Chinese fast-fashion giant Shein appears to be moving to London instead of New York for its planned stock exchange listing.
On the face of it, this would be a huge boost for London, especially given last year’s search for its attractiveness following a string of major British and Irish companies. moved their main stock exchange listing to New York.
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There will undoubtedly be a certain amount of cynicism about it Shein’s decision to be on the list in London, instead of New York. For example, it will be suggested that British regulators – and politicians – are less aggressive towards China than their US counterparts and less likely to ask tough questions about the company’s supply chain.
That Jeremy Huntthe chancellor, has met with Donald Tang, Shein’s executive chairman, to press the case for London, which will only reinforce that feeling.
Some may compare it to the way the Financial Conduct Authority launched a consultation on a possible change to UK listing rules in 2017, when it hoped state-controlled oil giant Saudi Aramco could be convinced to choose London as the destination for its secondary mention.
On that occasion, however, the FCA faced heavy criticism of the UK asset managers and there is little doubt that the same would happen if there were any feeling that Shein was receiving special treatment.
Heavy research ahead
Shein’s operations, including its supply chain, would also come under heavy scrutiny if the company were to be included on the UK list.
A group of leading fund managers have reportedly developed cold feet in backing an initial public offering, with the UK Sustainable Investment and Finance Association (UKSIF), the membership body for sustainable and responsible finance in Britain, telling the Mail on Sunday last month that she did not want London to become a ‘last resort’ for companies with a poor human rights record.
In turn, Shein takes the concerns of British politicians and regulators seriously. As Sky’s Mark Kleinman has reported, as well as the Chancellor, Mr Tang has met a number of frontbench officials Work politicians, including Jonathan Reynolds, the shadow business secretary, in recent months.
Tough on Chinese business?
And anyone who thinks Britain is soft on Chinese companies should ask telecoms equipment maker Huawei excluded from the 5G rollout in Britainwhat it thinks about that.
However, there is little doubt that London would be a more hospitable trading environment for Shein than New York.
That’s largely a reflection of the fact that the US is now a positively hostile environment for Chinese companies.
Back in May 2020, the US Congress passed a law – written by both Republican and Democratic senators – that gave the Securities & Exchange Commission (SEC), the top US financial regulator, the power to delist Chinese companies from US stock exchanges as US regulators were not allowed to review the audits of such companies for three consecutive years.
China finally, two years later, was looking for a place to stay with the law.
By then, however, another painful episode had occurred that poisoned the minds of American investors toward Chinese companies.
In July 2021, Wall Street had rolled out the red carpet for Didi Global, a taxi app often described as a Chinese version of Uber, in the largest IPO of a Chinese company in the US since Alibaba seven years earlier.
Just days later, China launched one crackdown on the technology sectorleading to a slump in the shares of Chinese technology companies.
Most of the damage was done on the Shanghai and Hong Kong stock exchanges, but in New York, Didi Global’s shares fell as much as 42% below the company’s initial public offering price. Didi Global was delisted from the New York Stock Exchange in June.
Be wary of New York
With that backstory, it’s understandable why Shein — whose annual profits will more than double to more than $2 billion by 2023 — should be wary of a New York stock exchange listing.
The Biden administration has been no less aggressive toward China than the Trump administration before it — as evidenced by the president’s recent threat to ban TikTok in the US unless its Chinese parent company, ByteDance, sells the company within a year.
Mr Tang, a US citizen who moved from Los Angeles to Washington last year to lobby more effectively for Shein, will also know that a New York listing could well displease authorities in Beijing.
The US has banned imports from Xinjiang province, where authorities have been accused of oppressing the country Uyghur ethnic group and the use of forced labor, which China denies.
More transparency?
But a US listing could force Shein to provide details of its supply chain and, in particular, evidence that it does not use cotton from Xinjiang – something that, if made public, would not sit well with Beijing.
Not that London would necessarily be any less demanding in terms of revelations required of Shein. The company, in accordance with the UK Modern Slavery Act, already publishes a modern slavery statement on its UK website, setting out expectations for the labor practices of its suppliers and manufacturers.
But British politicians want more than that.
Three select committee chairs – Liam Byrne of the Business Committee, Alicia Kearns of the Foreign Affairs Committee and Sarah Champion of the International Development Committee – have said the IPO should not go ahead while parliament is dissolved.
Why London is more attractive
However, there are some very positive reasons why a London listing would be more attractive for Shein than in New York.
Europe is already home to the two largest listed fashion retailers in the world: Inditex, the Madrid-listed parent company of Zara, with a value of EUR 135 billion, and H&M, listed in Stockholm, with a market value of SKr 263 billion. ), both the kinds of companies that Shein would consider equivalent.
As Europe’s largest stock market, Britain would be an obvious listing destination for Shein in those circumstances. London is also home to two online fashion retailers – Asos, worth £445m and Boohoo, worth £444m – whose business models are similar to Shein. The Chinese company could therefore list in London knowing that the analyst community has a reasonable understanding of companies like its own.
Worth the risk?
Perhaps the bigger question, given questions about Shein’s business practices that just won’t go away, is whether hosting the company is worth the risk for London.
Other European countries would also like to see the Shein list in their markets.
Despite France recently unveiling legislation to punish purveyors of disposable fashion, Paris has lobbied to include Shein there.
That’s another reason why Mr. Hunt clearly thinks a Shein IPO here is a prize worth chasing.
But ultimately it will be the British asset managers who will make that judgement.