A 30-year-old Chinese entrepreneur has become an unlikely billionaire with the listing of his sprawling tea shop chain in the US, even as tensions between the two nations stoke an economic decoupling and market volatility.

With the US IPO market at a near standstill and some analysts questioning whether Chinese stocks will be booted from American exchanges, Junjie Zhang’s Chagee Holdings Ltd. began trading Thursday on the Nasdaq. The initial public offering raised $411 million and priced at the top end of the range.

Chagee shares rose 16% to close at $32.44, giving Zhang a net worth of $2.1 billion, according to the Bloomberg Billionaires Index, which is valuing his wealth for the first time. His fortune is solely derived from his stake in Chagee.

Representatives from Chagee declined to comment.

Zhang, who is Chagee’s chief executive officer, joins a wave of Chinese people who have made fortunes as fresh tea chains explode in popularity. That includes the two brothers behind Mixue Group, a brand known for $1 bubble tea, coffee and ice cream, who amassed about $8 billion combined after the company’s debut in Hong Kong earlier this year.

But the boom has also made the sector increasingly crowded in Hong Kong, said Shen Meng, a director at Beijing-based investment bank Chanson & Co. Several bubble tea IPOs have slumped shortly after going public, as investors grow wary of pouring money into a saturated market.

“The scale of capital focused on new tea beverages has declined, meaning that a Hong Kong IPO would likely struggle to deliver strong results in terms of valuation and fundraising size,” said Shen. “For Chagee to achieve securitization, the US stock market is now virtually the only viable option.”

A Chagee store in Shanghai.

Healthy Tea

Zhang started Chagee in 2017 in Yunnan, a province in southwest China that borders Myanmar, Laos and Vietnam. The company’s name derives from a classic Chinese tragedy called Farewell My Concubine, which tells the story of a warrior king from ancient China and his romantic farewell to his lover. Its logo features the figure of a huadan, a young woman in the Peking Opera.

Unlike bubble tea brands known for sugary, tapioca-filled drinks, Chagee specializes in premium, milk-based teas using traditional Chinese blends like green, black and oolong. Its stores, designed with a lounge-like ambiance, echo the feel of Starbucks Corp. locations. A typical drink sells for just over $2.

The brand has grown quickly as health-conscious consumers increasingly shy away from high-calorie bubble teas. Speaking at a forum in May, Zhang said the company aims to revive “ancient tea-making methods that date back 900 years” using modern technology.

China’s freshly-made tea drinks market, as measured by gross merchandise value, is expected to reach 426 billion yuan ($58 billion) by 2028, from 273 billion yuan last year, according to data by iResearch in the prospectus. Premium tea-drinks, with an average price of 17 yuan ($2.30) per cup, represented 26% of the market last year versus 11% in 2019, the data show.

Chagee has a network of over 6,440 shops, with the vast majority of them located in China and a presence abroad in Malaysia, Singapore and Thailand. Around 6,270 of the teahouses are franchised and 169 are company-owned, the prospectus said.

But expansion hasn’t come without challenges. In Malaysia, Chagee faced boycott calls among local consumers after its app displayed Beijing’s disputed nine-dash line claim in the South China Sea. In Vietnam, where it plans to launch soon, officials are investigating a similar incident.

By going public in New York, Chagee may be hoping to position itself alongside global brands like Starbucks, said Xinyao Wang, an equities analyst publishing on the Smartkarma platform. Still, Wang noted the timing is tricky, saying the trade war is a big surprise that Chagee didn’t see coming.