Key Takeaways:
- A politician in Britain’s ruling party is calling for a review of Shein’s London IPO bid and a ban on goods sourced from Xinjiang
- A proposed U.S. move to revoke a tax exemption for low-value goods could add 20% or more to Shein’s prices
By Lee Shih Ta
The world of ultra-fast fashion relies on speedy gratification, with a brand new outfit just a click away. Chinese clothing retailer Shein has made rapid inroads into Western markets with this business model, but an overseas IPO has not turned out to be a quick win.
Amid mounting tensions with Western trading nations, China’s e-commerce companies are finding themselves caught in the crossfire. Shein came up against firm resistance as it shopped around for an overseas IPO venue and could also face an assault on its price advantage in U.S. markets.
Shein is officially headquartered in Singapore, but its operations are rooted in China’s Guangdong Province. An attempt to list in New York faltered after political opposition. The fashion powerhouse then switched its attentions to the London Stock Exchange, which is keen to get the IPO business, but the revised plan could also be running into trouble.
A senior British political figure is calling for closer government scrutiny of the IPO application, citing concerns about the treatment of workers in Shein’s supply chain.
Liam Byrne, a lawmaker in the ruling Labour Party who heads parliament’s powerful trade committee, wants the government to emulate a U.S. ban on cotton imports from the Xinjiang region over the suspected use of forced labor from among the Uighur community. Britain should adopt the same standards on human rights and supply chain transparency as the United States in the interest of strengthening bilateral ties, Byrne said in statements reported by the U.K. media.
Meanwhile, U.K. activists have launched a “Say No to Shein” campaign, calling for the company’s labor practices, environmental impact and tax arrangements to be investigated before any IPO green light is given.
Tax Loophole
The controversy highlights a growing polarization between China and the West as commercial competition intensifies.
According to a study by the International Monetary Fund, the globalized world is dividing into two blocs led by the U.S. and China, with declining trade and investment links between the competing alliances.
Against this background, U.S. legislators have turned their critical gaze towards the duty-free tax status enjoyed by the flood of small packages sent to U.S. consumers by Chinese e-commerce firms such as Shein and Temu.
The U.S. government recently announced that it wanted to curb the volume of small shipments that currently enter the country duty free up to a value threshold of $800, under a provision originally intended to make it easier for individuals to get modest packages or souvenirs from abroad.
Critics of the so-called “de minimis” rule say it has been exploited by the likes of Shein and Temu to offer products at ultra-low prices, to the detriment of U.S. producers and retailers. According to the White House, the number of low-value items entering the U.S. without incurring import taxes has jumped from 140 million to 1 billion in the past decade.
The China Select Committee in the U.S. Congress estimates that 30% of all goods imported under the rule were shipped by Shein and Temu. The bipartisan group of lawmakers also predicted the proposed revision would add at least another 20% to the prices charged by Shein and Temu, dealing a significant blow to the Chinese companies’ market competitiveness.
Under the proposed change, goods otherwise subject to trade tariffs – including around 70% of textiles and clothing produced by China – would no longer qualify for the tax break for low-value goods.
The U.S. is not alone in rethinking the tax treatment of online shopping sourced from overseas. The European Union is also reported to be considering revoking a similar rule that allows online purchases worth up to 150 euros to enter its market free of duty.
The defensive moves point to growing concern about the threat that cheap imports are posing to domestic manufacturers via online shopping platforms.
Sales figures from Chinese online giants underline how quickly they have been changing the game. Shein’s sales rose 40% last year to $32.2 billion (around 228 billion yuan), surpassing Zara IDEXY, H&M HNNMY and UNIQLO (6288.HK; 9983.T). The year-on-year growth in sales accelerated from a 37% rise in 2022.
Low price is Shein’s biggest weapon in the fast-fashion market. On Shein dresses were selling for an average of $28.5 in early June, compared with about $40 at H&M and $79 at Zara, according to data from the retail analytics firm Edited. If the tax changes push its prices up by 20%, Shein will land in the same price ballpark as H&M.
Pushback From China?
Valued at $66 billion last year after its latest funding round, Shein is a super unicorn following in the footsteps of other Chinese tech companies on the global market stage, but in rather more challenging times. A decade ago, Alibaba BABA raised $25 billion through a New York IPO, while Shein got a frostier reception in its bid to list on global exchanges.
Founded in Nanjing, Shein moved its headquarters to Singapore to better access Western capital, whilefounder Chris Xu even took up formal residency in the city state, underlining the company’s international credentials. Shein’s online profile plays down the company’s Chinese origins, but the supply chains, warehouses and inventories are still very much inside China.
Shein is not just coming under Western scrutiny over its listing plans – it is also still subject to Chinese regulatory oversight. Chinese rules require a company to file IPO plans with the country’s securities regulator if 50% or more of its operating income, profits, total assets or net assets are generated within China, regardless of where the holding company is registered.
Chinese regulators have yet to approve Shein’s plans for an overseas IPO. In fact, some foreign media have reported that the government is unhappy about Shein distancing itself from its Chinese heritage and could be worried about fostering a growing trend of corporate decoupling.
With resistance from China and the U.S., Shein might want to weigh up the merits of a listing in Hong Kong.
This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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