Singapore-based Shein seeks China’s permission for US IPO

HONG KONG/NEW YORK — Shein is seeking Beijing’s nod to go public in the US, two sources with knowledge of the matter said, highlighting the limits of the fashion company’s efforts to present itself as global rather than a Chinese company.

The move could further complicate Shein’s listing plans, which have run into political opposition in the United States. A bipartisan group of US lawmakers has called on the Securities and Exchange Commission (SEC) to block Shein’s initial public offering (IPO) until it verifies it does not use forced labor.

Shein, which according to one of the sources was valued at $66 billion in a fundraising in May, filed its planned US IPO with the Chinese regulator in November, the two sources said. This is despite Shein having moved its headquarters from Nanjing to Singapore in 2022.

Shein, which sells cheap fashion in over 150 countries, also confidentially filed with the SEC for the IPO in November, Reuters has reported. In a sign of the likely fraught nature of the application process, the SEC has yet to respond to Shein’s IPO filing, one of the sources said.

Shein did not reply to a request for comment on Friday, and neither did the China Securities Regulatory Commission (CSRC) nor the SEC.

The sources declined to be identified as they were not authorized to speak to media.

Shein’s filing with CSRC for the US float makes it subject to Beijing’s new listing rules for Chinese firms going public offshore, said the sources.

Before the new listing rules were adopted, ride-sharing giant Didi Global ran afoul of Chinese authorities by pushing ahead with its $4.4 billion US IPO in 2021, while a review of its data practices was being conducted. It was delisted from the New York Stock Exchange and was fined $1.2 billion by China over datasecurity breaches.

Under the CSRC rules, a host of authorities such as the National Development and Reform Commission, which supervises foreign holdings in local firms, the cybersecurity regulator and others may get involved in approving offshore IPO applications.

That is likely to lead to more uncertainty, as some agencies have divergent priorities, such as national security or data protection, bankers have said.

A company is subject to the Chinese listing rules, even if it is headquartered offshore, if 50% or more of its operating revenue, profit, total assets or net assets are generated in mainland China and it also meets one of these two criteria; the main parts of its business activities are conducted in the country or; senior managers are mostly Chinese citizens or domiciled on the mainland.

Shein does not own or operate any manufacturing facilities, and instead relies for its supply chain on around 5,400 third-party contract manufacturers, mainly in China, subjecting it to the CSRC listing rules, one of the sources said. The rules are applied on “a substance over form” basis, giving the CSRC discretion on when and how to implement them, the source added.

Shein ships the majority of its products directly to shoppers by air in individually addressed packages.

SEC APPLICATION

A 2022 Bloomberg report found that Shein’s garments contained cotton linked to China’s Xinjiang region. Rights groups and governments have accused China of forced labor and internment of Uyghurs, a mainly Muslim ethnic minority, in Xinjiang. Beijing denies any rights abuses.

Shein has said the company has “zero tolerance” for forced labor, and that suppliers are required to adhere to “a strict code of conduct that is aligned to the International Labor Organization’s core conventions.”

US lawmakers want the SEC to mandate Shein to independently audit and verify “that the company does not use Uyghur forced labor as a condition of being registered to issue securities in the United States.”

While the SEC cannot block IPOs based on alleged human rights violations, it can require companies to make disclosures about their supply chains.

The key to Shein’s commercial success in the United States, according to some politicians and analysts, is the so-called de minimis rule. They say the trade exemption allows websites selling cheap Chinese goods to evade millions of dollars in taxes and fees, as well as regulations banning forced labor in the consumer product supply chain. —