A Potential Mega-IPO Is in U.S.-China Crosshairs
Shein’s listing plans likely depend on the fashion giant’s ability to satisfy both Beijing and Washington
The initial public offering of fashion giant Shein could be one of biggest in years—if the company successfully navigates a minefield of U.S.-China tensions.
China-founded Shein, now based in Singapore, has quickly become one of the world’s largest fast-fashion retailers, valued at around $66 billion in its most recent fundraising round last year.
Now its IPO depends on its ability to satisfy authorities on both sides of the Pacific.
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.
According to SEC’s guidelines for confidential IPO filing by foreign companies, “circumstances may develop” in which SEC staff direct foreign issuers to publicly file a registration statement even though they would appear to be eligible for confidential treatment.
Companies typically bristle at public filings. Filing confidentially allows companies to keep sensitive business and financial data away from public eyes during discussions with regulators, and those stay private if a deal doesn’t ultimately go through.
Shein has taken steps over the years to distance itself from its Chinese roots, including by moving its headquarters to Singapore. It sells its wares in more than 150 countries but doesn’t have customers in China. But with the bulk of its supply chain and back offices in China, it is still necessary for Shein to secure Beijing’s blessing on its U.S. listing, lawyers, bankers and analysts say.
The company has filed the paperwork for its U.S. application with the China Securities Regulatory Commission and is in continuing discussions with the regulator, according to people familiar with the matter.
Shein’s conundrum shows how U.S.-China tensions increasingly pose challenges beyond conventional business practices for multinationals. Its application represents the first big test of how Washington and Beijing will view a U.S. listing of a high-profile company with roots in China since the ill-fated IPO by ride-hailing giant Didi Global in 2021.
Didi decided to go ahead with its listing despite suggestions from Chinese authorities to delay it, The Wall Street Journal reported. Chinese authorities promptly launched a probe into Didi’s data infrastructure, ordered it to stop registering new users and forced some of its popular apps to be taken down. Valued at $68.4 billion the day of its debut, Didi’s shares plummeted and the company delisted from the New York Stock Exchange in less than a year.
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. It 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.
“The balancing act of operating supply chains in one country while generating sales in another is becoming an increasingly complex challenge, potentially presenting difficulties on both fronts,” said Jing Qian, managing director of the Asia Society’s Center for China Analysis. “Navigating and resolving these multifaceted complexities is crucial for their continued survival.”
A central tenet of Shein’s predicament is how to address concerns over the cotton it uses in its clothing.
Shein has in recent years come under allegations that it has sourced cotton from China’s Xinjiang region. A 2022 U.S. law largely bans the import of goods tied to that region, where the U.S. has accused Chinese authorities of committing genocide and of using forced labor in its repression of mostly Muslim Uyghurs. Beijing has denied the allegations.
The company has said it has “zero tolerance” for forced labor and complies with laws in the markets where it operates.
Still, some U.S. lawmakers see Shein as a company with close ties to the Communist Party that has potentially violated U.S. law. They have urged the SEC to halt Shein’s IPO until the company shows sufficient transparency about its supply chain. A congressional committee is investigating Shein’s labor practices and the origins of its cotton.
Companies viewed in China as bowing to Western criticism of Beijing’s practices in Xinjiang have faced swift retaliation. Shein’s European competitor H&M Group, for instance, was wiped from China’s mobile apps after it said it would stop sourcing products from Xinjiang, effectively erasing its e-commerce presence in China as state media criticized companies that “earn a huge profit in China while slandering China.” H&M has since returned to some apps.
Shein’s rival Temu has also faced allegations it uses Xinjiang cotton in the U.S. Temu, backed by Chinese e-commerce giant PDD Holdings, has said the allegations are “completely ungrounded.” The company said in a response to an inquiry from the China-focused U.S. congressional committee that it doesn’t “explicitly prohibit” the selling of products from Xinjiang by third-party sellers.
Shein has been carefully navigating escalating geopolitical tensions between China and the U.S. as it has sought to establish itself as a global company. It has beefed up its compliance system. It has also ramped up its federal lobbying efforts in the past year and half, with its lobbying expenses totaling nearly $1.8 million, according to OpenSecrets, a Washington-based nonprofit organization that tracks data on campaign finance and lobbying.
Shein has said it continues its policy and public engagement to “demonstrate transparency across the business.”
Before Shein’s confidential filing in November, bankers at the company’s underwriters, which include Goldman Sachs, JPMorgan and Morgan Stanley, told the company its offering should be approved by the SEC and that the listing could be possible as early as this summer, according to people familiar with the matter.
The SEC’s lack of response has put the company on edge, according to a person close to the company. Typically, the SEC formally replies to confidential filings within 30 calendar days, capital-markets attorneys say.
Earlier this month, the company hired Kent Knutson, a veteran retail lobbyist to be its chief government affairs officer. Shein has hired Teneo, a public-relations firm where Paul Ryan, the former speaker of the U.S. House of Representatives, serves as vice chairman.
Recently, Shein appears to be enjoying a generally positive image in China. Chinese state media in December ran glowing articles about the company. State news agency Xinhua touted Shein as a “super unicorn” in one recent article that depicted Shein as a company with roots in southern China that has grown big from there.
Fang Xinghai, vice chairman of the Chinese securities regulator, said in a conference this week that the regulator will steadfastly promote the opening of China’s capital market and work together with all parties to make overseas listing mechanisms better, according to Xinhua. Fang added that listing overseas has pushed Chinese companies to improve their internal management and provided a useful reference for China to regulate its own capital markets.