When Investor Protection Kills a Market

Remember when SPACs were the hottest thing in finance? During the pandemic, these "blank check companies" were popping up everywhere in the U.S., promising entrepreneurs a faster, cheaper path to public markets. Hong Kong watched this frenzy and thought, "We want some of that." So in early 2022, the city launched its own SPAC program with plenty of excitement and high expectations.

Here's how that's going: three listings. Total. In four years.

The most recent was Seyond (2665.HK), an autonomous driving technology company that needed a full year between its December 2023 announcement and its mid-December listing. That's not exactly the "faster route to market" that SPACs are supposed to offer. And this dismal track record stands in awkward contrast to Hong Kong's otherwise healthy traditional IPO market, which has been doing just fine in 2025.

So what went wrong? Two things, really. First, investors got wise to the SPAC game after watching the U.S. experience. Plenty of American SPACs saw their values crater by 80% to 90% after completing their de-SPAC mergers, with some acquired companies going completely bankrupt. Turns out that when you skip the rigorous vetting process of traditional IPOs, you sometimes end up with garbage companies going public.

Second, and more importantly, Hong Kong regulators decided they weren't interested in recreating that disaster. Unlike the "buyer beware" philosophy you might find elsewhere, Hong Kong's regulators take investor protection seriously, even if it means market activity slows to a crawl. They've erected guardrails that effectively eliminate the supposed advantages of the SPAC structure.

This makes sense when you think about how SPACs actually work. They're fundamentally "risk on" instruments that thrive when money is cheap and investors are feeling optimistic. The main winners are typically the SPAC sponsors themselves, who cash out with solid returns and warrants while later investors often get stuck holding the bag. That's a terrible fit for a regulatory regime focused on protecting retail investors rather than facilitating financial engineering.

The U.S. has seen SPACs make a comeback in the current bull market, proving that Wall Street's appetite for creative financial structures never really dies. But Hong Kong's gates remain firmly shut, prioritizing prudence over speculative excitement.

The Foreign Brand Exodus Continues

Meanwhile, a different kind of retreat is happening in China. Mannings, the Hong Kong-based health and beauty chain, just announced it's pulling out of Mainland China entirely on January 15. After more than twenty years and once operating 200 stores, they're calling it quits.

This follows a well-worn path. Plenty of Hong Kong and Western retail, food, and beverage brands arrived in China with big dreams, buoyed by the promise of 1.4 billion potential customers. Hong Kong brands in particular thought they had an edge, given cultural similarities and more business experience compared to Mainland competitors at the time.

But the China of today bears little resemblance to the China of twenty or thirty years ago. Back then, foreign brands carried cachet as symbols of quality and sophistication. Owning Western products was aspirational. That appeal has largely evaporated.

What happened? Chinese domestic brands got really, really good. Over the past few decades, they've dramatically improved quality, invested in design, and most importantly, learned to tailor products to local tastes in ways foreign companies often can't match. This evolution has fundamentally shifted consumer behavior. Chinese shoppers increasingly prefer local brands, a trend that's been turbocharged by the pandemic and shifting geopolitical winds.

The beauty products sector illustrates this perfectly. Consumers who once gravitated toward Japanese, European, and Korean brands have migrated en masse to domestic alternatives that better understand what they want and often deliver it at better prices.

For foreign brands still contemplating the Chinese market, the message is clear: do your homework ten times over. The modern Chinese consumer is sophisticated and discerning, and the market dynamics are completely different from the gold rush mentality of the past. Unless you're offering something genuinely unique or demonstrably superior to increasingly capable domestic competition, you're probably wasting your time and money.

The days when simply showing up with a Western brand name was enough to succeed are long gone. Success now requires deep local market understanding and a value proposition that actually stands out. The sheer size of the market isn't enough anymore. Quality domestic competitors have seen to that.

These two stories, Hong Kong's stalled SPAC market and foreign brands retreating from China, illustrate the same fundamental truth: markets evolve, and what worked yesterday doesn't necessarily work today. Hong Kong learned from America's SPAC mistakes and chose caution over hype. Chinese consumers learned that foreign doesn't automatically mean better. Both represent markets maturing and becoming more discerning, even if it means fewer opportunities for the ambitious outsiders hoping to cash in.