China launches a security review of Shein. Here's what it means for its IPO

Clothes on the Shein headquarters in Singapore on June 19, 2023.

Ore Huiying | Bloomberg | Getty Images

China’s highly effective web regulator is conducting a security review of Shein because the fast-fashion large gears up for its extremely anticipated U.S. preliminary public providing, CNBC has discovered. 

The Cyberspace Administration of China is reviewing Shein’s supply chain presence within the nation, the place the majority of its producers and suppliers are positioned, a particular person aware of the matter informed CNBC.

The review focuses on how Shein handles details about its staff, companions and suppliers within the area, The Wall Street Journal reported. The CAC can be analyzing whether or not Shein can make sure that knowledge would not get leaked abroad, in keeping with the Journal. 

Shein did not reply to CNBC’s request for remark.

The review poses a number of points for Shein, as it takes steps towards an IPO after it confidentially filed to go public within the U.S. in November, CNBC beforehand reported.

For one, it squarely positions Shein as a Chinese firm — at the least within the eyes of China — at a time when relations between Washington, D.C., and Beijing are more and more strained. Shein has labored onerous to current itself as a world firm that was merely based in China, as lawmakers from either side of the aisle have expressed considerations about its ties to the area.

If Shein wasn’t a Chinese firm, the retailer would not essentially want Beijing’s permission to go public, mentioned Drew Bernstein, the co-chairman of Marcum Asia and an knowledgeable in U.S. and Asian capital markets. 

U.S. regulators are more and more involved about Chinese corporations doing enterprise within the U.S., and need to ensure sensitive data on American prospects would not find yourself within the Chinese authorities’s arms. 

Beijing additionally has related considerations. Shein is not going to solely should win over U.S. regulators, however it may also should safe China’s blessing. 

In 2021, Beijing launched a related security review of ride-hailing large Didi Global simply days after it went public on the New York Stock Exchange and raised some $4.4 billion. Within a yr, the corporate was delisted and shareholder worth was worn out. 

Following Didi’s downfall, all Chinese corporations looking for an abroad IPO are actually topic to a security review and authorities approval in China. If the evaluations flip up data that does not sit effectively with Chinese regulators, they may squash the deal. 

However, opposite to Didi, Shein is looking for China’s approval earlier than it begins buying and selling within the U.S., which may stop a related share collapse and assist increase investor confidence, mentioned Bernstein, who works with Chinese corporations listed on U.S. inventory markets. 

Bernstein famous that Shein beforehand moved its headquarters to Singapore and doesn’t promote its merchandise in China, which may alleviate considerations from Beijing that data on Chinese prospects may find yourself within the U.S. 

“By having zero publicity to Chinese customers, they are not more likely to be seen as a security delicate firm,” mentioned Bernstein. “I feel that [Shein] anticipated this and is effectively ready.” 

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