Is Shein really a Chinese brand?

Which country does Shein belong to? The online clothing giant, headquartered in Singapore, is expected to list its shares in London in the coming months. Earlier this year, Donald Tang, its executive chairman, said the company was American because of its values ​​and the fact that it makes most of its money there. Furthermore, most of Shein’s employees are in China, where the company was founded in 2012. All this could suggest that Shein is a multinational that does not depend on any country. Unfortunately, the situation is not so simple for a company that straddles China and the West.

Shein is part of a new generation of innovative Chinese companies that have taken the rich world by storm. It now accounts for half of U.S. fast-fashion sales and is expected to sell about $50 billion worth of blouses, skirts and other inexpensive clothing and accessories globally this year, up from about $32 billion in 2023 ( see graph). That’s about as much as H&M and Zara, the two biggest fast-fashion brands in the West, combined. Temu, an overseas subsidiary of Pinduoduo, a Chinese e-commerce company, has seen similar success. Some 170 million Americans use TikTok, a video-sharing app controlled by ByteDance, a Chinese technology company. Chinese companies operating in sectors ranging from gaming to electric vehicles have also been expanding into Western markets.

Western consumers were attracted by these new offers. The enthusiasm, however, is not shared by their governments, who fear that Chinese companies could plunder citizens’ data or undermine national security. Last year, the United States passed a law forcing ByteDance to sell TikTok or leave the country (although its future is uncertain under Donald Trump, who has done an about-face on the issue). US lawmakers are investigating Shein and Temu over allegations of forced labor in their supply chains (which the companies deny). In September, the U.S. government said it planned to remove a trade rule that exempts imports worth less than $800 from tariffs, which would hurt both companies. At the same time, Chinese authorities are increasingly wary of these globe-trotting companies, fearing that they may leak sensitive information to foreign adversaries or escape the Communist Party’s grasp.

In response, many Chinese multinationals are downplaying their ties with the country. On November 14, BeiGene, a drugmaker whose name is a nod to the Chinese capital, announced that it would rename itself BeOne Medicines. Hundreds of Chinese companies have, like Shein, transferred their headquarters to Singapore. But Shein has gone further than most in its efforts to redefine itself as a global company rather than a Chinese one. It does not sell its products in China (where it is known as Xiyin) and says it is increasingly like any other global company that sources from the country. Yet his experience shows how difficult it is for companies born in China to break away.

Let’s first consider Shein’s operational footprint. About 10,000 of its 16,000 employees were based in China at the end of last year, according to regulatory filings. This is partly because Shein relies heavily on Chinese factories. The company’s former headquarters in Guangzhou, which remains its largest office globally with nearly 5,000 employees, focuses primarily on logistics and supplier relationship management. In a nearby area known as “Shein Village,” tens of thousands of people work in factories making clothing for the company (they are not directly employed by Shein). The Guangzhou office is not described; no logo identifies its main tenant. When your correspondent visited last month, the only indication of Shein’s presence was a large cake-shaped balloon inflated in the entryway to celebrate the company’s 12th anniversary.

Shein’s presence in China is not limited to the management of its supply chain. The company’s ability to use data to develop algorithms that can accurately predict customer demand has been central to its success. Most of this work is still done from home. According to a consultant familiar with the company, it would be very difficult to replace or relocate the staff needed to maintain these operations.

In Nanjing, where the company was founded, executives work on brand strategy. In some documents, Shein still refers to the Nanjing office as its “global operations center.” Two subsidiaries in Shanghai, which employed about 500 people between them at the end of last year, work on product design, digital marketing and managing relationships with TikTok influencers who are paid to advertise for the company. What’s more, Shein’s footprint in the country is expanding. As of last month, the company was hiring for nearly 1,900 positions in 13 cities, including Shenzhen and Shanghai, where it is bolstering a team tasked with processing data and helping develop its algorithms.

A second illustration of the difficulty of Shein’s position comes from its proposed listing abroad. Overseas IPOs of Chinese companies have fallen in recent years as the Chinese government has signaled its disapproval, including forcing DiDi, a ride-hailing company, to delist from the U.S. in 2022. Chinese companies have raised a record $53 billion through overseas listings in 2014, according to LSEG, a financial markets group. This year, they raised less than $5 billion.

Shein may have hoped that by forgoing the domestic market, its IPO would face less scrutiny from China. Companies with fewer than 1 million Chinese users online are not required to undergo review by the country’s Cybersecurity Administration before listing their shares overseas. Shein has also been careful to remain discreet in China. Xu Yang tian, its founder and chief executive officer, avoided media interviews; there are few photos online of this 40-year-old billionaire. The company’s reluctance to move work overseas may also reflect its fear of arousing government displeasure. A person close to the company says Chinese authorities monitor digital operations carried out in the country and those transferred abroad.

Despite everything, Shein was not spared. According to the Wall Street Journalthe cybersecurity watchdog launched a review of how the company manages data relating to its suppliers and logistics in China, and Shein had to seek permission from the Chinese government for its establishment there. ‘stranger. The arcane, unofficial process it must now follow highlights the “built-in political risks” that investors will need to consider when evaluating the company, says Drew Bernstein of MarcumAsia, an accounting firm.

Growing concerns about these risks have contributed to the downward revision of Shein’s valuation over the past two years. In 2022, in a funding round that included General Atlantic and Tiger Global, two American private equity firms, Shein was valued at around $100 billion. Last year it was valued at just $66 billion, and private stock sales earlier this year reportedly brought it to less than $50 billion. Shein’s establishment in China has helped it develop an innovative service that benefits millions of buyers around the world, regardless of their nationality. But as long as Washington and Beijing view it as Chinese, investors may have to do the same.