Shein IPO Questions Alleged Forced Labor in its Supply Chain

by Carolyn Mathas

Given tight policy regulations in the electronics industry, one must question how much tension between Beijing and Washington has increased scrutiny of Chinese companies. This time, China’s Shein is attempting to list in New York, and U.S. lawmakers want it to prove that forced labor is not used to make its $5 T-shirts and $10 sweaters. Shein just filed for an IPO, planning to launch sales of its shares sometime in 2024.

The online fast-fashion retailer manufactures most of its merchandise in China, and it will need to address whether Uyghur forced labor is used to make its low-priced apparel and home goods. Critics are concerned that Shein may use contract manufacturers in China’s Xinjiang region, where China is accused of interning Uyghurs and other largely Muslim minority groups, which Beijing denies. Proving that its supply chain is clean will be a major regulatory hurdle.

Earlier this year, there was a bipartisan call for the SEC to halt Shein’s IPO until it verifies the forced labor situation. A separate group of Republican attorneys general from 16 U.S. states asked the SEC to audit the company, which two separate Congressional committees have investigated over its sourcing and use of a trade loophole that allows most of its products to enter the U.S. duty-free.

While there probably won’t be a “direct block” from the SEC, the agency could make the process difficult for Shein by making “the disclosure requirements so detailed and extreme. Shein has spent $1.28 million on Capitol Hill lobbying this year as it prepares to go public.

The SEC’s handling of Shein’s IPO will be crucial for such other e-commerce players as ByteDance’s TikTok and PDD Group’s Temu, which may consider going public in the U.S. Shein’s IPO may raise issues that the SEC could apply to all China-based or China-related companies that are going public.

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