What happened

In a stampede of trading, investors rushed back to market and bought beaten-up China stocks on Wednesday. Chinese education stocks New Oriental Education & Technology Group (EDU -1.17%), TAL Education Group (TAL -1.71%), and Gaotu Techedu (GOTU -3.45%) are among the biggest beneficiaries.

As of 11 a.m. ET, New Oriental Education shares are up 7.6%, TAL is up twice as much to 15.2%, and Gaotu Techedu is doing best of all with a 20.1% gain.

Red map of China with a rising green stock arrow superimposed.

Image source: Getty Images.

So what

So it seems that at long last, the Chinese government has decided to ride to the rescue of its stock market.

As The Wall Street Journal reports this morning, Chinese Vice Premier Liu He has announced moves to make its regulations of Chinese business more "transparent and predictable." This appears to mark a turn away from the series of dramatic regulations imposed on various sectors of the economy last year -- in particular:  

  • China forbade tutoring companies such as New Oriental, TAL, and Gaotu from advertising their services in state-owned media.
  • China also banned teaching online education courses after 9 p.m.
  • China outlawed both private tutoring in-person on academic campuses, and also off campus tutoring on weekends.
  • And China banned all for-profit tutoring of pre-K kids.

Additionally, state news agency Xinhua reports that "China's securities regulator is ... working to cooperate over accounting oversight of U.S.-listed Chinese companies," says the Journal. CNBC adds a statement from Xinhua that China's government "continues to support various kinds of businesses' overseas listings."

This latter statement appears to suggest progress in bringing Chinese companies into compliance with the U.S. Holding Foreign Companies Accountable Act of 2020, so as to ensure auditing firms subject to oversight by the U.S. Public Company Accounting Oversight Board (PCAOB) will be able to fully inspect the financial statements of Chinese stocks trading on U.S. stock exchanges. And if so, it reinforces a statement reported Friday, from the China Securities Regulatory Commission, promising "cooperation in line with the two countries' legal and regulatory requirements."  

Now what

Now, a few caveats and provisos are in order.

First, investor enthusiasm notwithstanding, none of the reports coming out today appear to promise that China will in any way roll back the regulations on for-profit education companies that it has already enacted. Seeing as it is these regulations that were originally responsible for destroying 94% of the stock market value of New Oriental Education, 97% of the value of TAL stock, and 98% of the value of Gaotu Techedu, a mere promise not to enact any further restrictions on education stocks feels a bit like closing the barn doors after the horses have already run away -- and after the barn has burned down, besides.

For that matter, a promise to seek "cooperation" with the PCAOB is not quite the same thing as a promise to open the books of Chinese companies to outside audit. It's suggestive of that kind of compromise, but success on this front, too, remains to be seen.

For the time being, I'd suggest that investors adopt a "trust, but verify" attitude to today's news. Trust that China is worried about its stock market crash -- but before you buy in, verify that it's actually going to do something about it.