From VOA Mandarin: Chinese companies expand businesses overseas amid economic downturn

Chinese companies: "There were so many people in line that the mall was full. We had to line up outside, and there were still so many people until 9:30 p.m. There were so many people on the first and second days. On the first Friday, many people took the day off to go," Raymond Fong, who lives in Virginia, told VOA.

The long queues described by Raymond refer to the phenomenon that the Chinese fruit milk tea brand "HEYTEA" was highly sought after after it landed in Tysons, Virginia on Valentine's Day 2025. Tysons is only more than 20 kilometers away from the US capital Washington. It is a commercial district in northeastern Virginia and a major shopping and entertainment center for residents in the Greater Washington area, including the US capital Washington, Maryland and Virginia.

Founded in Jiangmen, Guangdong in 2012, Heytea now has 4,000 stores. However, except for its first overseas branch in Singapore in 2018, its business has been basically focused only on China for many years.

2023-2024 was a strong year for HEYTEA's overseas expansion, with stores opening in the United States, the United Kingdom, Australia, Canada, Malaysia, and South Korea; some of these countries welcomed their second or even third stores in 2024. In 2025, HEYTEA continued to expand overseas, opening its first store in Osaka, Japan, and its 11th store in the United States in Tysons, Virginia.

Raymond chose to try out Heytea on the third day of its opening and witnessed the crowded scene that day. He said: "A friend of mine went there to queue up at 9 o'clock in the morning. I went there at 9:20 and brought a stool with me because I had to wait in a long line. I waited until 11 o'clock when the mall officially opened before entering."

The "Light Grapes" tea ordered by Raymond has a retail price of $7.88 after tax, which is about RMB 57. Like many Asian people who don't like the overly sweet taste of American drinks, he thinks Heytea tastes good and is "one of the few drinks that are not sweet."

Chinese catering brands are accelerating their overseas expansion, setting off a "global expansion wave"

As China relaxed its epidemic prevention policies at the end of 2022, the impact of the epidemic gradually receded. The catering industry has finally come through the dark three years, but many companies have not yet fully recovered and their performance is not satisfactory.

Like Heytea, the ice cream tea chain brand "Mixue Ice City" originated in Zhengzhou, Henan, and is now spread across China's third- and fourth-tier cities. It has also expanded its overseas territory in a large way during the same period. From 2022 to 2023, Mixue Ice City opened several branches in Malaysia, Singapore, South Korea, Japan, Australia and other countries. Prior to this, Mixue Ice City had achieved great success in Vietnam. Today, according to Mixue Ice City's prospectus, they have covered 11 countries in China and overseas, including 7,000 overseas stores.

Even Luckin Coffee, a coffee chain brand that delayed its overseas expansion strategy in 2020 due to a financial fraud scandal, has now picked up its plan to enter markets outside of China again. In March 2023, Luckin chose the Singapore market as its first stop for overseas expansion, and currently has 45 stores in Singapore. At the end of 2024, Luckin Coffee announced that it had opened five stores in Hong Kong. According to China Business News, Luckin's first store in Malaysia is expected to open in the first quarter of 2025, and the US market is also on the sidelines.

Haidilao, a Chinese hotpot giant that entered the overseas market as early as 2012 and now has 1,000 stores worldwide, chose to go public on the Nasdaq in the United States in May 2024. In November of the same year, Haidilao announced that its 121 overseas branches (including nine new ones that year) finally achieved profitability after years of losses. The company said that it will accelerate market expansion in 2025 and beyond, further develop existing countries, and actively explore new market territories.

Xiabu Xiabu, the leading small hotpot chain, will open its first overseas store in Singapore in 2023. Hotpot brands such as Shu Jiuxiang and Tan Duck Blood are also actively developing overseas markets.

In 2023-2024, the sauerkraut fish brand "Yu Ni Zai Yi Qi", the chicken steak chain "Zheng Xin Chicken Steak", the Hangzhou catering brand "Waipojia", and the Taizhou cuisine-focused "Xin Rong Ji" will also enter the overseas market.

The aggressive trend of the catering industry going overseas has even led many Chinese media to call 2023 the "first year of going overseas" and the "Age of Discovery" for the industry, while the past 2024 has become the "sprint year". Frost & Sullivan, an international consulting firm headquartered in the United States, predicts that by 2026, the scale of the overseas Chinese catering market is expected to reach US$409.8 billion. Just five years ago in 2021, this figure was only US$261.1 billion.

Research data from Beijing-based Bailian Intelligence shows that North America, Western Europe and South America, as traditional overseas destinations, are the most popular overseas expansion regions for companies, with 31%, 28% and 28% of companies respectively setting up operations in these regions. However, these traditional destinations are gradually being overtaken by emerging regions such as Southeast Asia and the Middle East.

The business logic behind the overseas expansion craze: capital-driven vs. domestic market saturation?

Beijing-based macroeconomic researcher Jiang Li (real name not used at his request) told VOA: "I think there are several reasons for the so-called first year of going overseas and the sprint. One is that the domestic market is no longer viable, so those big brands have the motivation to go overseas. But I think another fundamental reason is that they are all listed in Hong Kong and have raised funds. After raising money in Hong Kong, they will not invest back to mainland China, so they want to test the waters in the United States, and there are some successful precedents in the United States, such as Little Sheep and Din Tai Fung."

Eric Wong, an investor based in New York, told VOA when talking about the overseas expansion of companies like Heytea: "Their growth rate in China is declining. The domestic market is very competitive, so they want to expand overseas. They have obvious cost advantages overseas, and their operating costs are generally lower than those of overseas competitors, so they want to go overseas."

Jiang Li believes that the catering industry going overseas does not involve political factors, so it is relatively safe. "After all, it is food, which is not so sensitive. Although the cost of opening a store in Europe and the United States is very high, it is still profitable. Because the cost is high, the threshold is high and the profit margin is high. Of course, their market is not that big because the main market is Chinese."

Eric Wong believes that the success of the catering industry going overseas depends on how they grasp the industrial chain and services. He said: "Take Haidilao as an example. They can succeed in China because they own the entire industrial chain. This advantage has not been established overseas, so it is more difficult to do business. The same is true for Luckin Coffee. They have opened some stores in Southeast Asia, and now they want to open stores in North America. One of the reasons why they are so large in China is that the entire industrial chain is there. I don't know if they can go overseas."

Jiang Li told VOA that Chinese companies have become smarter in going overseas in recent years compared to the early years. He said: "The biggest feature of these Chinese companies, whether state-owned or private, or technology or consumer, is that they have upgraded their overseas operations, which is different from the early years. In the past, they often failed to keep up with local laws and regulations, but now they have become more adaptable to local rules, do market research, and have subsequent publicity and investment, and are very mature."

Consumer brands accelerate "internationalization": no longer emphasizing "Made in China"?

Eric Wong, who has been paying close attention to the listing and development of Chinese companies, mentioned several consumer companies that have developed rapidly overseas in recent years. He said: "In the consumer field, Pop Mart and Miniso are more prominent. Miniso has expanded rapidly overseas, and Pop Mart's blind boxes are also very popular. Their stocks have quadrupled or quintupled in the past year. Pop Mart was basically purely domestic in the past, and then started to go overseas two years ago. The growth rate of its overseas business is very fast, and now accounts for half of its entire business."

He added that Pinduoduo's overseas version TEMU is also expanding very fast, but due to tariffs and logistics taxes, the business is now moving to markets outside the United States. "The U.S. market used to account for a very large share, but now it's getting smaller and smaller."

In September 2022, Pinduoduo officially launched Temu, a fully managed cross-border platform, in the U.S. market. According to credit card data from investment firm Earnest Analytics, about 18% of American households have shopped on Temu since its launch.

Eric Wong said that people used to think that Temu would lose money in the United States for a long time, but it turned out that this was not the case. Temu's US sales in 2023 will be about 18 billion US dollars, and it will reach 20 billion US dollars in the first half of 2024. By the end of 2023, Temu has opened sites in 48 countries and regions around the world. North America is still the main market, but the proportion is declining month by month, and the proportion of new markets continues to increase.

Eric analyzed, "Let's look at the commission. If you sell on domestic platforms, they take about 5%. The platform uses this 5% revenue to support operations. Amazon takes about 20% in the United States. So if you compete with them, even if you take 15%, it is much lower than theirs, but still higher than domestic ones. Of course, there are many costs to consider, such as transportation and tariffs. But if you compare 5% with Amazon's 20%, the difference is still quite large."

The financing process of Chinese companies going overseas is not smooth sailing. In 2024, there will be 225 companies from all over the world listed in the US stock market. Among them, more than 50 Chinese companies are listed on Nasdaq. Public data shows that among these Chinese companies, only Zeekr, Pony.ai and WeRide raised more than US$100 million; while most other companies raised less than US$50 million.

Jiang Li analyzed that Chinese companies that go overseas to raise funds are mainly technology companies, while consumer companies generally have difficulty raising funds and can only directly invest in greenfield properties. He told VOA: "In fact, Chinese companies have not been able to raise funds for several years. These companies listed on Nasdaq are not just for financing. They basically fall below the issue price as soon as they go public. One of their purposes for going public may be money laundering, and another is to increase their exposure in the United States."

"A turning point was that after Huawei, the United States banned financing for Chinese state-owned enterprises, and then the three major telecom operators were delisted. From then on, basically no serious American investors dared to touch Chinese stocks. So Chinese companies listed in the United States actually couldn't raise much money," Jiang Li added.

Eric Wong observed another trend of some Chinese consumer companies going overseas: dressing themselves up as if they were not Chinese companies. "They don't want consumers to think they are Chinese companies, because that does involve a lot of problems. So they move their headquarters outside of China, give themselves a more international name, and hire overseas teams. For example, many consumers don't know that SHEIN is a Chinese company, but people in the capital market know it."

Jiang Li also saw this trend: "Many Chinese companies going overseas now pretend to be foreign companies. They are unwilling to set up Chinese subsidiaries, but directly set up new companies in Singapore or the UK and the US. The production chain is in China, and everything else is registered in foreign countries. They mainly employ foreigners and sever ties with China, and then become international companies." VOA/SP