How Starbucks' number one Chinese competitor imploded?

WION Web Team
New Delhi, IndiaUpdated: May 01, 2020, 09:25 PM IST

Starbucks and Luckin Photograph:(Twitter)

Story highlights

It had operated only in China but had more coffee stores than Startbucks in the country.

Chinese coffee brand Luckin coffee that was supposed to challenge the dominance of Starbucks in the coffee house business has collapsed during the coronavirus crisis.

The two-year-old coffee brand was supposed to be China's biggest success story.

It had operated only in China but had more coffee stores than Startbucks in the country.

A few months ago, it was valued at 12 billion dollars and was listed on Nasdaq.

However, the brand imploded due to its own fault rather than the coronavirus pandemic.

Luckin first opened its shops in Beijing and Shanghai in 2017 and expanded aggressively after that.

By the end of 2019, it had more than 4,500 stores in the country.

The company was well off and its future looked bright until a scandal threw a spanner in the works.

It happened when Jian Liu, the chief operating officer of Luckin, was been accused of cooking up the books.

Jiu and his subordinates had reportedly fabricated roughly 310 million dollars worth of transactions.

As a result, the company had to inform the exchanges that its second and third quarter results of last year cannot be relied upon.

The company which was a shining star of China is now facing the charges of fraud.

It has lost millions of dollars in value and its stock on Nasdaq which were worth a little more than 50 dollars in January, have now dropped to less than five dollars. 

Chinese regulators have launched an investigation into Luckin. In an unusual statement, they said that they will work with Washington to find the root cause of the problem.

However, this appears easier said than done.

The downfall of Luckin has added to China's troubles with the United States as the Trump administration is investigating China's role in the coronavirus crisis.

US President Donald Trump has made his intentions clear. He wants to punish China on multiple fronts.

Some experts have suggested that China's access to American financial markets should be cut-off. The idea is to delink america's economy with china on multiple levels.

Trump's former chief strategist, Steve Bannon has said that the strategy is being reanalysed.

In a report that was put together by US officials last year in February, it was found that 156 Chinese companies were listed on American exchanges and they had a collectively market value of 1.2 trillion dollars. At least 11 of these listed companies are state owned.

Trump has often asked American businesses to move out of China.

According to media reports, lawmakers have discussed different bills that would make it harder for Americans to invest in chinese companies. 

The fraud at Luckin has given US a chance to push for tougher rules against Chinese companies.