Shein's US IPO is dead, experts say

China-founded e-commerce company Shein's hopes of going public in the United States are increasingly dim, experts say, as rising tensions between Beijing and the United States disrupt business and trade.

The company, last valued at $66 billion, confidentially filed to go public in the United States in November. Since then, it has faced resistance in attempting to join the American retail sphere, including through numerous rejected attempts to become a member of the National Retail Federation, the industry's largest trade association, CNBC previously reported.

The e-commerce startup filed to go public while becoming a household name in the U.S. by offering low prices and the ability to deliver new styles quickly. The company is poised to take significant market share from US retailers, particularly Gap, TJX Companies and Macy'saccording to UBS data from last year, and continues to challenge Aim, Walmart and Amazon.

But as political resistance to its US IPO grows, Shein is apparently changing course as it prepares to confidentially file a £50bn offering in London in the coming weeks. The company probably would have preferred to list in the United States, because the offering could command a higher valuation than in the United Kingdom, said Angelo Bochanis, an IPO analyst at Renaissance Capital, which offers pre-IPO research and IPO-focused ETFs.

But its path has not been easy, with federal and state officials asking the Securities and Exchange Commission to review or even block the US initial public offering.

“Scrutiny of companies with high profiles and roots in China is very politically fashionable right now in the United States,” Bochanis said.

According to Bochanis, an IPO in London could, in theory, be easier than an offering in the United States. With Britain's parliament dissolved and the London Stock Exchange “desperate for big gains” while suffering an initial public offering drought, Shein could bypass some of the hurdles it might otherwise have faced, she said.

If Shein's London IPO is successful, it is unlikely to follow up with an offering in the United States, said Jay Ritter, a finance professor at the University of Florida who studies IPOs.

Not all companies linked to China are becoming entangled in the webs of growing political tensions. Chinese electric vehicle company. Zeekr It went public in the United States last month. It became one of the first prominent Chinese companies to do so in the United States, even as the Biden administration has increasingly cracked down on Chinese-made electric vehicles.

Shein is “one of the few” China-linked companies that has gained deep brand awareness among American consumers, Bochanis said.

The size of the potential offer and the long, high-profile process that accompanies it have helped make Shein an attractive target for politicians of both parties who want to appear tough on companies linked to Beijing.

Shein was founded in China and has since moved its headquarters to Singapore. But a good part of the company's supply chain is still based in the country.

In December, the House Energy and Commerce Committee sent a letter to Shein requesting information about the company's collection of user data and its relationship with the Chinese government, calling a potential link to Beijing a ” serious risk to electronic commerce, consumer safety and personal safety. privacy and data security.”

The panel sent a similar letter to TikTok, the popular social media platform owned by Chinese parent company ByteDance.

The Chinese Communist Party can, by law, ask any Chinese-owned company to share information about its customers, according to Susan Ariel Aaronson, a professor at George Washington University. While Shein is based overseas, its manufacturing ties in China and reports that it sought Beijing's permission to go public in the U.S. raised concerns among U.S. officials about what data it might share with the government. Chinese.

That relationship helped spark a proposed US ban on TikTok. The legislation that Congress passed last month aims to force the platform to sell its US assets by January 19 or cease all activity in the country.

ByteDance and several platform creators have filed lawsuits to block the bill.

While Shein does not have access to the magnitude of data that a social media giant like TikTok has, the proposed ban has raised more questions about an initial public offering for the company in the United States.

“[Congress] “It just showed us that if a certain Chinese-owned company is perceived to pose a threat, they can unify and pass a law, and that is much stronger than an executive order or a presidential order,” said Antonia Tzinova, a security lawyer. Holland & Caballero national.

Political scrutiny beyond data privacy may prove more difficult for Shein to overcome.

The retailer has long been criticized for its alleged use of forced labor in its supply chain and poor working conditions for its employees.

In 2021, the United States passed the Uyghur Forced Labor Prevention Act, which prohibits companies that make products in China's Xinjiang region, known for its Uyghur detention camps, from selling in the United States. Although US government agencies claim that Shein's supply chain has ties to Xinjiang in this region, the company does not manufacture its own products and instead uses China-based micromanufacturers that make materials more difficult to trace.

Shein has repeatedly denied allegations of forced labor, saying it implements a system to support compliance with US law within the company.

The company has also been criticized for using loopholes in US customs laws.

Because the company does not import its products in bulk to sell from a U.S. warehouse and instead ships on an order-by-order basis, it is exempt from some of the highest import taxes in the U.S. Rivals have criticized this practice for giving Shein an unfair competitive advantage.

— CNBC's Gabrielle Fonrouge and Reuters contributed to this report.