SHEIN’s IPO journey

Despite working hard to recast itself as a Singaporean company, the fast fashion giant may find that Chinese regulatory scrutiny is its biggest obstacle to a planned U.S. IPO

Key Takeaways:

  • Shein is trying to downplay its Chinese roots in the run-up to a planned U.S. listing, after its valuation jumped to $66 billion with its latest financing last May 
  • The fast fashion giant beat rivals such as Temu and Amazon to top the global chart for shopping-category apps two years in a row

    

By Li Shi Ta

Persecuted Chinese statesman and poet Qu Yuan, who lived 2,300 years ago, is famous for saying “My journey in pursuit of truth is long and arduous” in his classic “Li Sao.” That sentiment nicely captures what online fast-fashion sensation Shein is likely feeling right now on its difficult path to a New York IPO. 

Late last November, Shein, whose name is pronounced like SHE-IN, reportedly submitted its first confidential IPO application to the U.S. securities regulator. Valued at $66 billion after its latest funding round last May, the listing could well become the largest by a Chinese company in New York in recent years. 

Shein is popular with global consumers for its extremely low prices and great fashion sense, and is especially well-loved in the U.S. and Europe. As its popularity has surged, the company was recently ranked fourth, alongside names like AI sensation ChatGPT, as one of the Top Ten Fastest-Growing U.S. Brands by Morning Consult. The company was the top shopping app, ahead of names like Temu and Amazon, in market research firm data.ai’s recently released State of Mobile 2024 Report. 

Authentic Brands, one of Shein’s major brand management partners, recently pointed out that Shein generated more than $30 billion in revenue last year, leaving older, better-known rivals like Sweden’s H&M and Spain’s Zara in the dust. 

De-Sinofication 

While Shein has been a huge success in business terms, the path to its IPO has far bumpier. Despite big efforts to distance itself from China, the ultimate success of its IPO hinges on government policies in both its Chinese birthplace and also in the U.S. Thus, this low-profile company has suddenly found itself quite uncomfortably under the spotlight in the world’s two largest markets. 

According to a media report earlier this month, Shein also informed the Chinese securities regulator of its plan around the same time it submitted its IPO application in the U.S. last November, even though the company is technically no longer Chinese. 

In 2022, Shein deregistered its original company in Nanjing and transferred its trademark and equity in its Guangzhou company to a Singaporean firm, Roadget Business. All its trademarks, intellectual property and financial and user data are now housed in Singapore, and company founder Xu Yangtian is a permanent Singaporean citizen residing in the Southeast Asian city. 

Such acts are clearly intended to circumvent Chinese regulation in order to list abroad. But before it could file with the U.S. regulator, a new Chinese regulation took effect last March stipulating that any company with 50% or more of its operating revenue, profit, total assets or net assets in China, regardless of where it was officially based, needed to register with the Chinese securities regulator before seeking an overseas IPO. 

Cybersecurity review

The new rule also gives a say in the matter to China’s state planner, the National Development and Reform Commission (NDRC), and its cyber regulator, the Cyberspace Administration of China. The cyber regulator has now launched its own review into how the company handles information related to its Chinese employees, suppliers and partners, and its ability to protect the data, the Wall Street Journal reported last week. 

The developments harken back to another case involving DiDi Global, China’s Uber equivalent, in 2021. Soon after listing on the New York Stock Exchange, DiDi came under fire for failing to undergo a required national security review in advance, and was forced to delist less than a year later. ByteDance, parent of short video sensation TikTok, also reportedly gave up its plans for an overseas IPO for similar reasons the same year. Thus, the regulatory straightjacket is tightening for companies with large troves of data on Chinese users.

Shein sells cheap fashion products in over 150 countries around the world, but not in China. But its supply chains are concentrated on the Chinese Mainland, including thousands of suppliers at the company’s main production base in the Southern city of Guangzhou. Shein is also linked with many Chinese companies in logistics, warehousing and other supply-chain services. 

Contentious tax exemption 

In addition to being targeted by Chinese regulators, Shein is also facing headwinds in the U.S. Last August before its first IPO filing, 16 state attorneys general urged the U.S. securities regulator to conduct a thorough review of the company’s supply chains to rule out any use of forced labor. 

A chorus of voices in the U.S. Congress also opposes e-commerce platforms like Shein and Chinese rival Temu on the belief that they exploit a rule that exempts small parcels valued at less than $800 from import taxes. A report published by a U.S. House of Representatives committee last June showed small parcels processed by Shein and Temu combined accounted for more than 30% of all goods entering the U.S. 

Former U.S. Trade Representative Robert Lighthizer testified at a House hearing last year that the Congress should remove the tax exemption or lower the threshold to $50 or $100. He argued that “foreign companies are using the loophole and costing American jobs in stores and the manufacturing sector”.

Shein also has other headaches to deal with, including at least 50 trademark or copyright infringement lawsuits. The latest of those has Japanese fast fashion powerhouse Uniqlo accusing Shein of copying one of its crossbody sling bags, and demanding it cease selling the product and pay 160 million yen ($1.1 million) in compensation. 

Despite its huge efforts to keep a low-profile, Shein’s size alone – not to mention its Chinese background – was bound to subject it to heavy scrutiny in both the U.S. and China. Shein is extremely reliant on its Chinese supply chains, even as it desperately tries to minimize its China links. But no matter how hard it tries, the company will inevitably continue to be viewed as Chinese by both Beijing and Washington. That raises the ever-present risk that Shein – and its IPO – could ultimately get caught in the crossfire of China-U.S. tensions. 

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