a shell company, the risks are borne by the parents.
Difficulties in Refunds: Winning Cases Doesn't Guarantee Money
Although courts support parents in getting refunds, enforcement is problematic:
- Court Rules:
1. The "Double Reduction" policy is a sudden change, allowing parents to terminate contracts and get refunds.
2. AI courses cannot replace live human lessons (for example, VIPKID's attempt to replace remaining lessons with AI courses was rejected by the court).
3. Gift courses must be refunded based on the purchase; those given as part of promotional activities do not need to be refunded.
4. Unreasonable jurisdiction clauses are invalid (for example, 51Talk's attempt to require parents to file lawsuits in Shenzhen was deemed invalid by the court).
- Key to Enforcement Challenges: The domestic companies signing the contracts are shell companies with little actual capital, no employees, and assets overseas. Even if parents win the lawsuit, they may not be able to recover their money due to the lack of enforceable assets (for example, Ms. Qiu had to pay over 1,000 in fees for the refund, and the refund was in US dollars).
Regulations are Tightening: This Model May Be Short-Lived
Regulations are becoming stricter, and this "foreign shell" model may not be sustainable:
- Local Policies First: The "Regulations on the Supervision and Management of Online Out-of-School Training Institutions" implemented in Guangdong in September 2025 require online institutions to have all necessary licenses and that foreign teachers meet the requirements.
- National Regulations in the Works: The draft "Out-of-School Training Management Regulations" clearly stipulate the need to supervise prepaid fees (which must be held in regulated accounts) and require provincial approval for online training. Once these regulations take effect, the "overseas payment + domestic contracting" structure will be blocked.
In summary, these platforms are still exploiting loopholes in the regulations, but the pressure to comply will increase in the future. Parents should be cautious when choosing these services, as their money might be lost due to regulatory changes.