Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao, two of the country’s most valuable edtech startups, for unfair competition amid a broader crackdown on its biggest internet companies.

Why it matters: Beijing is expanding its scrutiny of tech firms to the online education sector following extensive fines on various segments from e-commerce to community group-buy platforms.

• The penalty comes on the heels of the fines levied on four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—for deceptive pricing practices.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Monday that it had imposed RMB 2.5 million ($389,000) fines each on Zuoyebang and Yuanfudao. The regulator also issued regulatory warnings to the startups, two of China’s most valuable (in Chinese) online tutoring platforms.

• The investigation showed Zuoyebang fabricated information about its teachers’ work experience, falsified user reviews, and gave misleading details about its services in order to boost orders.
• The Alibaba-backed company fraudulently claimed on its website to be a partner of the United Nations, according to the notice.
• SAMR pointed out that both of the two companies falsely advertised discounted prices to boost orders.
• A Zuoyebang promotional campaign on its own app and official stores on Tmall and JD markets offered a discount of around 21% off of online courses priced up to RMB 3,280 (around $510). Yuanfudao also lured customers with special deals, such as offering RMB 399 package courses for RMB 9. Investigations showed that no transactions at these prices had ever been recorded.
• Zuoyebang confirmed news of the penalty with TechNode, and pledged full compliance with the order and rectification of improper marketing behavior and misleading pricing.
• A Yuanfudao spokeswoman said that the company had already started inspecting various channels and had removed all the improper marketing banners.

Context: Investors have rushed into the online education sector, which has seen a boost during the coronavirus pandemic.

• Yuanfudao, focused on the K-12 age group, raised over $3.5 billion in 2020 from investors including Tencent, DST Global, and Jack Ma-backed Yunfeng Capital.
• Rival Zuoyebang received a combined $2.35 billion funding last year from investors including Alibaba, Tiger Global Management, SoftBank Vision Fund, and Sequoia Capital China.