SHEIN’s IPO May Be Thwarted by… China’s Government?

By Elizabeth Brotherton-Bunch
Jan 17 2024 |
Screenshot of SHEIN’s homepage on Jan. 17, 2024.

Already facing pushback from U.S. officials, the fast fashion e-commerce giant also needs to get permission from Beijing to go public in the United States.

For the past few years, it seemed like nothing could stop SHEIN’s meteoric rise.

Despite a litany of complaints that the Chinese fast fashion behemoth steals designs, it continued to grow its business, including by partnering with fellow fast fashion brand Forever 21. Despite evidence it utilizes forced labor in the supply chain for its uber cheap apparel — and its almost certain use of sweatshops — customers still bought SHEIN hauls in droves. Despite a U.S. law on the books meant to scrutinize these imports, the company shipped hundreds of thousands of packages to the United States every day, all without paying a single tariff.

And so, with the wind seemingly at its back, SHEIN in November filed for an initial public offering (IPO) in the United States, tapping financial giants Goldman Sachs, JP Morgan and Morgan Stanley as underwriters, and capping a massively successful rise to the top of the fast fashion industry.

But now SHEIN is facing a hurdle that it may not be able to overcome: the Chinese government.

The Wall Street Journal reported on Wednesday that the “Cyberspace Administration of China is looking into the ways Shein handles information on its staff, suppliers and partners in China, as well as whether the company can effectively protect such data from leaking to overseas parties.” Notably, the administration “is also interested in the type of Chinese data Shein will disclose to the U.S. securities regulator as it seeks a listing in New York.” The investigation “represents an escalation of regulatory scrutiny of Shein’s plans to raise potentially billions of dollars through a stock sale,” the WSJ notes.  

It’s not the only challenge from China in SHEIN’s quest for an IPO. The Wall Street Journal reported on Jan. 12 the company is also seeking the approval of the China Securities Regulatory Commission. SHEIN was founded in China but has taken a series of steps to shed its image as a Chinese brand:

In March, the China Securities Regulatory Commission rolled out new guidelines that require Chinese companies planning to go public outside mainland China to submit their listing documents to the regulator and obtain its formal approval. The guidelines lay out a number of factors to determine what should be considered a Chinese company, including whether a company has more than half of its assets or most of its business activities in the mainland. 

Shein is incorporated in Singapore and doesn’t have any revenue from China, and relies mostly on third-party contractors there for production. But Beijing may nonetheless treat it as a Chinese company and add complications for Shein if the company is perceived to go against Beijing’s agenda, including by ordering domestic manufacturers to stop working with the company. 

Even if SHEIN does get the greenlight from Chinese regulators to go public in the United States, it still will have to face U.S. regulators, and there’s mounting pressure from lawmakers on both sides of the aisle to not have this deal go through. Interestingly, the Securities and Exchange Commission (SEC), the U.S. agency charged with overseeing an IPO, does not seem to be in a hurry to get this deal done:

Two months after Shein confidentially filed for an IPO, the Securities and Exchange Commission has yet to respond in writing to its filing, according to people familiar with the matter. The delay is highly unusual, capital-market attorneys and bankers say.

The reasons for the SEC’s silence aren’t clear. People close to the company and in Washington say it could reflect the agency’s reluctance to take on a hot-button issue with potential political implications. 

Of course, all this scrutiny doesn’t mean the deal is dead. SHEIN is spending big bucks on lobbyists in Washington to help its cause.

But there are also a host of reasons this deal shouldn’t go forward — including SHEIN’s alleged use of forced labor and sweatshops, its theft of intellectual property, its continued exploitation of U.S. trade law, and the uniquely damaging environmental impact of its business model.

Addressing SHEIN’s misdeeds shouldn’t just fall to the SEC. Congress needs to close the “de minimis” loophole that allows SHEIN, Temu and other importers to ship their goods to the USA duty-free and without facing U.S. Customs inspectors. Policymakers also should give U.S. Customs the tools needed to fully enforce the Uyghur Forced Labor Prevention Act (UFLPA), the landmark law that bans all products made in whole or part in the Chinese region of Xinjiang because of forced labor concerns.

We must remember that SHEIN’s rise didn’t happen in a vacuum; bad policy allowed it to thrive, at the expense of U.S. manufacturers, workers and even importers who haven’t built a business model around a loophole in customs enforcement. Whether China’s government ultimately opts to quash SHEIN’s IPO is out of our control, but U.S. officials should stop underwriting this problematic company’s success.