Chinese Fashion Retailer Faces Challenges Before Proposed IPO

Singapore headquartered but originally China based fast fashion retailer Shein, has plans to launch an initial public offering next year with listing at the New York stock exchange.

But the brand which still has manufacturing facilities in China faces allegations that its products contain cotton from Xinjiang province, a province which is accused of using forced labour.

It may be recalled that the US initiated an act called the ‘Uyghur Forced Labor Prevention Act’ which prohibits entry of garments made from cotton produced in the Xinjiang region.

Incidentally, Xinjiang accounts for 90 percent of all Chinese cotton output, and so Shein, which retails garments for as low as $2, will have a tough time convincing investors and regulators about origin of cotton which it uses in its clothing.

“One of the biggest disadvantages of an IPO is disclosure and publicity,” David Kaufman, co-chair of Thompson Coburn’s corporate and securities practice group was quoted as saying by Bloomberg.

“There’s probably going be a big lobbying effort about why they are not using forced labour and where they source their cotton, and how all that is changing, with codes of conduct and inspection programs,” Kaufman said.

US House of Representative, Jennifer Wexton and one of the most Shein’s most vocal critics, issued a statement urging greater scrutiny of Shein’s supply chain ahead of a listing.

“If the fast-fashion giant Shein wants to go public in the US, they should have to prove to American consumers that their products are not sourced from forced labor,” Wexton said in the statement.

Wexton had co-sponsored the Uyghur Forced Labor Prevention Act, after an investigation found scientific evidence that cotton produced in the region was present in clothing sold by Shein.

“Shein has a zero-tolerance policy for forced labour and requires its contract manufacturers to only source cotton from approved regions,” a Shien statement responding to Wexton said.

Shein relocated its headquarters to Singapore from China in 2022 and the ecommerce company also begun to expand its production facilities outside China last year.