Breakingviews - Capital Calls: China chokes its vaping startups

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From Breakingviews: Just months after RLX Technology’s U.S. debut, Beijing has cracked down further on vaping. Higher taxes may ease some fiscal stress amid COVID-19, but could also put companies out of business, writes ywchen1 in Capital Calls

COUGHING IT UP. Just two months after electronic-cigarette maker Rlx Technology’s $1.4 billion debut in New York, Beijing has quite predictably cracked down further on vaping. Having banned e-cigarettes’ online sales in 2019, on Monday the Ministry of Industry and Information Technology proposed to govern the industry similarly to the tightly state-controlled tobacco sector, citing unspecified “new problems” in current regulations.

That might ease some fiscal stress amid Covid-19, but it could also put companies out of business. The news wiped $14 billion off Rlx’s market value overnight, halving its capitalisation. Rival Smoore’s Hong Kong-traded stocks plunged 27% on Tuesday. Given the lack of details, it’s possible markets have overreacted, but Rlx still trades at 81 times forecast earnings even after news. This could be bad for investor health.

 

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