For at least three years, Shein has been considering a US IPO but faced obstacles, including challenges stemming from tensions between Beijing and Washington.
As Shein, the Chinese e-commerce giant, prepares to go public in New York, U.S. legislators are once more urging the company to demonstrate that forced labor is not involved in the production of its $5 T-shirts and $10 sweaters.
The company filed for an initial public offering confidentially on Monday, with plans to potentially launch share sales in 2024. While the size and valuation of the IPO have not been finalized, earlier reports suggested it could target up to $90 billion in the offering, according to Bloomberg.
Founded in 2012, Shein has aimed for a U.S. IPO for three years but faced hurdles, including Beijing-Washington tensions. Criticism surrounds allegations of Uyghur forced labor in its Chinese-made products. Convincing regulators of a clean supply chain is a major challenge as it seeks approval from the U.S. Securities and Exchange Commission for public trading.
Democratic Representative Jennifer Wexton stated on Tuesday, "For the fast-fashion giant Shein to go public in the US, they must demonstrate to American consumers that their products are free from forced labor."
Earlier this year, Wexton, leading a bipartisan effort, urged the SEC to pause Shein's IPO until confirmation that forced labor is not part of its supply chain.
A group of Republican attorneys general from 16 U.S. states also requested the SEC to audit Shein. The company faced investigations by two Congressional committees regarding its sourcing practices and the use of a trade loophole enabling duty-free entry of most products into the US.
Shein, not responding immediately, has previously asserted "zero tolerance for forced labor" and denied using Xinjiang contract manufacturers. The SEC refrained from commenting on individual filings. Attorney Megan Penick suggested the SEC might complicate Shein's process with detailed disclosure requirements. Shein spent $1.28 million on Capitol Hill lobbying, aiming to reshape its image for its IPO, and held private meetings with lawmakers critical of its practices.
Shein representatives highlighted diversification efforts in the supply chain to include countries like India. The company also emphasized importing more China-made goods to the US, paying tariffs on these items.
Senator Marco Rubio cautioned investors about Shein's IPO, expressing concerns about its Chinese roots, alleged forced labor links, and evasion of U.S. customs laws. He pledged to monitor disclosures leading up to the IPO.
Congressman Chris Smith echoed caution, advising investors to be wary of risks in Shein's business model amid Congress's push to end forced labor and close subsidies for Chinese companies.
Amid scrutiny, Shein's social impact report emphasized a partnership with Oritain, conducting 2,111 tests on cotton samples from third-party mills to check ties to China's Xinjiang region between June 1, 2022, and July 11, 2023.
However, detractors argue that the testing falls short in thoroughly screening the millions of garments Shein exports worldwide each year.
Megan Penick, a public securities lawyer, highlighted the significance of the SEC's approach to Shein's IPO, suggesting its implications for other e-commerce players like ByteDance's TikTok and PDD Group's Temu, considering future public offerings in the U.S.
Shein's IPO is anticipated to raise issues for the SEC that could potentially be extended to all China-based or China-related companies seeking to go public, according to Penick.
