US investors are facing the growing risk of losing out on Shein’s potentially huge initial public offering, as the fast-fashion giant with Chinese roots considers holding it in London instead. Dealmakers in New York once reaped huge fees from Chinese companies going public; now they wonder whether the regulatory clouds that set in after Didi Global Inc.’s 2021 US IPO turned into a debacle will ever lift. With the first $1-billion-plus IPO in New York by a Chinese-owned company post-Didi safely in the books as of February, investors are watching to see if Shein can also break through the impasse — and what it means for Chinese IPOs in the US if they fail.

How did Shein become controversial?

Shein’s roots in China played a big role in its initial success, but in some ways they’ve have come back to bite it. Founded in 2008, the e-commerce pioneer gained attention in 2021 as it became the most downloaded shopping app in the US, overtaking Amazon. The company managed to more than triple its sales during the Covid-19 pandemic, to a staggering $10 billion in 2020, making it the biggest web-only fashion brand in the world.

Its runaway success has been attributed to its prowess with data, favourable tax treatment for small packages and, more controversially, to its vast network of contract manufacturers that pump out thousands of youth-friendly styles daily at ultra-low prices. Critics and rivals have assailed the company over concerns about the environmental impact of disposable fashion, pay and working conditions for those assembling garments, anti-competitive behaviour and even evidence that some cotton in its clothing was made with forced labour.

A Bloomberg News study in 2022 found that garments shipped to the US by Shein were made with cotton from China’s Xinjiang region, where the US State Department has alleged human rights abuses against the Uyghur people, which China denies. A statement from a company spokesperson said that Shein has a zero-tolerance policy for forced labour and requires its contract manufacturers to source cotton only from approved regions.

Can Shein’s critics stop the IPO?

The potential IPO has been a lightning rod for politicians such as Marco Rubio. The Republican senator asked the US Securities and Exchange Commission in a February letter to consider blocking the listing, following reports that the company had approached Chinese regulators for permission. Rubio said the company needed to disclose more about its operations in China, despite having moved its headquarters to Singapore.

Enter the UK, whose IPO market could use a boost — especially one the size of Shein’s, should it achieve the $50 billion valuation seen in private trades. Shein is considering a listing in London instead, and Britain’s chancellor of the exchequer, Jeremy Hunt, has already had talks with Shein’s executive chairman, Donald Tang, Bloomberg News reported in February. That, too, could draw political opposition, but the desperate need to keep IPO bankers in London busy could outweigh it.

What about other Chinese IPO plans in the US?

Executives of Chinese companies remember when things were different. Alibaba Group Holding Ltd.’s $25 billion New York listing in 2014 was the largest ever at the time, and numerous start-ups from the country were drawn to the large, liquid US market that didn’t require they turn a profit in order to go public.

The decline in relations between the US and China found its analogue in 2021, when Beijing opened a cybersecurity probe into Didi just days after its $4.4 billion US listing, over concerns about foreigners gaining access to data with implications for national security.

The ride-hailing company’s fall, and eventual de-listing, heralded a series of crackdowns on the country’s technology sector that effectively halted sizable Chinese IPOs in the US. About a year and half later, the stance has softened, and regulators have toned down rhetoric about curbs on overseas listings, so long as the firms meet requirements regarding the use of personal data and state secrets.

Despite the softening stance, new Chinese IPOs remain for the most part small and rare. No single Chinese issuer raised more than $200 million in the US last year, a far cry from 2021 when a dozen companies each raised more than that figure.

This year is looking a little better, if not for conventional listings. Lotus Technology Inc., an electric-vehicle unit of China’s Zhejiang Geely Holding Group Co Ltd., went public in New York through a merger with a blank-check vehicle.

Amer Sports Ltd.’s $1.4 billion listing in January is by far the biggest since Didi, but it’s also an outlier. Even though the maker of Wilson tennis rackets, Salomon ski boots and Arc’teryx outdoor gear is majority-owned by a Chinese-led consortium, its roots and much of its current operations are focused in Europe and the US, making it less sensitive from a regulatory perspective.

Amer said in its IPO filing that its counsel thinks they don’t need approval from the country’s securities regulator; by contrast, China’s internet watchdog is subjecting Shein to rigorous probing over its handling of data.

Will things go back to how they were any time soon?

That’s unlikely, considering all the tension even for companies that aren’t receiving scrutiny from members of the US Congress.

The SEC has expressed concerns about the quality of Chinese firms’ risk disclosures and continues to demand more of those to protect investors. New guidance on the issue was released last July. At the same time, Chinese companies are coming under pressure from domestic regulators about so-called “risk factors” warning language in their US IPO prospectuses.

As part of new overseas listing rules introduced in 2021, Beijing prohibits investment banks from including comments that misrepresent or disparage China’s laws and policies, or the business environment and judicial situation of the state, the Financial Times reported in January.

If US and Chinese regulators can’t find a characterisation of the risks of investing in Chinese companies that they can agree on, there’s little chance of the once-mighty China-to-US IPO pipeline reopening.

If not New York, then where?

Shein and other companies caught in the China-US tussle — including TikTok owner ByteDance Ltd. — have options, though none of them are quite as appealing as a spot on the New York Stock Exchange or Nasdaq. Hong Kong would make a better alternative for Shein than London, some investors say, given comparable Chinese peers with huge e-commerce footprints such as Alibaba and Tencent Holdings Ltd.

If a London listing doesn’t pan out as expected, the company could turn to Singapore, whose IPO market is in even worse shape than London’s. Any venue shift would require Shein to submit a new application with Chinese regulators, who would ask for additional materials and clarifications.

By Dong Cao, Yiqin Shen and Pei Li

European Union Council and the European Parliament on Tuesday reached a provisional agreement to ban the entry of products made with forced labour into the European single market.

The agreement clarifies the different responsibilities the EU Commission and the member states in identifying the companies exploiting forced workers and banning their products.

The deal intends to break these companies’ business model, Pierre-Yves Dermagne Belgium’s Economy and Labour Minister said in a statement.

“With this regulation we want to make sure that there is no place for their products on our single market, whether they are manufactured in Europe or abroad,” he said. Belgium currently holds the EU’s rotating presidency.

The bans would be enforced on goods made outside the EU by forced labour and on products manufactured in the EU with parts made abroad by forced labour.

The provisional agreement still needs to be formally approved by the European Parliament and the Council to be enforced.

By Inti Landauro; Editing by Michael Perry

Learn more:

Luxury Brands Lag on Efforts to Reduce Forced Labour

Despite strides made to eliminate the use of forced labour in fashion’s supply chain, companies’ lack of transparency is causing them to fall behind, according to a new industry report.

Fashion brands with ultra-fast product turnover such as China’s Shein should be subject to penalties of up to 50 percent of their garments’ selling price to offset their environmental impact, French ruling-majority MPs have proposed in a new bill.

The MPs say that ultra-fast fashion brands, rather than renewing their collections four times per year like traditional clothing brands, offer thousands of new products per day, inciting excessive spending and unnecessary pollution.

“This evolution of the apparel sector towards ephemeral fashion, combining increased volumes and low prices, is influencing consumer buying habits by creating buying impulses and a constant need for renewal, which is not without environmental, social and economic consequences,” the bill said.

The bill singled out Chinese ready-to-wear company Shein, saying that it on average presents more than 7,200 new garment models a day, and makes more than 470,000 different products available to consumers.

To offset the environmental impact of ultra-fast fashion, the MPs propose penalties of up to 10 euros ($10.86) per item sold, or up to 50 percent of the selling price, by 2030.

Shein, in a statement to French news agency AFP, said it follows “best international practices in terms of sustainable development and social commitment.”

Following discussion in a parliamentary committee, the bill will be presented to parliament in the second half of March.

French Environment Minister Christophe Bechu said in a statement on Monday that following a meeting with industry players, activists and researchers, his ministry plans several measures to reduce fashion’s environmental impact.

He said France plans a ban on advertising by ultra-fast fashion companies and the introduction of a financial incentives system to make ultra fast-fashion more expensive while sustainable fashion will become cheaper.

The popularity of fast fashion e-commerce retailers like Shein and Temu has disrupted the retail sector. Shein taps a network of largely China-based suppliers, bucking traditional manufacturing trends by accepting small initial orders, then scaling up based on demand.

The ultra-flexible supply chain has allowed Shein to create a different business model than established fast-fashion players like Zara and H&M, which pioneered shorter production timelines but still largely rely on predicting shoppers’ preferences.

By Geert De Clercq and Mimosa Spencer; Editing by Sharon Singleton

Learn more:

How Shein and Temu Are Upending the Global Air Cargo Industry

Shein and Temu’s growth is squeezing out space for other industries on air freighters, just as global firms are scrambling to find alternative logistics options due to the Red Sea disruptions.

Jennifer Aniston once said: “Here comes the science bit … concentrate” when selling shampoo in the late 1990s. But with everything from medical-grade serums to gut-boosting yoghurts filling our shelves, the “science bit” has truly taken over.

However, experts warn that more regulation is needed in the beauty and wellness industry to ensure that consumers are aware of genuinely innovative products compared to those selling false claims.

Analysts at Kantar put the growing popularity of science-backed beauty and wellness products down to people having more access to information through social media. This has resulted in greater awareness of the benefits of specific ingredients, they say.

Dionne Officer, a research analyst at Mintel, said 67 percent of UK adults wanted beauty brands to provide more scientific validation. Additionally, 36 percent of all products that claimed to be science-backed in the last five years were launched in the last 12 months Mintel data shows.

The value of the gut health industry alone is expected to rise from £41 billion ($52 billion) to £70 billion by 2030. The Zoe nutrition plan, co-founded by the epidemiologist and gut health expert Dr Tim Spector, has more than 130,000 sign-ups since its launch in 2022.

The skincare brand Lyma, which is putting its products through doctor-led trials, had a waiting list of thousands when it launched last year. This week, the company, co-created by an accredited plastic surgeon, brings to market a £4,995 ($6,334) medical-grade at-home laser.

Jonathan Jarry, a science communicator for McGill University, said consumers were “quick to believe something is good for us if it’s brand new and cutting edge.” He said: “Consumers may have tried a product with yesterday’s molecule in it and been disappointed with the results, but just like with diets, there’s always a fresh new thing to try with the promise that, this time, it will work.”

Lyma’s founder, Lucy Goff, whose company boasts its products are based on scientifically backed breakthroughs, says there has long been a fascination with longevity since Greek mythology and recent technological innovations can help improve how the body works.

She added: “The problem is that so many companies and brands have jumped on the well-tech bandwagon when it’s a marketing ploy and this is where the government has to act more responsibly to put consumer benchmarks in place so consumers know what they are buying into, empowering consumers to be educated in what is credible science and what is marketing hype.”

The UK government department responsible for the cosmetics laws is the Office for Product Safety and Standards. These laws are enforced by Trading Standards. However, there is no standard around certain claims or rules around what can be dubbed scientifically proven to work.

Goff gives the example of the sun cream market, saying that there is a “consumer benchmark” on the back of the bottle to “show how well a product will work” but this does not exist for other creams and supplements. “The benchmark should be not what the company is telling you but what is peer-reviewed science backing that up … consumers are not educated in this area and brands are manipulating that, and that is what has to stop.”

Timothy Caulfield, a research chair in health law and policy at the University of Alberta, coined the term “scienceploitation” to describe how brands borrow language from emerging areas of science to market unproven products.

He takes the example of a recent boost in interest in “gut health.” While microbiome and gut health is an exciting emerging area, he says, it takes years of research to explore what works and what does not.

Dr James Kinross, a senior lecturer in colorectal surgery and consultant surgeon at Imperial College London, says “most supplements that allege to target the microbiome, don’t.” He added: “Having said that, there is lots of good evidence for pro, pre and synbiotics, the problem is accessing this information to make helpful decisions.”

Kinross said that the “real problem is that most of these products don’t do what we really need which is to optimise the microbiome for health to prevent disease.” He advises that eating 30 grams more fibre a day could be the best and simplest way of helping your colonic microbiome.

“The consumer is often asked to spend a lot of money on these products; sometimes as part of a subscription model or sometimes as part of a platform that charges you for the pleasure of handing over all of your data to Silicon Valley. Be very wary of these products,” he added.

Kinross invests “in products that have reproducible science, which are cost-effective and those which have an ethical data policy.”

Caulfield said consumers should be sceptical of brands even if they are led by scientists or professors because “a lot of academics are under pressure to hype their work up.” He gives examples of stem cell genomics and microbiomes. “They are exciting areas of science but think how few clinical applications we have,” he said.

Caulfield said it was getting harder for customers to distinguish between good and bad products because there was “so much noise” and you could find something that “legitimises” false claims on the internet.

His advice is to look for claims that are not clearly explained to avoid products that will not deliver as much as they promise. After all, while times may have changed the old L’Oréal adage remains, and as Aniston would say, it’s “because you’re worth it.”

By Sarah Marsh