Finance over Politics: How Shein’s IPO May Shape Future UK-China Relations and Revive British capital markets
An analysis of the potential London Shein IPO
Written by Samuele Viscariello
Shein, the Singapore-based fast fashion colossus, is looking to list in the London Stock Exchange after it has been deemed unlikely to gain SEC approval its IPO request due to its affiliations with China. Meanwhile, the UK public market has been experiencing historically low levels of IPO activity and it has suffered the exodus of British and European firms to their oversea big brother. Setting aside why this has been the case, the listing could revert the trend and show other foreign companies that British capital markets are well and alive. One question arises: why would the UK authorities welcome Shein and why wouldn’t the US?
Shein was founded in China in 2008 by Chris Xu, who still owns and controls the company. Not much is known about the billionaire owner, which doesn’t help in easing authorities’ doubts. In 2022, the company moved its headquarters to Singapore with the clear intention of expanding on the international financial market.
The SEC has a few concerns before a potential US IPO. Allegedly, the Commission doesn’t appreciate Shein’s past and current ties with the PRC. Wherever it’ll go public, Shein is planning to ask for approval of its IPO to Chinese authorities as prescribed by a Chinese law passed in 2023. Moreover, materials used to manufacture Shein’s garments allegedly come from regions where Muslim Uyghur are jailed and forced to work, which would present a moral and PR dilemma for investors and regulators. The same issue had already been raised almost a year ago in the Senate, when talks of Shein’s potential filing for the NYSE first appeared. Such hostility from regulators also has to do with trade logics: Shein exploits American de minimis entry regulations, so avoiding tariffs when shipping packages priced 800$ or below.
The issue has been raised on the political stage as well, with conservative senator Marco Rubio, vice-chair of the Senate Intelligence Committee, sending a letter to the SEC chairman Gary Gensler urging the Commission not to approve the request on the grounds of false information. In fact, last July it was reported that the CSRC (Chinese Securities Regulatory Commission) asked law firms working on overseas IPOs to downplay the economic and political risks in their filings to secure listings abroad. This has undoubtedly created an adverse environment for Chinese firms looking to list abroad and bulge bracket investment bank who wish to score deals worldwide but are looking to appease the SEC and keep their reputation intact.
The motives for rejection are logical, but the clothing brand isn’t breaking any rules. If legislators don’t like firms exploiting de minimis regulations, then they shouldn’t allow it in the first place. Also, Shein would not be the first nor last firm with some suspicious business going on with their contractors, whether in China or elsewhere. Ultimately and legitimately, opposition to Shein’s IPO resides in the close and shadowy ties the clothing brand has with the CCP. China watchdogs have influence over listings and their warnings clearly ring a bell in the US.
On the other hand, the UK seems to be welcoming Shein’s projects with open arms. Chancellor Jeremy Hunt has met with Shein’s executive chair to discuss the IPO— attentions that have not even remotely been paid by their American counterparts. While it followed the US on TikTok’s ban on government devices, the UK doesn’t share American ethical and political concerns regarding the fashion brand.
The City has not been too lucky these past few years as far as IPO are concerned and Shein’s would be a great occasion to fuel the market and create momentum. Authorities have been trying to foster financial activity after it took a significant hit following Brexit. Caps on bonuses for bankers have been eliminated only a few months ago, the BoE and FCA are looking to implement new regulatory frameworks to bolster international competitiveness and 2023’s Mansion House speech explicitly addressed the issue of boosting UK capital markets. With the financial sector playing a key role in the country’s economy and the UK being the largest net exporter of financial services, the slowdown needs to be reversed almost at all costs and this would be the perfect occasion to do so. Although concerns raised in the US might hinder Shein’s valuation on the LSE which currently amounts to around $70 billion, it could be a chance to prove international firms the City is a hospitable host.
This investment with its potential ramifications is particularly valuable given the poor state of the UK stock market. Even though a reduction of IPOs and companies’ devaluations are not peculiar to the UK, some fund managers and analysts assign the blame to Brexit. Studies estimate the UK to be 5.5% poorer than if it had stayed in the EU and this is believed to be one of the causes of the City’s inactivity. Firms and investors make decisions looking at economic prospects, which redirect them to the US capital market.
While being an opportunity for London, if the deal succeeds, both parties involved could benefit and way could be paved for China-related firms to secure a welcoming market where they can raise capital without being scrutinized politically. Sino-British relations might improve as a result. Despite them not being as tense as US-China ones, the two countries are not exactly allies. In fact, while Chinese capital is more than appreciated, the Tory party is hawkish towards the Dragon and is discussing limiting the number of Chinese nationals who can enter the country after making claims of Chinese espionage. Although David Cameron’s appointment to Foreign Affairs secretary last November made analysts speculate of a Golden Era 2.0, the political leadership will back up the American stance in this year’s general elections, as policy discussions suggest. However, openness to Chinese firms could turn out to be a pillar onto which to build more amicable terms.
The poor performance of London’s stock exchange is burying most political and ethical concerns. So far, finance is winning over politics with the British government viewing favourably the potential listing and not minding being the second option. Intuitively, receiving false information is acceptable in exchange for a revival of its financial epicentre.