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IPO Of China's Shein Brings Up New Concerns About Possible Forced Labour In Its Supplier Chain

IPO Of China's Shein Brings Up New Concerns About Possible Forced Labour In Its Supplier Chain
U.S. senators are putting more pressure on China-founded online retailer Shein to demonstrate that forced labour is not employed in the production of its $5 T-shirts and $10 sweaters as the company prepares to list in New York.
Shein may begin offering its shares for sale in 2024 after filing in confidence for an IPO on Monday. The Singapore-based business has not yet decided on the deal's size or IPO valuation. Bloomberg revealed earlier this month that the float was intended to raise up to $90 billion.
Shein, a 2012 startup, has been considering a U.S. initial public offering (IPO) for the past three years, but obstacles such as the ongoing tensions between Beijing and Washington have prevented them.
The fast-fashion online store, which sources the majority of its products from China, has come under fire for using forced labour from Uyghurs to produce its inexpensive home and clothing goods.
Opponents fear that Shein would outsource manufacturing to contract companies in China's Xinjiang province, where governments and activists have charged China with incarcerating Uyghurs and other mostly Muslim minorities. Beijing disputes any wrongdoing.
Shein, in her efforts to persuade the U.S. Securities and Exchange Commission that its shares need to be listed publicly, will probably face significant regulatory obstacles in convincing authorities that its supply chain is clean.
“If the fast-fashion giant Shein wants to go public in the U.S., they should have to prove to American consumers that their products are not sourced from forced labor,” Democratic Representative Jennifer Wexton said in a statement on Tuesday.
This year, the congresswoman spearheaded a bipartisan request that the SEC postpone Shein's initial public offering (IPO) until it confirms that the company does not employ forced labour in its supply chain.
Shein is the subject of an investigation by two different Congressional committees about its sourcing and use of a trade loophole that permits the majority of its products to enter the United States duty-free. A separate group of Republican solicitors general from 16 U.S. states has also requested that the SEC audit the company.
Shein has previously informed that it has "zero tolerance for forced labour" and that it does not have any contract manufacturers in Xinjiang. The firm did not immediately respond to a request for comment.
According to an SEC representative, the organisation doesn't address the filings of specific companies.
It's unlikely that the SEC will "directly block" Shein, according to Michelman & Robinson public securities lawyer Megan Penick. However, the agency could make Shein's process more challenging by making "the disclosure requirements so detailed, and, perhaps extreme, that it makes it seem... trying to go public cannot be achieved."
"There may be issues with the forced labor allegations and the IP (intellectual property) issues that may make it hard for (Shein) to be able to answer the questions to the satisfaction of the SEC," Penick said.
As it is ready to go public, Shein has disclosed that it has spent $1.28 million on Capitol Hill lobbying this year.
According to multiple Congressional staffers, the business has also held private meetings with politicians, including some of its harshest opponents, in an attempt to improve its standing in Washington.
Representatives for Shein stressed the retailer's efforts to diversify its supply chain from China to other nations, particularly India, according to a person with knowledge of the situation.
Shein also highlighted its attempts to pay taxes on Chinese goods in order to import more of them in large quantities onto conventional container ships and deliver them to the United States.
“Shein is fundamentally a Chinese company and investors should approach Chinese offerings with extreme caution. Its attempt to go public should prompt a closer look at its business practices, especially its links to slave labor and its evasion of U.S. customs laws," Republican Sen. Marco Rubio told Reuters.
"I will closely monitor Shein's disclosures in the lead-up to its IPO,” added Rubio, who in June criticized the retailer’s lobbying efforts in a letter distributed to other senators.
Shein's lobbying efforts have also drawn criticism from Republican Representative Chris Smith, who chairs the Congressional-Executive Commission on China.
“Any investor in this company should be wary of the material risks involved in Shein’s business model ... particularly as Congress is demanding an end to forced labor and closure of import subsidies for Chinese companies,” Congressman Smith said.
Shein emphasised its collaboration with Oritain, a business that the US government also uses to screen cotton for ties to China's Xinjiang province, in its most recent social impact report. Shein previously disclosed to Reuters that, between June 1, 2022 and July 11, 2023, 2,111 tests were carried out using samples from each third-party cotton mill the company works with.
However, detractors claim that the testing falls short of sufficiently screening the millions of clothes that Shein exports each year to other countries.
Public securities attorney Penick stated that other e-commerce companies, such as Temu from PDD Group and TikTok from ByteDance, who may think about going public in the U.S. in the future, will be closely watching how the SEC handles Shein's IPO.
Shein's IPO is "going to be raising issues (for the SEC) that may later be applied across the board to all China-based or China-related companies that are going public," Penick said.

Christopher J. Mitchell

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