Chinese private education company New Oriental logo seen in Shanghai.
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BEIJING – Two US-listed Chinese education stocks fell sharply on Friday after reports of government crackdown on the sector that included a ban on foreign investment.
TAL Education stocks were down 58% on Friday. New Oriental Education and Technology stocks were down 56%.
The reports come as Chinese authorities tightened restrictions on the private education industry in recent months and scrutinized domestic companies that are overseas listed in the US.
Caixin, a major Chinese financial news website, reported Friday that new restrictions on the education sector were being introduced by the Chinese government in Beijing and other cities across the country.
Copies of the policy document circulated online on Friday afternoon.
Educational institutions are banned from publicly raising money while foreign capital cannot invest, according to a copy of the Chinese-language document reviewed and translated by CNBC. It dates back to July 19 and was issued by the highest executive body – the State Council – and the Central Committee of the Chinese Communist Party.
One of the prohibitions on foreign investment included floating rate units, a common structure that Chinese companies use to list in the United States.
Existing violations of the capital prohibitions would have to be addressed, it says in the document.
CNBC has not independently verified the document. The Ministry of Education did not immediately respond to a faxed request for comment outside of Beijing hours.
A policy document of the same name, related to reducing the cost of after-school tutoring, was approved at a May 21 meeting chaired by Chinese President Xi Jinping. The version circulating on Friday banned after-school tutoring companies from advertising, saying they couldn't work on holidays, weekends, and winter and summer vacations.
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New Oriental Education declined to comment to CNBC and TAL did not immediately respond to a CNBC request for comment.
The stock slump followed sharp falls in Hong Kong-traded education stocks, which began to fall in the afternoon.
New Oriental's Hong Kong-listed subsidiary Koolearn fell 28% on Friday.
UBS analyst Felix Liu said in a statement on Friday that the company will be reviewing its TAL, New Oriental and Koolearn ratings "pending official confirmation, given the potentially significant impact on fundamentals and reported regulation."
– CNBC's Michael Bloom contributed to this report.