Shein IPO: Global fashion giant Shein is seeking approval from Beijing for its US Initial Public Offering (IPO), news agency Reuters reported, quoting people familiar with the matter. This move sheds light on the complexities faced by the company, trying to position itself as a global entity while navigating political hurdles and concerns over forced labour.

The anticipated US IPO has encountered resistance in the United States, where a bipartisan group of lawmakers has urged the Securities and Exchange Commission (SEC) to scrutinise Shein's offering, specifically focusing on the company's alleged use of forced labour.

Listing plans and regulatory challenges

Shein, valued at $66 billion as of its May fundraising, filed for its US IPO with the Chinese regulator in November, despite having shifted its headquarters from Nanjing to Singapore in 2022. The company, known for providing affordable fashion in over 150 countries, also submitted a confidential filing with the SEC in November. The lack of response from the SEC underscores the uncertain nature of the application process.

Neither Shein, the China Securities Regulatory Commission (CSRC), nor the SEC have provided comments on the matter, maintaining a tight-lipped stance.

Chinese regulatory hurdles

By filing with the CSRC for the US IPO, Shein is subject to Beijing's new listing rules for Chinese companies going public offshore. This regulatory landscape introduces complexities, involving multiple Chinese authorities, such as the National Development and Reform Commission and the cybersecurity regulator, in approving offshore IPO applications. This increased scrutiny could lead to further uncertainties, given the divergent priorities among these agencies, including considerations of national security and data protection.

Compliance with Chinese listing rules

Under the CSRC rules, companies are subject to Chinese listing regulations if more than 50 per cent of their operating revenue, profit, total assets, or net assets are generated in mainland China. Shein, which relies on around 5,400 third-party contract manufacturers, primarily in China, for its supply chain, falls under these regulations. The CSRC exercises discretion in implementing these rules based on the substance over form principle.

Forced labour concerns and SEC scrutiny

Shein faces additional challenges as a 2022 Bloomberg report linked its garments to cotton from China's Xinjiang region, raising concerns about forced labour. In response to these allegations, US lawmakers are pressing the SEC to mandate independent audits to ensure Shein does not use forced labour, although the SEC cannot block IPOs solely on human rights violations.

(With Reuters inputs.)