Shein might face a roadblock in its path to an initial public offering in the U.S.
China’s internet regulating body, The Cyberspace Administration of China (CAC), is investigating the apparel retailer’s data and supply chain practices, The Wall Street Journal reported. That could have implications for Shein’s plans for an IPO in the U.S. The fast-fashion retailer reportedly filed for the move confidentially in November. A CAC investigation, however, could delay an IPO for months or remove the option altogether. Shein must wait on permission from Beijing before pursuing a U.S. IPO.
Shein is No. 2 in Digital Commerce 360’s ranking of ecommerce retailers in Asia by online sales. The online apparel retailer was valued at $66 billion in May when it closed its latest funding round. Shein reportedly reached $2.5 billion in income in 2023, according to Bloomberg.
Why is China investigating Shein?
Shein was founded in China in 2012 but moved its headquarters to Singapore in 2022. It does not sell its low-priced apparel and accessories in China, but it does rely on contract manufacturers in the country. The U.S. is Shein’s biggest market of the 150 countries it sells in.
However, the retailer is still subject to certain Chinese regulations before it can get a green light to go public in the United States. Chinese companies planning an IPO outside the country must abide by recent listing rules, Reuters reported. Companies are bound by the listing rules if more than half of revenue, profit, or assets are generated in China, and either its main business is conducted in China, or senior management is mostly made up of Chinese citizens.
The Chinese regulations are in part to ensure that data on Shein’s suppliers, partners, and staff in China are protected from leaks outside the country. China will also review what information Shein will share with regulators if it does go through an IPO.
By approaching China’s regulators ahead of an IPO, Shein could head off potential problems like those of ride-hailing business Didi. In 2021, Didi was subject to a regulatory review after raising more than $4 billion in an IPO with the New York Stock Exchange. Chinese regulators then ordered it to stop registering new users and to shut down some apps. Within a year, it was delisted in the U.S.
Other Shein IPO obstacles
Shein faces other obstacles that could stall potential IPO plans, too. Those include U.S. lawmakers, who have raised concerns over the retailer’s labor practices.
Shortly after the retailer filed confidentially for an IPO in November, U.S. Representative Jennifer Wexton released a statement questioning the presence of forced labor at Shein’s contract manufacturers.
“If the fast-fashion giant Shein wants to go public in the U.S., they should have to prove to American consumers that their products are not sourced from forced labor,” the Virginia senator said.
It faced criticisms for labor practices since a 2022 Bloomberg report linked cotton in some Shein products to China’s Xinjiang region. Human rights groups have accused China of using forced labor from the Uyghur ethnic minority in the region, which the government in Beijing denies.
Shein has said it has a “zero-tolerance policy for forced labor.”
“We take visibility across our entire supply chain seriously, and we are committed to respecting human rights. To comply with U.S. law, we require our contract manufacturers to only source cotton from approved regions,” the apparel retailer told Digital Commerce 360.
As of November, Shein said 1.7% of its cotton tested positive for cotton from the region.
“According to global supply chain tracing firm Oritain, these amounts are much lower than the industry average of 14%,” a spokesperson wrote at the time.
When will Shein’s IPO happen?
The CAC has not set a date for providing Shein with an answer to its investigation. The U.S. Securities and Exchanges Commission also has not responded in writing to Shein, according to The Wall Street Journal.
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