(Yicai Global) July 29 -- New Oriental Education & Technology Group and TAL Education Group, two of China’s leading educational technology firms, have been sprinting to set up new firms that comply with the government's new policy to reduce the after-school tutoring burden on students. 

New Oriental has established 11 new companies this month, including Nanjing New Oriental Culture & Art Development and Shenzhen New Oriental A-Round Education Training. The Shenzhen firm's business scope includes education consulting services and training in languages, the arts, sports, science and technology. 

Xinxin Xiangrong Education Technology Beijing, which runs TAL's strategic investment division, has set up five new firms so far this month. Shanghai Minsi Education Training, one of the five, will focus on culture and art teaching, sports guidance and other areas. 

According to information available online, some of the new businesses the two New York-listed online tutors set up still intend to teach core subjects, but they noted that such activity is subject to government approval. 

China issued new regulations on July 24 targeting private tutors and online educators that provide academic classes to students from kindergarten to 12th grade, with the aim of reducing the study workload during compulsory education years.

Shares in TAL [NYSE:TAL] plummeted from a nearly 52-week high of USD90.96 after the news broke, falling over 78 percent in two trading days to USD4, before bouncing back to close at USD6.4 yesterday. New Oriental [NYSE:EDU] fell to USD1.94 from USD6.4 in a 70 percent slump over two days, before finishing at USD2.36 yesterday. 

Koolearn Technology Holding, New Oriental's Hong Kong-listed entity, announced in a filing on July 26 that it is “considering appropriate compliance measures, and expects such measures to have a adverse material impact on its AST services related to academic subjects in China’s compulsory education system.”

Tutors focusing on core academic subjects during the compulsory education years are facing a long-term period of tighter oversight, which will limit their business development and block commercialization, Citic Securities said in a recent research note.

The broker suggested that the firms could shift their focus to fields in which there is more policy leniency such as vocational education and educational technology.

Editor: Tom Litting