Instead of helping China’s business sector thrive, the Xiamen-headquartered coffee chain has threatened to shut the gates of foreign investments to the country, according to analysts.
Luckin Coffee, China’s largest coffee company, has been involved in a fraud scandal over the falsification of its financial figures for 2019.
Its shares plunged as much as 81% after it revealed that its senior official and underlings have fabricated transactions amounting to almost half of its total revenue last year. The figures in question amounted to some RMB$2.2 billion (US$310 million).
“After the Luckin incident, investors will be more careful when investing in Chinese companies that have a short founding history and rely on huge leverage to expand,” said Jackson Wong, an asset management director for Amber Hill Capital Ltd. In Hong Kong.
China’s supposed best business growth story has tarnished the country’s corporate industry as it dragged down shares across industries.
In Hong Kong, the stocks of China International Capital Corp slipped to almost 6%. Chinese companies like Anta Sports Products Ltd., Xtep International Holdings Ltd. and 361 Degrees International Ltd. have also felt the heat during last week’s trading.
“It will inevitably affect the investors’ confidence and market momentum on other U.S.-listed China stocks…It may even affect the Chinese companies’ U.S. IPO pipeline because investors would start to question their accountability,” said Steven Leung, executive director executive director at Uob Kay Hian (Hong Kong) Ltd.
Economic experts say that this would further tarnish China’s corporate image considering that the interest of foreign investors for Chinese shares had already declined due to unsatisfactory deals and tensions amid the trade war with the United States.
China is also grappling with sharp economic downturn caused by the coronavirus pandemic that originated from Hubei province which has also left IPO volumes around the world shrinking.
