A few things on my radar #16

Tariff, Xiaomi, CHAGEE and Starbucks

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Tariff 🇺🇸

Trump claims China's retaliatory on US’s rising tariff is a poor decision stems from panic

• Trump announced a new 34% tariff on Chinese imports starting April 9, adding to the 20% implemented since January, escalating trade tensions between the US and China; In response, China announced a 34% retaliatory tariff on U.S. imports immediately, blacklisted 11 companies, and banned them from China trade.

• While negotiations remain possible, current rhetoric suggests otherwise. China may respond by strengthening trade relationships with other nations, including US allies - a move that would impact both US businesses and consumers through higher prices.

• Trump criticized nations like Canada and China that announced retaliatory measures. "China played it wrong, they panicked—the one thing they cannot afford to do!" Trump posted on Truth Social after Beijing announced retaliatory tariffs on the US.

The tariff rates targeting China aren't surprising. What's unexpected is Trump's broader strategy of targeting the entire world.

On one hand, it shows his determination to bring manufacturing back to the U.S. by penalizing all non-American goods, while on the other hand, this indiscriminate attack appears to be a smokescreen — Trump is high likely still primarily targeting China, and ultimately this will inevitably lead to the formation of various regional trade networks—after all, no country can be completely self-sufficient.

Will this strategy work? While uncertain, one thing is clear: Trump's claims about "China panicking" are merely empty rhetoric.

While these tariffs may affect some U.S.-related businesses - many companies are assessing the impact those days, they won't easily destabilize China's economic fundamentals.

Exports to the U.S. have been steadily declining as a percentage of total exports, now representing less than 3% of China's GDP, not 30%. This level is manageable. To offset the tariff impact, China simply needs to pursue alternative strategies—increasing trade with other nations and strengthening domestic demand. In fact - China has been preparing for this scenario for years ever since Trump's previous term began - Any initial "panic," if it existed at all, has long since been absorbed.

Even companies like PDD that have close ties with the U.S. market have long been preparing for the worst-case scenario - by reducing their U.S. market exposure and maintaining substantial cash reserves to handle contingencies - as I mentioned in my last newsletter 👇

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Xiaomi 🚗

Xiaomi EV crashes triggers widespread consumer concerns about the safety of autonomous driving technology

• A Xiaomi SU7 sedan crashed on a highway in Anhui province's Tongling city at 10:44 p.m. on March 29th, killing three people ( 1 driver and 2 passengers) . The vehicle was using Navigate on Autopilot (NOA) mode at 116 kph when approaching roadwork requiring a detour. While the car detected the obstacle and began slowing down, the driver's delayed response in steering and braking led to a collision with a guardrail at 97 kph, according to Nikkei.

• Despite Lei Jun — founder of Xiaomi — quickly stated "we won't avoid the issue" after the crash, many consumers still express doubts about Xiaomi's and even the entire EV industry's quality and autonomous driving technology safety. A Tesla driver just told me that "he won't buy FSD system" because the uncertain safety of this technology makes him feel that spending tens of thousands to upgrade this feature isn't worth it.

• Though the accident investigation continues, Huxiu, a Chinese business media outlet, points out a critical underlying problem—companies tend to exaggerate their autonomous driving capabilities, which has led many consumers to put too much faith in these systems.

An important detail may have been overlooked—the driver wasn't the car owner but some one who borrowed her boyfriend's car to drive. This suggests the driver was likely curious about the Xiaomi vehicle but unfamiliar with its driving systems.

In fact, Lei Jun had never heavily promoted the intelligent driving features—the Xiaomi SU7's selling point was simply being an affordable Porsche. Instead, he consistently emphasized that this was merely driver assistance and warned drivers to keep their hands on the steering wheel.

However, available information indicates that both the driver and her passengers misunderstood Xiaomi's intelligent driving capabilities and placed excessive trust in the system — the driver dared to take their hands off the steering wheel while driving on the highway at night.

This excessive trust largely stems from drivers' unclear understanding of autonomous driving's role - part of the responsibility lies with the industry's failure to adequately educate consumers about driver assistance technology's limitations. The term "intelligent driving" used across the industry is particularly misleading - it implies the system has human-like intelligence, when most EVs actually offer only basic driver assistance features.

However — this doesn't mean Xiaomi or Chinese EVs are doomed — on the contrary, this is a good opportunity for the market to cool down and allow us to clearly see the true capabilities of various EV makers and their autonomous driving technology.

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CHAGEE 🥤

CHAGEE, the Chinese bubble tea chain, shows strong growth momentum, according to its IPO prospectus

• Chinese bubble tea chain CHAGEE revealed its revenue nearly tripled in 2024 as it filed for a U.S. IPO — according the the prospectus, its total gross merchandise value (GMV), a key operating metric used to measure and evaluate sales performance, in China and overseas grew by 172.9% to 29.5 billion yuan in 2024.

• Notably, CHAGEE expects to list shares on the Nasdaq under the symbol "CHA"( ( in Mandarin and Cantonese, tea is pronounced 'cha'.), which reveals CHAGEE's ambition to sell not only bubble tea but Chinese tea culture as a whole.

Unlike Mixue's supply chain monster model, CHAGEE operates as a Starbucks equivalent for tea—mirroring Starbucks in everything from visual design to store layout, product strategy, and brand storytelling. They are essentially Starbucks' Eastern counterpart, or more accurately, a disciple following Starbucks' playbook.

According to the prospectus, CHAGEE's annual GMV has now exceeded Starbucks China's ($3 billion), while matching Starbucks' 16% profit margin. This impressive financial performance has likely fueled their confidence to pursue a U.S. IPO.

Interestingly, CHAGEE's ticker symbol "CHA" demonstrates their ambition is not limited to selling bubble tea but extends to promoting Chinese tea culture globally. While bubble tea itself might not be anything special, Chinese tea cultural heritage is an intangible rare asset that empowers the brand.

My further question: if Chinese tea culture successfully spreads globally through bubble tea brands, will Chinese tea brands also rise to global prominence? After all, China produces half of the world's tea, yet there still isn't a single truly influential Chinese tea brand.

PS: the impact of Trump's tariffs on CHAGEE's U.S. expansion plans remains uncertain—the outcome largely depends on how much the company relies on raw materials from China.

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Starbucks ☕️

Starbucks China remains undecided about whether to rescue its business through a partnership model

Starbucks experienced broad business declines throughout last year, though the downward trend showed slight improvement in the most recent quarter. Credits: Momentum

• Starbucks is battling to recover its position in China, having lost 20% of its market share since 2019—including an 8% decline in 2024 alone, according to Coffee Intelligence.

• According to an insider, Niccol, the Starbucks CEO, emphasized that Starbucks must maintain its coffee's leadership position in China by both innovating and reinforcing its classic product offerings in the internal meeting two months ago — which is exactly what they have been doing according to my observation.

• Despite Luckin, considered Starbucks main competitor, claims it won't abandon its price war strategy, the rising green bean costs have forced changes — consumers have noticed Luckin's ¥9.9 promotion being phased out, with many locations returning to their original prices of around ¥20.

• Starbucks has confirmed it is in talks to sell a stake in its China business to save Starbucks business here, but at the latest shareholders' meeting in mid March, Niccol said they are still exploring the best way to cooperate and no conclusion has been reached yet.

In my opinion - Starbucks' search for external partners is a reluctant move - if their business could improve, there would be no need to go through the trouble of abandoning their years-established direct operations system 👇

Beyond fierce external competition, the insufficient operational capability of Starbucks' internal team is perhaps also an issue that makes Starbucks' self-rescue efforts appear somewhat weak:Starbucks China's new CEO, Molly Liu, brings strong digital and consulting expertise but lacks substantial brick-and-mortar business experience. For a premium coffee chain like Starbucks, success hinges on physical product development and store & supply chain management—not just digital operations or high-level strategy. This gap in operational experience may limit Molly's ability to make accurate and visionary decisions in this key position 👇

Fortunately, this quarter, I've seen positive signals for Starbucks in both products (continuous product improvements, even in traditional product lines) and pricing (Luckin narrowing its price war) aspects — although Starbucks' own improvements may still be gradual, the easing of the price war could play a crucial role for Starbucks recovery.

Honestly, I'm unsure whether these signals can fully be translated into positive financial performance and halt Starbucks' downward trend, but as long as Starbucks is constantly moving in a positive direction, there's always hope.

In the end — while Starbucks' decline isn't really Molly’s responsibility as she just took the position last September, to successfully lead the China business she needs to quickly understand the logic of physical business — if I were her, I would invest more time in products, store front and supply chain operations, as once those crucial aspects are addressed, other problems will naturally resolve themselves.

PS: While tariffs could impact Starbucks, we'll set this aside since it didn't affect last quarter's performance, which hasn't been disclosed yet.

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Here are other notable brand updates currently on my radar 👇👇

>> Ora ☕️— Peet's new brand — Ora — a budget coffee chain is expanding in inland cities, but hasn't opened in Shanghai || WeChat

Smart move — a new niche coffee model > automatic coffee machines + quality beans = simplified specialty coffee chain model between Manner and Luckin. However, in this niche segment, an local brand from Nantong, whom I mentioned last year, has already been experimenting with a very similar model and quietly expanding nationwide already - will there be a showdown between this international brand and the homegrown brand from Nantong?

>> Insta 360 📷 — Insta 360, a Chinese imaging company, is approved to IPO in mainland China || Investors

China's GoPro equivalent. They have dominated the global 360-degree camera market, maintaining the largest market share for six consecutive years.

>> ALDI 🏪 — ALDI is expanding to mid-tier cities || Winshang

While Walmart's predicament may not have a clear solution, the grocery retail revolution is undoubtedly continuing — traditional one-stop supermarkets are giving way to specialized vertical retailers, fresh grocery, and discount store models.

>> DAHON 🚴‍♀️ — DAHON, global leader in folding bikes, aims for Hong Kong IPO || cyclingchina

Interesting brand — it's a cheaper version of Brompton but with about twice the sales volume.

>> BMW x Huawei 🚗 — BMW and Huawei partner to create HarmonyOS-based vehicle system for BMW's China-Made cars || Yicai

HarmonyOS's new growth market - EVs. But what I'm really curious about is how they'll execute their overseas expansion.