Speculation about Chinese fast fashion giant Shein’s plans to go public in London has reached its peak this week, but obstacles faced during its attempted listing in New York also exist in Europe. The resistance from the European retail industry and lawmakers against Shein is growing.
Headquartered in Singapore, online fast fashion giant Shein was originally founded in China and continues to rely mainly on processing plants, warehouses, and supply chains in China.
After facing compliance issues and political resistance which led to the cancellation of its listing plans in New York, Shein has turned its charm offensive towards London. The local stock exchange and some political leaders in the UK seem to welcome Shein’s idea. However, analysts point out that the issues troubling New York could also be problematic in London, especially concerns about Shein’s use of sanctioned Xinjiang cotton and forced labor that might deter some investors.
According to the Nikkei Asia, Goldman Sachs is one of the banks designated to market Shein’s stocks, with Shein recently being valued at $66 billion, approximately £50 billion.
Create Research, headquartered in London, provides consulting services to global fund managers and pension funds. Its CEO Amin Rajan told Nikkei Asia: “For a valuation of £50 billion, European institutional investors seek strong and sustainable profit growth, which requires support from high ESG ratings to achieve. Recently, Asian companies have attracted lukewarm interest due to slow progress on ESG issues.”
“ESG” refers to “environmental, social, and governance” criteria used to assess if a company has a sustainable business environment. Investors consider a company’s ESG issues for responsible and impactful investing.
Joshua Sherrard-Bewhay, an ESG analyst at investment firm Hargreaves Lansdown in London, pointed out that Shein has significant issues to address. He remarked, “It has faced strong criticism due to its connection to human rights violations in its supply chain. Reports suggest weekly 75-hour workweeks and exploitation of Uyghur workers in forced labor camps. Improving transparency and reporting on these issues will be key to improving investor sentiment.”
Shein’s statement on its website categorically denies using “forced labor, harassment, discrimination, or unsafe working conditions,” or employing “children or prison labor.”
Despite these concerns, UK Chancellor Jeremy Hunt met with Shein’s chairman Donald Tang earlier this year. The Labour Party, expected to win in the upcoming election on July 4th, confirmed to Nikkei Asia that its officials have also met with representatives from Shein. The Labour Party, currently in opposition, noted that boosting investment, productivity, and growth is one of the government’s missions.
Originally, Shein had considered New York as its preferred listing location due to greater market liquidity and more listed consumer retail companies in New York.
A former senior investment banker at JPMorgan who was involved in large Chinese companies’ overseas listings mentioned that compared to listing in New York, listing in London poses several challenges for the company. These include the lack of relevant peers, a narrower range of research analysts’ coverage, a smaller investor base, potential restrictions on fund investments (that may prevent some companies from buying in), and lower overall market liquidity.
Other analysts suggest that discussing Shein’s overseas listing might be premature as it firstly needs approval from the Chinese authorities. Since Beijing strengthened scrutiny on Chinese companies’ overseas listings in March 2023, bankers have found gaining approval from various Chinese regulatory bodies challenging to progress overseas listings. Overseas investors and companies face Beijing’s extended jurisdiction, which can even bring companies headquartered overseas under Chinese regulatory oversight.
Additionally, under Chinese law, Shein would need to comply with government requests to share customer data, a situation that raises concerns for European and American investors.
Marcum Asia, providing advisory services to Asian companies seeking entry into the Chinese market, indicated that Shein faces unique challenges as it navigates how far it can go while maintaining favor with the Chinese government. This balance is crucial for their successful IPO launch.
Even if Shein successfully lists in London, the unpredictable nature of global trade relations could impact investors’ views on Shein pre- and post-listing. Benjamin Qiu, an enterprise associate at Elliot Kowk Levine Jaroslaw Neils, a law firm focusing on global complex disputes, warned that regulatory changes and political resistance might pose challenges for Shein’s investors.
He stated, “Even in today’s world, being in the industry where Shein operates does not mean being immune to geopolitical sensitivities. I believe investors can eventually price risks. However, some risks are fundamentally unquantifiable, such as the potential disruption in Shein’s supply chain in a Taiwan Strait conflict.”
Some UK lawmakers have questioned whether Shein is suitable to list in London and have called for stricter scrutiny of Shein’s supply chain and forced labor situations.
Alicia Kearns, Chair of the UK’s Parliamentary Foreign Affairs Committee, stated to The Guardian, “A company that cannot fully disclose its supply chain as required by UK law, with factory working conditions raising extreme concerns, has no place in London.”
With nearly 400 million citizens across 27 EU member countries voting in the European Parliament elections from June 6 to 9, resistance against Shein from the European retail industry and lawmakers is intensifying.
According to Reuters, manufacturers of textiles, clothing, leather goods, and shoes in Europe urged future European policymakers, those who will be elected, to protect the 1.5 million jobs in these industries in Europe and prevent products like Shein’s low-cost items from “flooding” the European market.
As industrial policy became a key issue in the European Parliament elections, European textile manufacturers, retailers, and e-commerce companies are pushing for attention on cheap clothing, accessories, and trinkets from China, similar to the reasons behind the resistance against low-priced Chinese electric vehicles.
The overall annual turnover of the textile, shoes, and leather industries in Europe exceeds €200 billion ($220 billion). Europe is home to the largest luxury brands globally and renowned fast fashion giants like Zara from Spain and H&M from Sweden.
In a joint statement, industry organizations noted that 99% of the companies in the industry are small and medium-sized enterprises, making them susceptible to the “unfair” impact of global competition.
The Polish e-commerce association highlighted in a report that Chinese state subsidies provide platforms like Shein with unfair advantages compared to European competitors, allowing Shein to ship low-cost items like $5 T-shirts, $15 jeans, and $1 earrings from China to consumers worldwide.
A spokesperson from Shein responded, stating that the allegations that Chinese state subsidies support Shein’s business and global expansion are unfounded.
Most of the products sold by Shein are manufactured in southern China, but the company has also started establishing supplier bases in Brazil and Turkey. The spokesperson mentioned, “We hope our Turkish supply chain partners will increasingly support our service to the European market.”
The French National Assembly approved a bill in March seeking penalties against Shein to combat its adverse environmental impact.
Raphael Glucksmann, a member of the European Parliament and supporter of the bill, is a prominent activist against Shein.
To improve its image in France, Shein announced on June 3 (Monday) the expansion of its second-hand clothing resale platform, “Shein Exchange,” to France. Shein first launched “Shein Exchange” in the US at the end of 2022, which subsequently expanded to the UK and Germany.
Shein is also making efforts to cater to Germany. According to a LinkedIn post, Lionel Lim, Shein’s Global Government Relations Vice President, hosted an “ESG Breakfast Roundtable Meeting” in Berlin last month, with attendees from the German government, trade associations, and business partners. The outcome of this meeting is currently unclear.
According to the Associated Press, every day, nearly 600,000 packages benefiting from the “lowest tax-free import threshold” from Shein and another Chinese e-commerce platform, Temu, enter the United States, accounting for over 30% of all items entering the US under the minimum tax-free limit daily. These numbers have astonished US lawmakers, leading both chambers of Congress to propose legislation to cancel or reduce the current $800 daily tax-free import threshold per person.
This issue also exists in Europe. Under EU regulations, individuals can order parcels valued below €150 ($170) from abroad without paying import duties. In the UK, the corresponding threshold is £135 ($170).
While Shein has stated that tax-free treatment of low-value parcels is not crucial to its success, European retailers are increasingly critical of this tax-free loophole. They believe this loophole benefits Shein and other foreign e-commerce platforms in “dumping” products in Europe.
According to Reuters, Kari Luoto, Executive Director of the Confederation of Finnish Industries, stated in a release on June 5 (Wednesday): “We urge the soon-to-be-elected members of the European Parliament to ensure equal competition conditions in Europe, abolishing the tax-free thresholds should be a top priority.”
Theo Paphitis, Chairman and owner of UK retailers, Ryman and Robert Dyas, told Reuters: “It’s incredible that the government hasn’t eliminated a huge tax loophole that allows large foreign companies to sell products in the UK without paying tariffs, increasing costs to the (UK) retail economy and sacrificing fair-share-paying UK companies.”
Germany calls for reforms within the European Union, with the main retail association in Germany, Handelsverband Deutschland, revealing that German Finance Minister Christian Lindner has stated that Germany will support canceling the €150 tax-free threshold at the European level.
Simon Wolfson, CEO of UK fast fashion brand Next, also urged the UK government to review the tax-free loophole.