Chinese Coffee Chain’s Scandal Renews U.S. Calls for Oversight

The implosion of a Chinese competitor to Starbucks has bolstered the cause of American politicians aiming to stop opaque Chinese companies from raising money in the U.S.

By Alexandra Stevenson and Edward Wong
April 30, 2020

HONG KONG — Luckin Coffee had an audacious goal: take on Starbucks in China. Last year, unprofitable, burning through cash and not even two years old, it went to Wall Street to raise over half a billion dollars. Just a few months ago, it was valued at $12 billion.

The one-time darling has now imploded spectacularly in an accounting fraud that has roiled China, a cautionary tale that has renewed a push in the United States to cut Chinese companies off from Wall Street.

Lawmakers from both parties say Chinese companies do not play by the same rules, adding to rising tensions between Washington and Beijing. And Luckin, which disclosed this month that it had fabricated most of its 2019 revenue, is also resurfacing frustrations from American regulators over the ability to prosecute Chinese companies often given cover by Chinese officials who cite the need to protect state secrets.

“The Luckin Coffee scandal is just one of many examples of Chinese fraud, and it should be a major wake-up call for policymakers and regulators that the time for action is now,” said Senator Marco Rubio, Republican of Florida.

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Soon after he and three other senators proposed the bill, known as the Equitable Act, last year, two Senate colleagues introduced a similar bill that also aims to mandate the delisting of foreign companies that fail to comply with auditing regulations.

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