A very simple fact: There are not enough students to fill all Form One places. In a free market, it happens all the time. Demand and supply never exactly match. The free market mechanism will auto-adjust. Some schools will get enough students and some will not. Those do no will not survive and thus supply falls, leading to a temporary equilibrium.
Education is not a free market when government intervenes and provides free education. When supply exceeds demand as in the present situation, resources just go to waste. Some naive legislators said with an intention that excess supply will improve education as more teachers will be looking after fewer students. EO know best because we work with efficiency, effectiveness and economy in mind. There is an optimum manning scaling for a task. Understaffed team will not perform well. Overstaffed team will also not performed well with excess resources wasted.
The most famous case a few years ago is the Tai O Primary School which fought school closing by demonstration at EDB. It turned out that the entire student population of the school was only 40 with P2/P3 and P4/P5 sharing one class. A total of 25 school staff were caring for 40 students. The school was eventually closed with students sent to Tung Chung Primary School, about 40 minutes bus-ride away.
To kill or not to kill; that is the question. EDB prefers not to kill (schools) but to kill (classes). This may be a way out, but the pain is now felt by every school instead of a few bad schools.
How about the free market of the private schools? Business is as usual. Those good ones still get good students while the bad ones not getting enough.
Then we come back to DSS schools. Which market are they in? With promised freedom, they think they are private schools and can open classes as they wish as long as there are students. In any case, subsidy are received per student count. The truth is that DSS schools are on higher ground attracting rich students, who are in ample supply in Hong Kong. They are not worried a bit about not getting enough students. Thus this part of public fund on free education is not helping share the pain of decreasing student population.
On way EDB can do is to cap the direct subsidy to number of students. When a class is to be reduced, the cap can be correspondingly lowered by the same student numbers. I wonder if the EDB officials have ever considered this.