Bubble Tea Boom Slows As CSRC Blocks New Hong Kong Listings

In a significant regulatory move, the China Securities Regulatory Commission (CSRC) has temporarily suspended approvals for new initial public offerings (IPOs) by bubble tea companies on the Hong Kong Stock Exchange. This decision impacts pending applications from major players like Mixue and Guming, as reported by Reuters on September 22.

The CSRC’s directive comes in response to the lackluster performance of bubble tea stocks this year and an overall decline in market sentiment. The suspension signals a more aggressive stance by the CSRC in controlling which Chinese firms can access the Hong Kong and New York stock markets. This approach reflects China’s protective attitude towards its domestic A-share markets, particularly during periods of weakened investor confidence.

Since March, the CSRC has implemented a registration system for Chinese companies intending to list overseas. Previously viewed as a mere formality, this process is now being utilized to restrict the flow of IPOs to foreign markets, indicating a strategic shift in how China manages its influence over Hong Kong’s market-driven system.

The immediate effects of this moratorium are felt by companies like Mixue, Guming, and Auntea Jenny, which submitted their applications in early 2024. Together, Mixue and Guming dominate China’s bubble tea market with a combined total of 45,000 outlets, highlighting the industry’s rapid expansion. However, forecasts suggest a slowdown in growth, with the sector’s growth rate projected to decrease from 20% in 2024 to 16% by 2027, according to a CICC report.

The rise in the number of bubble tea outlets has begun to strain profitability, with Nayuki and Chabaidao reporting significant financial setbacks this year. Nayuki’s recent results indicate a transition into the red, while Chabaidao’s profits plummeted by approximately 50%. The cancellation of a previously declared dividend by Chabaidao reflects a growing concern over cash conservation amid financial difficulties.

The CSRC’s apprehension regarding the bubble tea market is understandable given the stock price declines for these companies. Chabaidao’s shares have plummeted by about two-thirds since its IPO, while Nayuki’s stocks have decreased by 58% this year alone. Such drastic declines raise alarms about the market’s appetite for these previously high-flying brands.

Moreover, the financial aspirations of Mixue and Guming—targeting $1 billion and $500 million respectively—would account for nearly two-thirds of the $2.56 billion raised in Hong Kong from new listings this year, according to Dealogic data. Overall fundraising in Hong Kong has diminished considerably, with only $5.7 billion raised in the previous year.

While the market reacted positively to the announcement, with Chabaidao’s stock rising 8.7% and Nayuki’s increasing by 0.75%, analysts caution that this optimism may be fleeting. The gains are largely rooted in regulatory changes rather than genuine market confidence.

This intervention by the CSRC has reignited debates regarding its influence over Hong Kong’s stock market. Critics argue that such heavy-handed tactics may erode investor trust, especially as Hong Kong remains a pivotal global marketplace for Chinese investments. In the long run, while some international investors may appreciate measures aimed at stabilizing market conditions, the potential for unpredictable regulatory shifts could ultimately undermine confidence and deter future investments.

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