Why Luckin Coffee struggles to cross the Taiwan Strait

(Edited and refined by Candice Chan, with the assistance of AI translation.)

Luckin Coffee, mainland China’s largest coffee chain, is knocking on Taiwan’s door again. Late last year, reports emerged that Luckin was preparing to open its first Taiwan outlet in Taipei’s Nanjing-Fuxing commercial district. A prospective location was identified and recruitment advertisements appeared, with the outlet expected to open in December. But for a long time, there were no further developments.

Nearly one year on, members of the public recently spotted coffee bean cartons bearing the Luckin logo in the same district, fuelling speculation that the brand, known for its signature “little blue cup”, could finally be making its Taiwan debut. Taiwan’s Ministry of Economic Affairs (MOEA) quickly confirmed that it had written to the law firm representing Shunyu Holdings, previously reported as Luckin’s prospective local agent, asking Luckin to follow the application procedures for mainland Chinese investments.

China’s Taiwan Affairs Office accused the Democratic Progressive Party (DPP) government of “deliberately obstructing and restricting mainland investment and products from entering Taiwan”, calling it an “unpopular act of political manipulation”.

Taiwan’s Mainland Affairs Council Minister Chiu Chui-cheng hit back, saying: “The fact that the Taiwan Affairs Office is speaking up on behalf of this company makes it transparent that it’s mainland-funded. The cross-strait act is clear on this: an application must be filed and approved, and no proxies can be used to circumvent the review process.”

If Haidilao can, why not Luckin?

The controversy quickly prompted questions in Taiwan. Haidilao, another brand from mainland China, has been operating on the island for years, so why has Luckin struggled to get through the door? Could a company that sells coffee really pose a national security concern? Some in the food and beverage industry have also questioned whether political considerations are influencing the authorities’ approach. One netizen asked pointedly: “Does that mean Haidilao should be kicked out too?”

The MOEA’s regularly updated list of mainland Chinese investments in Taiwan shows that when Haidilao entered the Taiwan market in 2015, Singapore-registered Hai Di Lao Holdings Pte Ltd invested NT$25 million (US$786,000) to establish Haidilao Hot Pot Co, Ltd, with the business registered under the food and beverage sector. Current MOEA business registration records also indicate that Haidilao Hot Pot “has mainland Chinese investors”.

But this also highlights an important difference between Haidilao and Luckin. Haidilao is registered in Singapore, its investment was made with Singapore capital, and its founders have since become Singapore citizens. Luckin’s parent company may be registered in the Cayman Islands, but the company remains a Chinese brand headquartered in Xiamen.

That said, the food and beverage industry is not closed to mainland Chinese investment. MOEA’s request that Luckin apply through the mainland investment process does not amount to a ban on the company investing in Taiwan. The more immediate issue is how Luckin intends to enter the market. It had previously sought to do so through a local agency, putting the spotlight on Shunyu Holdings, which was established only in September last year.

Heightened scrutiny

When reports first surfaced that Luckin was planning to enter Taiwan, local media began scrutinising Shunyu’s ownership structure and commercial ties with the coffee chain. According to reports, Shunyu has paid-in capital of just NT$5 million. Its chairwoman, Weng-Chang Lai-khim (翁张丽卿), owns a 90% stake, while supervisor Cheng Chen-kang (程振刚) holds the remaining 10%. Weng-Chang previously served as a director of Shunda Foods Seasoning Co. Founded by the Weng family of Changhua county, Shunda has long been involved in the food supply chain and is also a processor and supplier of coffee beans to Luckin in mainland China.

At the time, the MOEA confirmed that Shunyu was fully Taiwanese-owned. It said that if the company was merely acting as an agent for the Luckin brand, the arrangement would be a commercial transaction rather than an investment and would not require approval from the Department of Investment Review. Nevertheless, the ministry said it would continue to monitor the company for any Chinese investment involvement.

The authorities have not said whether they obtained new information over the past year that prompted this change in approach.

Taiwan formally opened its doors to mainland Chinese investment in 2009 under the administration of then President Ma Ying-jeou, but had subjected it to a screening regime distinct from that applied to ordinary foreign investment. Under existing rules, the authorities may restrict or prohibit an investment if it could create a dominant oligopoly or monopoly; if it is politically, socially or culturally sensitive or could affect national security; or if it could negatively impact Taiwan’s economic development or financial stability.

This system remained in place after the DPP returned to power in 2016. In 2020, the administration of then President Tsai Ing-wen tightened the rules further, strengthening the criteria for identifying mainland Chinese investment routed through third-area jurisdictions. It also introduced contractual and other arrangements that give investors a degree of control over Taiwanese companies within the regulatory framework to prevent mainland Chinese capital from entering Taiwan through indirect channels. In other words, whether an investment is deemed to be mainland Chinese is not determined solely by direct shareholdings.

Nonetheless, mainland Chinese investment has not been completely shut out of Taiwan. Pop Mart, the Chinese designer toy brand, established a company on the island in 2022, and MOEA business registration records identify it as having “mainland Chinese investors”.

Concerns about Luckin

Luckin’s business model has also broadened the controversy beyond the question of where its capital comes from. DPP legislator Lin Chu-yin previously raised national security concerns over the company’s possible entry into Taiwan. She warned that mainland Chinese companies could avoid investment screenings by being named as a proxy while actually being involved in operations. She also singled out Luckin’s reliance on QR codes and mobile apps for customers to place orders, arguing that this could potentially give the company access to Taiwanese consumers’ personal data and purchasing patterns.

Luckin has built its business around digital operations, aggressive promotions and rapid store expansion. Some media analyses have suggested that, after Singapore and Hong Kong, entering Taiwan’s mature coffee market would provide a further test of whether its business model can be successfully replicated overseas.

However, on 11 September, Taiwan’s Economic Daily News cited industry sources saying that Luckin’s original agency model may no longer be viable after the MOEA asked it to apply through the mainland investment process. With repeated delays already causing losses, the company’s appetite for entering Taiwan has reportedly diminished considerably.

As social media and cross-border consumption have become increasingly commonplace, mainland Chinese brands such as Luckin and Pop Mart are hardly unfamiliar to Taiwanese consumers. Yet following repeated reports that Luckin is on the verge of entering Taiwan, the latest indications suggest that its enthusiasm may now be waning. Whether the “little blue cup” will ultimately make it across the Taiwan Strait remains an open question. Either way, before a single cup has even been sold, this particular brew has already acquired a distinctly political flavour.

This article was first published in Lianhe Zaobao as “两度叩关，瑞幸能否顺利登台？”.

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