Africa’s top mobile phone seller Transsion to list in Chinese IPO

Chinese mobile-phone and device maker Transsion will list in an IPO on Shanghai’s STAR Market,  Transsion confirmed to TechCrunch. 

The company—which has a robust Africa sales network—could raise up to 3 billion yuan (or $426 million).

“The company’s listing-related work is running smoothly. The registration application and issuance process is still underway, with the specific timetable yet to be confirmed by the CSRC and Shanghai Stock Exchange,” a spokesperson for Transsion’s Office of the Secretary to the Chairman told TechCrunch via email.

Transsion’s IPO prospectus was downloadable (in Chinese) and its STAR Market listing application available on the Shanghai Stock Exchange’s website.

STAR is the Shanghai Stock Exchange’s new Nasdaq-style board for tech stocks that also went live in July with some 25 companies going public. 

Headquartered in Shenzhen—where African e-commerce unicorn Jumia also has a logistics supply-chain facility—Transsion is a top-seller of smartphones in Africa under its Tecno brand.

The company has a manufacturing facility in Ethiopia and recently expanded its presence in India.

Transsion plans to spend the bulk of its STAR Market raise (1.6 billion yuan or $227 million) on building more phone assembly hubs and around 430 million yuan ($62 million) on research and development,  including a mobile phone R&D center in Shanghai—a company spokesperson said. 

Transsion recently announced a larger commitment to capturing market share in India, including building an industrial park in the country for manufacture of phones to Africa.

The IPO comes after Transsion announced its intent to go public and filed its first docs with the Shanghai Stock Exchange in April. 

Listing on the STAR Market will put Transsion on the freshly minted exchange seen as an extension of Beijing’s ambition to become a hub for high-potential tech startups to raise public capital. Chinese regulators lowered profitability requirements, for the exchange, which means pre-profit ventures can list.

Transsion’s IPO process comes when the company is actually in the black. The firm generated 22.6 billion yuan ($3.29 billion) in revenue in 2018, up from 20 billion yuan from a year earlier. Net profit for the year slid to 654 million yuan, down from 677 million yuan in 2017, according to the firm’s prospectus.

Transsion sold 124 million phones globally in 2018, per company data. In Africa, Transsion holds 54% of the feature phone market—through its brands Tecno, Infinix, and Itel—and in smartphone sales is second to Samsung and before Huawei, according to International Data Corporation stats.

Transsion has R&D centers in Nigeria and Kenya and its sales network in Africa includes retail shops in Nigeria, Kenya, Tanzania, Ethiopia and Egypt. The company also attracted attention for being one of the first known device makers to optimize its camera phones for African complexions.

On a recent research trip to Addis Ababa, TechCrunch learned the top entry-level Tecno smartphone was the W3, which lists for 3600 Ethiopian Birr, or roughly $125.

In Africa, Transsion’s ability to build market share and find a sweet spot with consumers on price and features gives it prominence in the continent’s booming tech scene.

Africa already has strong mobile-phone penetration, but continues to undergo a conversion from basic USSD phones, to feature phones, to smartphones.

Smartphone adoption on the continent is low, at 34 percent, but expected to grow to 67 percent by 2025, according to GSMA.

This, added to an improving internet profile, is key to Africa’s tech scene. In top markets for VC and startup origination—such as Nigeria, Kenya, and South Africa—thousands of ventures are building business models around mobile-based products and digital applications.

If Transsion’s IPO enables higher smartphone conversion on the continent that could enable more startups and startup opportunities—from fintech to VOD apps.

Another interesting facet to Transsion’s IPO is its potential to create greater influence from China in African tech, in particular if the Shenzhen company moves strongly toward venture investing.

Comparatively, China’s engagement with African startups has been light compared to China’s deal-making on infrastructure and commodities—further boosted in recent years as Beijing pushes its Belt and Road plan.

Transsion’s IPO move is the second recent event—after Chinese owned Opera’s big venture spending in Nigeria—to reflect greater Chinese influence and investment in the continent’s digital scene.

So in coming years, China could be less known for building roads, bridges, and buildings in Africa and more for selling smartphones and providing VC for African startups.

What Huawei didn’t say in its ‘robust’ half-year results

The media has largely bought into Huawei’s ‘strong’ half-year results today, but there’s a major catch in the report: the company’s quarter-by-quarter smartphone growth was zero.

The telecom equipment and smartphone giant announced on Tuesday that its revenue grew 22.3% to reach 401.3 billion yuan ($58.31 million) in the first half of 2019 despite all the trade restrictions the U.S. slapped on it. Huawei’s smartphone shipments recorded 118 million units in H1, up 24% year-over-year.

What about quarterly growth? Huawei didn’t say but some quick math can uncover what it’s hiding. The company clocked a strong 39% in revenue growth in the first quarter, implying that its overall H1 momentum was dragged down by Q2 performance.

The firm shipped 59 million smartphones in the first quarter, which means the figure was also 59 million units in the second quarter. As tech journalist Alex Barredo pointed out in a tweet, Huawei’s Q2 smartphone shipments were historically stronger than Q1.

And although Huawei sold more handset units in China during Q2 (37.3 million) than Q1 (29.9 million) according to data from market research firm Canalys, the domestic increase was apparently not large enough to offset the decline in international markets. Indeed, Huawei’s founder and chief executive Ren Zhengfei himself predicted in June that the company’s overseas smartphone shipments would drop as much as 40%.

The causes are multi-layered, as the Chinese tech firm has been forced to extract a raft of core technologies developed by its American partners. Google stopped providing certain portions of Android services such as software updates to Huawei in compliance with U.S. trade rules. Chip designer ARM also severed business ties with Huawei. To mitigate the effect of trade bans, Huawei said it’s developing its own operating system (although it later claimed the OS is primarily for industrial use) and core chips, but these backup promises may take some time to materialize.

Consumer products are just one slice of the behemoth’s business. Huawei’s enterprise segment is under attack, too, as small-town U.S. carriers look to cut ties with Huawei. The Trump administration has also been lobbying its western allies to stop purchasing Huawei’s 5G networking equipment.

In other words, being on the U.S.’s entity list — a ban that prevents American companies from doing business with Huawei — is putting a real squeeze on the Chinese firm. Washington has given Huawei a reprieve that allows American entities to resume buying from and selling to Huawei, but the damage has been done. Ren said last month that all told, the U.S. ban would cost his company a staggering $30 billion loss in revenue.

Huawei chairman Liang Hua (pictured above) acknowledged the firm faces “difficulties ahead” but said the company is “fully confident in what the future holds,” he said today in a statement. “We will continue investing as planned – including a total of CNY120 billion in R&D this year. We’ll get through these challenges, and we’re confident that Huawei will enter a new stage of growth after the worst of this is behind us.”

China’s Vivo is eyeing smartphone users in Africa and Middle East

Africa’s mobile phone industry has in recent times been dominated by Transsion, a Shenzhen-based company that is little known outside the African continent and is gearing up for an initial public offering in China. Now, its Chinese peer Vivo is following its shadow to this burgeoning part of the world with low-cost offerings.

Vivo, the world’s fifth-largest smartphone maker, announced this week that it’s bringing its budget-friendly Y series smartphones into Nigeria, Kenya and Egypt while the line of products is already available in Morocco.

It’s obvious that Vivo wants in on an expanding market as its home country China experiences softening smartphone sales. Despite a global slowdown, Africa posted annual growth in smartphone shipments last year for the first time since 2015 thanks in part to the abundance of entry-level products, according to market research firm IDC.

Affordability is the key driver for any smartphone brands that want to grab a slice of the African market. That’s what vaulted Transsion into a top dog on the continent where it sells feature phones for less than $20. Vivo’s Y series smartphones, which are priced as little as $170, are vying for a place with Transsion, Samsung and Huawei that have respective unit shares of 34.3%, 22.6%, and 9.9% in Africa last year.

The Middle East is also part of Vivo’s latest expansion plan despite the region’s recent slump in smartphone volumes. The Y series, which comes in several models sporting features like the 89% screen-to-body ratio or the artificial intelligence-powered triple camera, is currently for sale in the United Arab Emirates and will launch in Saudi Arabia and Bahrain in the coming months.

Vivo’s new international push came months after its sister company Oppo, also owned by BBK, made a similar move into the Middle East and Africa by opening a new regional hub in Dubai.

“Since our first entry into international markets in 2014, we have been dedicated to understanding the needs of consumers through in-depth research in an effort to bring innovative products and services to meet changing lifestyle needs,” said Vivo’s senior vice president Spark Ni in a statement.

“The Middle East and Africa markets are important to us, and we will tailor our approach with consumers’ needs in mind. The launch of Y series is just the beginning. We look forward to bringing our other widely popular products beyond Y series to consumers in the Middle East and Africa very soon,” the executive added.

GitHub confirms it has blocked developers in Iran, Syria and Crimea

The impact of U.S. trade restrictions is trickling down to the developer community. GitHub, the world’s largest host of source code, is preventing users in Iran, Syria, Crimea and potentially other sanctioned nations from accessing the service, chief executive of the Microsoft-owned firm said.

Over the weekend, GitHub CEO Nat Friedman wrote on Twitter that like any other “company that does business in the US,” GitHub is required to comply with the U.S. export law. The confirmation comes months after work collaboration service Slack, too, enforced similar restrictions on its platform.

As part of the push, Friedman said GitHub has enforced new restrictions to prevent users in sanctioned countries from accessing private repositories and GitHub Marketplace as well as maintaining private paid organizational accounts.

A selection of GitHub services such as access to public repositories will remain available to everyone, the company said in a statement on its website. “This includes limited access to GitHub public repository services (such as access to GitHub Pages and public repositories used for open source projects), for personal communications only, and not for commercial purposes.”

For developers intending to store export-controlled data, GitHub points them to its enterprise server offering, a self-hosted virtual appliance that can be run within users’ own data center or virtual private cloud.

Several developers began to complain about their inability to access some of GitHub’s services last week. News outlet ZDNet reported about a Russian developer living in Crimea whose GitHub account had been restricted, for instance. Hamed Saeedi Fard, a developer who is based in Iran, wrote in a Medium post that his GitHub account was blocked without being given any prior notice or the option to back up his data.

Interestingly, the restrictions are imposed based on a user’s location — by tracking their IP address and payment history — instead of validating their nationality and ethnicity, GitHub said on its website, where it mentions that Cuba and North Korea are also facing the U.S. sanctions. For those who are considering a workaround by using VPNs (virtual private networks), GitHub has ruled out that possibility: People in U.S.-sanctioned countries “are prohibited from using IP proxies, VPNs, or other methods to disguise their location when accessing GitHub.com services.” It remains to be seen how GitHub enforces the rule.

Banned users who believe their accounts have been wrongfully suspended can fill out an appeal form, where they must provide a copy of their government-issued photo ID to prove their current residency along with a selfie, signaling GitHub’s step towards imposing real-name identity check.

Joy Capital closes $700M for early-stage investments in China

Joy Capital, the venture capital firm that’s backed Luckin, NIO, Mobike and other investor darlings in China, just raised $700 million for a new fund focusing on early-to-growth stage startups.

Launched in 2015 by a team of former investors at Legend Capital, the investment arm of PC maker Lenovo’s parent company, Joy Capital made the news official (in Chinese) on Monday. It didn’t identify the limited partners in this new corpus of funding but said they include “top” public pension funds and insurance companies. Its existing pool of investors counts those from sovereign wealth funds, education-focused endowment funds, family funds and parent funds.

The fresh money boosted Joy’s total tally to over 10 billion yuan ($1.45 billion) under management, with a focus on backing cutting edge technologies and companies involved in the digital upgrade of China’s traditional sectors, or what Joy’s founding partner Liu Erhai (pictured above) dubbed the “new infrastructure” in an op-ed for the China Securities Journal. Targets can include the likes of logistics companies, online car rental platforms or bike-sharing apps.

As a relatively young fund, Joy Capital has so far achieved a few large outcomes. One of its portfolio companies NIO became China’s first electric vehicle startup to go public in the U.S. as a rival to Tesla. It’s also funded Luckin, the Starbucks nemesis from China that floated in the U.S. only 18 months after inception. The fund’s other big wins include Mobike, the bike-sharing pioneer that was sold to Meituan Dianping for $2.7 billion and fast-growing house-sharing unicorn Danke Apartment.

Joy Capital’s new raise arrived at a time when Chinese venture investors are coping with a cash crunch amid a cooling economy exacerbated by the expansion of U.S. tariffs. We reported that private equity and venture capital firms in the country raised 30% less in the first six months of 2019 compared to a year earlier, and the number of investors that managed to attract fundings was down 52% in the same period.

The scientist behind Juul launches a Juul alternative for China

The chemist who helped create the magic sauce behind Juul, Xing Chenyue, unveiled the product of her new startup Myst Labs this week after two years of development: electronic cigarette alternatives designed for China’s 350 million smokers, the world’s biggest smoking population.

This new contender makes for a potentially heated battlefield given that Juul will reportedly enter China soon. TechCrunch has reached out to Juul about its expansion, but has not heard back at the time of writing.

Pax Labs — the company that spun out Juul in 2017 — was a 20-person team when Xing joined as one of its first scientists in 2013. During her nearly three-year post at what would become America’s largest vaping company, Xing helped invent nicotine salts, the compounds that made Juul an instant hit. The patented technology inspired a raft of followers because it allows high levels of nicotine to be inhaled more easily and with less irritation, according to the U.S. Centers for Disease Control and Prevention.

Xing left Juul when the company made a foray into marijuana vaporizers, a move that didn’t particularly interest the scientist, a non-smoker whose ambition is to “help smokers meet their nicotine needs whilst reducing the harmful substances they consume,” Xing told TechCrunch in a phone interview.

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Myst says it spends about 20% of its money raised on research and development. / Photo: Myst Labs

The China-born scientist took up a project management role at publicly-traded pharmaceutical company Dermia before eventually returning to cigarettes research by starting Myst Labs, which she co-founded in 2017 with Thomas Yao, a venture capitalist she had met over a decade ago at Fudan University in Shanghai.

As Myst began to take form, Juul was on course to reach its whopping $38 billion valuation even while it was under fire for luring teenagers into vaping. Meanwhile in China, vaping had just begun to catch on. Research from Soochow Securities (in Chinese) shows that China, despite being the world’s biggest producer of vaping devices, accounts for merely 6% of the world’s e-cig market. Xing wanted to seize the opportunity and this time, she’s in control over what comes out of the lab.

“We certainly want to reach the same level of society-wide impact in China as Juul does in the U.S. We hope Myst can leave a positive mark on Chinese smokers,” said Xing. “Myst can slowly transform the way people smoke and gradually reduce the level of their nicotine intake.”

Myst’s first product, dubbed the P1 series, is a 399 yuan ($58) flash-drive-shaped device that comes with a nicotine level of 3% or 5% and sports a retractable cigarette holder for hygiene and a “click” sound that mimics a lighter. Myst will ship in China through online and offline channels and said it plans to sell in international markets down the road. Its price point is comparable to Juul’s pricing in the U.S.

Myst does not market itself as a smoking cessation tool because to do so would require approval from China’s drug regulator. Rather, the startup bills itself as a “new type of cigarette substitute for adult smokers.” It has avoided using images of young, cool-looking models, the style of campaigns that backfired on Juul. To verify customers’ age, Myst applies facial recognition, an increasingly ubiquitous technology in China where people scan their face to pay for things or access certain entertainment services such as video games and live videos.

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Myst says its products are priced and marketed to target ‘adult smokers,’ not young people. / Photo: Myst Labs

That positioning also allows the company to potentially evade stepping on the toes of China’s powerful cigarette monopoly, which provides the government with handsome sums of tax revenues.

From Silicon Valley to Shenzhen

Myst deploys about half of its 20-person team to conduct research and development in Silicon Valley. The rest of the company mainly works out of Shenzhen, the electronics manufacturing hub that also produces the majority of the world’s vaporizers.

“We are combining Silicon Valley research and China’s supply chain, a strategy that sets us apart from most vaporizers on the market,” Yao, who heads up business development at Myst, told TechCrunch.

He compared China’s vaping craze to what happened to smartphones between 2010 and 2011 when copycats of incumbents crowded the market in a gold rush. Countless knockoffs of Juul and other established brands now flood the market. Companies with various degrees of development capabilities have also mushroomed — at least 20 Chinese e-cig startups have received venture investment in the last seven months.

As with the smartphone market that’s now dominated by a small rank of players, Yao believed the bad apples in vaping will eventually be weeded out. “This [counterfaiting] happens whenever China experiences a technological breakthrough. Chinese brands get eliminated at a rate to which no other country can compare. Perhaps a lot of [e-cig] companies will go out of business by the end of this year.” A sector reshuffle will result in part from government regulation, which can arrive in China anytime soon.

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Myst co-founder Thomas Yao introduced his co-founder and the company’s chief scientist Xing Chenyue, a former scientist at Juul. / Photo: Myst Labs

Xing believes Myst’s edge lies in the quality of its products. According to Yao, the company spends about 20% of the money raised on R&D.

Yao declined to disclose how much the company has banked but said it has sufficient funds in the coffer and that “money isn’t an issue” because he has personally invested in Myst. Yao had previously picked some winners by backing mobility unicorn Lime and India’s wallet leader Paytm in their early days.

The co-founder has also brought to the table key personnel for the business, including Myst’s chief executive officer Daniel Chen, who previously managed Hong Kong-listed robotics firm Super Robotics; chief operation officer Martin Liu, former CEO of Blackberry China; head of product Yingqun Cao, a former product manager at Google Home and Juul; and lastly head of design Jiandong Hao, previously a design director at global design firm IDEO.

The pool of talent is reflective of Myst’s vision to digitize smoking, which can manifest in the form of a connected vaporizer that tracks users’ health conditions just like a smart wristband does. Myst’s current generation of products does not yet enable the futuristic scenario, but Yao maintained that digitization is key to smoking.

“For smokers, vaporizers could become the second most used electronic devices after smartphones,” he said.

How skate legend Per Welinder finds an investing niche amid US-China trade tensions

Months of tit-for-tat trade negotiations between China and the United States have damaged cross-border investment interest between the superpowers, especially in areas that involve deep technology and intellectual property. But one sector has so far stayed relatively intact: lifestyle.

That’s what got Per Welinder, the legendary skateboarder-turned-entrepreneur who recently moved into venture investing, to look towards China for opportunities. In early 2018, Welinder teamed up with Chinese venture investor Curt Shi — a skateboard amateur himself — to launch early-stage angel fund Welinder & Shi Capital, focusing on bringing western lifestyle brands to China.

So far, Welinder & Shi has deployed all of its first fund into five consumer brands with the potential to capture China’s increasingly sophisticated middle-class, among whom Welinder observed a “growing individualism away from collectivism that is positive for lifestyle brands,” Welinder told TechCrunch in a phone interview.

Rather than taking the “spray and pray” approach, the fund picks a smaller number of companies compared to many other venture capital firms because it focuses on brands, which take time to build.

“There has been a headwind when you talk about cross-border opportunities with China in general. However, lifestyle is usually not a national security threat to either Chinese or to the U.S.,” Welinder observed. “Yes, there may be tariffs here and there, but it’s not a national threat to consume a pair of pants by a cool brand originating from the U.S.”

Per Welinder, a former skateboarding legend who is now hunting for western brands that can appeal to Chinese consumers / Photo: Per Welinder

That being said, Shi, in a separate interview with TechCrunch, admitted that trade tensions have in recent times generated doubts from limited partners on the fund’s methodology to help overseas portfolio companies “slingshot to China.”

“China and the U.S. can’t afford a real economic fight with each other… I believe once China and the U.S. reach a consensus, the investment between them will be booming again,” Shi noted.

Unlike a successful venture capital investment in tech that can generate a 200x type of exit, the return in brand investment is less lucrative. The appeal is that even if a portfolio company goes south, there remains some value in the brand, whether it’s the trademark itself or graphics.

“When you use branding as a differentiator, you may get pennies on the dollar even on the bad investment. But it will not go to zero like so many tech investments do, so we feel that is a somewhat less risky formula,” Welinder said.

The portfolio counts the likes of a Swedish electric off-road motorbike startup called Cake and premium gin manufacturer Wilde Irish Gin. Welinder makes a deliberate decision to back premium brands because even when tariffs are on the high side, the extra costs generally don’t have an obvious effect on consumers who like to treat themselves to the really good things in life.

When it comes to identifying potential investments, Welinder leans on spotting what he calls a “movement.” He cited his personal experience in the 80s and 90s when skateboarding became a movement. First, he started to see other people getting hooked on either participating or watching skateboarding. With the help of VCRs, DVD players and gaming consoles, skateboarding-culture blossomed into a global commerce phenomenon.

“And people got excited and then said, hey, mom and dad, can I have a skateboard? Can I have a T-shirt? Can I have a pair of shoes? That’s the kind of the way we like to look at things. Where do we see movements, what technology can be leveraged to really speed up that movement, and is that movement big enough for more than just one player.”

Alibaba to help Salesforce localize and sell in China

Salesforce, the 20-year-old leader in customer relationship management (CRM) tools, is making a foray into Asia by working with one of the country’s largest tech firms, Alibaba.

Alibaba will be the exclusive provider of Salesforce to enterprise customers in mainland China, Hong Kong, Macau, and Taiwan, and Salesforce will become the exclusive enterprise CRM software suite sold by Alibaba, the companies announced on Thursday.

The Chinese internet has for years been dominated by consumer-facing services such as Tencent’s WeChat messenger and Alibaba’s Taobao marketplace, but enterprise software is starting to garner strong interest from businesses and investors. Workflow automation startup Laiye, for example, recently closed a $35 million funding round led by Cathay Innovation, a growth-stage fund that believes “enterprise software is about to grow rapidly” in China.

The partners have something to gain from each other. Alibaba does not have a Salesforce equivalent serving the raft of small-and-medium businesses selling through its e-commerce marketplaces or using its cloud computing services, so the alliance with the American cloud behemoth will fill that gap.

On the other hand, Salesforce will gain sales avenues in China through Alibaba, whose cloud infrastructure and data platform will help the American firm “offer localized solutions and better serve its multinational customers,” said Ken Shen, vice president of Alibaba Cloud Intelligence, in a statement.

“More and more of our multinational customers are asking us to support them wherever they do business around the world. That’s why today Salesforce announced a strategic partnership with Alibaba,” said Salesforce in a statement.

Overall, only about 10% of Salesforce revenues in the three months ended April 30 originated from Asia, compared to 20% from Europe and 70% from the Americas.

Besides gaining client acquisition channels, the tie-up also enables Salesforce to store its China-based data at Alibaba Cloud. China requires all overseas companies to work with a domestic firm in processing and storing data sourced from Chinese users.

“The partnership ensures that customers of Salesforce that have operations in the Greater China area will have exclusive access to a locally-hosted version of Salesforce from Alibaba Cloud, who understands local business, culture and regulations,” an Alibaba spokesperson told TechCrunch.

Cloud has been an important growth vertical at Alibaba and nabbing a heavyweight ally will only strengthen its foothold as China’s biggest cloud service provider. Salesforce made some headway in Asia last December when it set up a $100 million fund to invest in Japanese enterprise startups and the latest partnership with Alibaba will see the San Francisco-based firm actually go after customers in Asia.

China plans e-cigarette regulation as industry booms

China is taking steps to regulate its blossoming vaping market as health concerns over electronic cigarettes increase in recent times.

China’s National Health Commission has begun research into e-cigarettes and plans to issue legislation for the industry, said the head of the health authority Mao Qunan at a press conference this week. The attempt came as Chinese e-cigarette startups raised loads of venture capital over the past year in their fight to vie for attention in the world’s largest market of smokers.

Vaping suppliers in China range from little-known workshops that have come under legal attack from industry giant Juul, which is reportedly mulling a China entry itself, to venture-backed startups operating out of manufacturing hub Shenzhen. At least 20 e-cigarette companies in China have raised fundings since the beginning of 2019, according to data collected by Crunchbase.

These players are in effect up against state monopoly China Tobacco, which is the world’s biggest cigarette maker and provides the government with colossal tax revenues.

Some researchers support the use of vaping to help adults quit smoking while others have shown that e-cigarettes are just as addictive as traditional ones. The other major controversy is the growing use of e-cigarettes among teenagers, which has led to California’s plan to ban vaping product sales.

China is also applying more scrutiny to the new smoking technology. Research shows that the aerosol produced by heating up e-cigarettes can contain “a lot of harmful substances” and additives in e-cigarettes can “pose health risks,” said Mao. He also noted that equivocal labeling of nicotine level can misguide smokers and sloppy device standards can result in battery explosion and other safety incidents.

Like the U.S., China has seen a worryingly high vaping rate among young people, which is another reason that urges Beijing to hold the industry in check. The use of e-cigarettes by kids, teens and young adults has been proven unsafe because nicotine, which is highly addictive, can harm brain development.

In May, China drew up a set of standards (in Chinese) for e-cigarettes that specify the level of nicotine, the type of additives and other components and designs allowed in battery-powered cigarette devices.

China’s coffee upstart Luckin pushes into India and Middle East

Luckin continues to expand at jaw-dropping speed as it announced plans to open shop overseas for the first time. On Monday, the Starbucks challenger from China said it has signed a memorandum of understanding to set up a joint venture with Americana Group, a major international food group.

The deal will see Luckin launch a new retail coffee business in the Greater Middle East region and India, said the company that just took its 18-month-old business public in May. Its partner has a far longer track record. Founded in Kuwait more than 50 years ago, Americana owns the local franchises of KFC, Pizza Hut, Friday’s, Costa Coffee and other prominent casual dining brands across the Middle East and North Africa.

Luckin did not provide further details of this new venture and a spokesperson for the company declined to comment when contacted by TechCrunch.

But there’s still a lot to read into its international foray. For one, Chinese companies have had a growing presence in the Middle East and India in recent times as Beijing puts forward its Belt and Road infrastructure development and investment initiative. Notably, the MoU between Luckin and Americana was signed with both Chinese and Arab government officials in attendance.

Chinese tech giants have already taken notice of the regions. Alibaba is active in the Middle East with its cloud computing business. Up-and-coming Chinese app developers such as ByteDance run the immensely popular TikTok and Helo in India. 

These countries are also blessed with emerging middle-class populations, the demographic that Luckin targets back home. In China, the coffee startup is known for shelling out large subsidies to lure millions of tea drinkers into trying its coffee beverages. Instead of attracting them to sit and relax at Starbucks-like retail stores, Luckin relies on a massive network of pickup points and delivery staff — which allows it save on rent and take advantage of China’s relatively cheap labor — to complete orders.

Luckin also owns a massive amount of user data, as all orders and payments take place over its app. It can be imagined how the Chinese startup sets out to replicate this digital-first model in places with booming internet populations.

Like China, India is historically a nation of tea lovers that’s experiencing rapid growth for coffee consumption. The beverage scene is crowded with popular tea brands like Chaayos and foreign players team up with local companies to gain an upper hand. Even international coffee behemoth is no exception as it works closely with Indian conglomerate Tata to operate more than 130 stores.

“We at Americana believe this MoU will revolutionize the food and beverage retail industry in the Greater Middle East and India, regions that provide promising prospects for new retail growth and expansion,” said Americana Group chief executive officer Kesri Kapur in a statement.

Luckin CEO Qian Zhiya noted that her company looks “forward to further expanding the freshly brewed coffee market internationally as we realize the incredible growth opportunities available to us through our innovative business model.”

The startup has indeed recorded months of stunning growth, but it is also facing skepticism from investors who are put off by its continued cash burn with no plans to achieve profitability on the horizon. Luckin is aiming to double its China-based operations from just over 2,000 locations to 4,500 by 2019, and its new global ambition is set to even further test investor patience.