Shein Faces Renewed Scrutiny Ahead of Potential IPO in the U.S.

As Shein, the China-founded e-commerce giant, moves towards an initial public offering (IPO) in New York, U.S. lawmakers are resurfacing concerns about the company’s labour practices. Shein confidentially filed for an IPO on Monday, with potential sales of its shares expected in 2024. While the Singapore-based company has not disclosed the size of the deal or the valuation, reports suggest it’s targeting up to $90 billion, making it one of the most significant offerings.

Founded in 2012, Shein has been planning a U.S. IPO for several years, but geopolitical tensions, particularly between Beijing and Washington, have posed obstacles. Now, as the company navigates the complexities of going public, it faces renewed allegations about the use of forced labour in manufacturing its low-cost apparel and home goods.

Concerns Over Forced Labour

Shein, known for its fast-fashion model and budget-friendly clothing, predominantly manufactures its products in China. Critics have raised concerns about the company’s supply chain, suspecting the use of forced labour, particularly in China’s Xinjiang region. Xinjiang has been under scrutiny globally due to allegations of human rights abuses, including the internment of Uyghur and other Muslim minority groups. China denies these allegations.

U.S. lawmakers, both Democrats and Republicans, are calling on Shein to demonstrate that its supply chain is free from forced labour. Democratic Representative Jennifer Wexton emphasized that if Shein wants to go public in the U.S., it must prove to American consumers that its products are not sourced from forced labour. Earlier this year, Wexton led a bipartisan call for the U.S. Securities and Exchange Commission (SEC) to halt Shein’s IPO until the company verifies its supply chain’s integrity.

A group of Republican attorneys general from 16 U.S. states has also urged the SEC to audit Shein. The company has faced investigations by two Congressional committees over its sourcing practices and the use of trade loopholes that allow duty-free entry of most of its products into the U.S.

Shein’s Response and Lobbying Efforts

Shein has consistently asserted its commitment to a clean supply chain, stating it has “zero tolerance for forced labour” and does not use contract manufacturers in Xinjiang. However, convincing regulators and lawmakers of the supply chain’s integrity will likely be a significant regulatory hurdle for the fast fashion brand as it seeks approval from the SEC.

Public disclosures reveal that Shein has invested $1.28 million in lobbying efforts on Capitol Hill in preparation for its IPO. The company has also engaged with lawmakers privately, including those critical of its practices. In these meetings, Shein representatives reportedly highlighted efforts to diversify the supply chain beyond China, including increased sourcing from India.

Despite these efforts, Republican Senator Marco Rubio cautioned investors to approach Shein’s IPO with caution, emphasizing the need for scrutiny given the company’s links to potential labour abuses and evasion of U.S. customs laws.

Ongoing Scrutiny and Testing Practices

Shein’s most recent social impact report highlighted its partnership with Oritain, a company used by the U.S. government to test cotton for links to China’s Xinjiang region. Shein claims to conduct rigorous testing, sampling from every third-party cotton mill it works with. The company reported 2,111 tests between June 1, 2022, and July 11, 2023. However, critics argue that such testing may not be sufficient given the vast quantity of garments Shein exports globally each year.

Public securities lawyer Megan Penick suggests that the SEC’s handling of Shein’s IPO could set a precedent for other Chinese e-commerce companies including TikTok’s ByteDance and PDD Group’s Temu, which may consider going public in the U.S. in the future. The SEC’s scrutiny of Shein’s forced labour allegations and intellectual property issues may influence how other China-based companies are evaluated as they pursue public offerings.

As Shein navigates this pivotal moment in its journey toward an IPO, the level of transparency it provides regarding its supply chain practices will play a crucial role in shaping its reputation and regulatory approval in the United States. Investors and industry observers will be closely watching developments as the fast-fashion giant seeks a foothold in the U.S. public market.