SHEIN Is Under Security Review by China

SHEIN, the fashion giant recognized for its affordable online shopping, is undergoing a security review by China’s internet regulator, reports CNBC. This review is taking place as the e-commerce platform, which has become a dominant player in the online fast-fashion space, prepares for its eagerly awaited U.S. initial offering.

SHEIN’s supply chain is being investigated by the Cyberspace Administration of China (CAC), as a big portion of its manufacturers and suppliers are based in the region.

The Wall Street Journal reported that the review will clamp down on how SHEIN manages information about its suppliers, partners, and employees in China. In addition, the CAC is also assessing SHEIN’s ability to prevent data from leaking beyond its borders.

The review brings about potential roadblocks for SHEIN, including with its plans to take the company public with an IPO in the U.S.

Though SHEIN has worked hard to portray itself as a global company, as it was only founded in China, this clamp-down clearly categorizes the e-commerce platform as a Chinese company and, in turn, shakes up its image. This is a problem for the company, as Beijing currently has a tense relationship with Washington, D.C., and lawmakers have shown concerns about its links to the region.

According to Drew Bernstein, the co-chairman of Marcum Asia and an expert in U.S. and Asian capital markets, SHEIN is a Chinese company, and therefore it can’t go public without Beijing’s permission.

U.S. regulators want to ensure the confidential data of American customers doesn’t make its way to the Chinese government, and they are becoming more apprehensive about Chinese companies doing business in the U.S. Likewise, Beijing also has the same concerns, which leaves SHEIN in a challenging position of needing to not only convince U.S. regulators but also China.

A similar review was carried out by Beijing in 2021 with Didi Global, the leading global mobile transportation platform headquartered in Beijing. This happened a few days after the company raised around $4.4 billion after going public on the New York Stock Exchange, and in just a year, the company was delisted and shareholder value vanished.

After this incident, all Chinese companies that are looking for overseas IPOs now go through a security review and approval process in China first, and if the review brings up information that doesn’t work for the Chinese regulators, the deal will not go ahead.

SHEIN is getting ahead of the game by seeking China’s approval first instead, and then it will start trading in the U.S., with the notion that this will prevent a similar share collapse from taking place. This will also help build trust with investors, according to Bernstein, who works with Chinese companies listed on U.S. stock markets. 

Bernstein said, “By having zero exposure to Chinese consumers, they’re not likely to be viewed as a security sensitive company. I think that [SHEIN] anticipated this and is well prepared.”