Clothing at the Shein headquarters in Singapore on June 19, 2023.
Huiying Ore | Bloomberg | fake images
China's powerful internet regulator is conducting a security review of Shein as the fast fashion giant prepares for its highly anticipated initial public offering in the United States, CNBC has learned.
The Cyberspace Administration of China is reviewing Shein's supply chain presence in the country, where most of its manufacturers and suppliers are located, a person familiar with the matter told CNBC.
The review focuses on how Shein handles information about its employees, partners and suppliers in the region, The Wall Street Journal reported. The CAC is also examining whether Shein can ensure that data is not leaked abroad, according to the Journal.
Shein did not respond to CNBC's request for comment.
The review raises several issues for Shein as it takes steps toward an initial public offering (IPO) after it filed its confidential application to go public in the US in November, CNBC previously reported.
On the one hand, it clearly positions Shein as a Chinese company – at least in China's eyes – at a time when relations between Washington, DC, and Beijing are increasingly tense. Shein has worked hard to present itself as a global company that was simply founded in China, as lawmakers on both sides of the aisle have raised concerns about its ties to the region.
If Shein were not a Chinese company, the retailer would not necessarily need Beijing's permission to go public, said Drew Bernstein, co-president of Marcum Asia and an expert on U.S. and Asian capital markets.
American regulators are increasingly concerned about Chinese companies doing business in the United States and want to ensure that sensitive data of American customers does not end up in the hands of the Chinese government.
Beijing also has similar concerns. Shein will not only have to win over US regulators, but also We have to secure China's blessing.
In 2021, Beijing launched a similar security review of ride-hailing giant Didi Global just days after it went public on the New York Stock Exchange and raised about $4.4 billion. Within a year, the company was delisted and shareholder value disappeared.
Following the fall of Didi, all Chinese companies seeking an overseas IPO are now subject to a security review and government approval in China. If the reviews reveal information that doesn't sit well with Chinese regulators, they could derail the deal.
Unlike Didi, however, Shein is seeking approval from China before starting trading in the United States, which could prevent a similar stock collapse and help boost investor confidence, said Bernstein, who works with Chinese companies listed on US stock markets.
Bernstein noted that Shein previously moved its headquarters to Singapore and does not sell its products in China, which could ease Beijing's concerns that information about Chinese customers could end up in the US.
“Having zero exposure to Chinese consumers, they are not likely to be seen as a security-sensitive company,” Bernstein said. “I think that [Shein] “He anticipated it and is well prepared.”
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