教育行业：民办教育，舒缓财政支出困境不二之选.docxVIP

HYPERLINK / HYPERLINK / Please refer to the last page for important disclosures We believe the current tax reform will slow fiscal revenue growth for both the central government and local governments in the coming years. Meanwhile, we expect public spending on education to continue to increase steadily, resulting in growing deficits in the education sector. We think the government will increasingly rely on private-sector investment to meet the incremental demand for public education, and thus roll out more supportive policies. We expect the central government to focus on teaching content regulation, while local governments supervise schools’ operations. As such, we believe private school operators will enjoy further autonomy in the future. We maintain our Overweight rating on the sector. Slowing fiscal revenue growth. We believe the current tax reform will slow fiscal revenue growth for both the central government and local governments in the coming years. With a policy tone skewed toward reducing companies’ tax burden to stimulate the economy, we expect value-added tax (VAT) revenue as a percentage of GDP to drop from 6.82% in 17A to 5.82% in 22E and China’s corporate tax rate to be reduced from 3.88% to 3.38% over the same period. As a result, we expect China’s tax burden ratio to decrease to the level of other emerging countries. We forecast fiscal revenue growth to decelerate from 10.7% YoY in 17A to 6.4% in 22E. Growing deficits. We expect K-12 and higher education student enrolments to continue to grow, from 285m in 17A to 297m in 22E. As the supportive policy stand remains unchanged, we believe per-student expenditure for public education will continue to increase, leading total expenditure to expand from Rmb3.5tn in 17A to Rmb5.6tn in 22E. With fiscal revenue growing at a slower rate, we expect deficits to increase from Rmb520bn in 17A to Rmb1.0tn in 22E. Bridging the gap. We believe private schools bridge the gap between public expenditure and the educa