The Chinese fast fashion giant Shein appears to be moving towards London, rather than New York, for its planned stock market listing.
On the face of it, this would be an enormous fillip for London, especially given the soul-searching last year over its attractiveness after a clutch of big UK and Irish companies moved their main stock market listing to New York.
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There will doubtless be some degree of cynicism about Shein’s decision to list in London, rather than New York. It will be suggested, for example, that British regulators – and politicians – are less hawkish on China than their US counterparts and less likely to ask difficult questions about the company’s supply chain.
That Jeremy Hunt, the chancellor, has met with Donald Tang, Shein’s executive chairman, to press the case for London will only add to that sense.
Some may compare it with the way the Financial Conduct Authority launched a consultation on a possible change to the UK’s listing rules, back in 2017, when it was hoped the state-controlled oil giant Saudi Aramco could be persuaded to choose London as the destination for its secondary listing.
On that occasion, though, the FCA faced heavy criticism from the UK’s asset managers and there is little doubt that the same would happen were there to be any sense that Shein was receiving special treatment.
Heavy scrutiny ahead
Shein’s activities, including its supply chain, would also come under heavy scrutiny were it to list in the UK.
A clutch of leading fund managers have reportedly got cold feet over backing a flotation while the UK Sustainable Investment and Finance Association (UKSIF), the membership organisation for sustainable and responsible finance in the UK, told the Mail on Sunday last month it did not want London to become a “listing place of last resort for companies with poor human rights records”.
For its part, Shein is taking seriously the concerns of UK politicians and regulators. As Sky’s Mark Kleinman has reported, as well as the chancellor, Mr Tang has met a number of frontbench Labour politicians including Jonathan Reynolds, the shadow business secretary, in recent months.
Tough on Chinese business?
And anyone who thinks the UK is a soft touch for Chinese businesses should ask Huawei, the telecoms equipment maker barred from the UK’s 5G roll-out, what it thinks of that.
There is little doubt, however, that London would be a more hospitable listing environment for Shein than New York.
That is largely a reflection of the fact that the US is now a positively hostile environment for Chinese companies.
As long ago as May 2020, US Congress passed a law – written by both Republican and Democrat senators – that gave the Securities & Exchange Commission (SEC), the top US financial regulator, the power to delist Chinese companies from US exchanges if American regulators were not allowed to review the audits of such companies for three consecutive years.
China eventually, two years later, sought an accommodation with the law.
By then, though, there had been another painful episode which poisoned the minds of US investors towards Chinese businesses.
In July 2021, Wall Street had rolled out the red carpet for Didi Global, a ride-hailing app often described as a Chinese version of Uber, in the biggest initial public offering of a Chinese company in the US since Alibaba seven years earlier.
Just days later, China launched a crackdown on its tech sector, sparking a slump in the shares of Chinese tech companies.
Most of the damage was done on the Shanghai and Hong Kong stock exchanges but, in New York, shares of Didi Global fell to 42% below the price at the company’s IPO. Didi Global delisted from the New York Stock Exchange the following June.
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Wary of New York
With that back-story, it is understandable why Shein – whose annual profits in 2023 more than doubled to more than $2bn – should be wary of listing in New York.
The Biden administration has been no less hawkish on China than the Trump administration before it – as shown by the president’s recent threat to ban TikTok in the US unless its Chinese parent, ByteDance, sells the business within a year.
Mr Tang, an American citizen who last year moved from Los Angeles to Washington in order to lobby more effectively for Shein, will also know that listing in New York could well incur the displeasure of the authorities in Beijing.
The US has banned imports from the province of Xinjiang, where the authorities have been accused of repressing the Uyghur ethnic group and using forced labour, which China denies.
More transparency?
But a US listing could force Shein to provide details on its supply chain and, in particular, produce evidence that it is not using cotton from Xinjiang – something which, if disclosed publicly, would not find favour with Beijing.
Not that London would necessarily be any less demanding in terms of disclosures sought from Shein. The company already publishes, in accordance with the UK’s Modern Slavery Act, a modern slavery statement on its UK website setting out its expectations of labour practices among its suppliers and manufacturers.
But UK 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.
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Why London is more attractive
There are, however, some very positive reasons why a London listing would be more attractive for Shein than New York.
Europe is already home to the world’s two biggest listed fashion retailers – Inditex, the Madrid-listed parent of Zara, which is valued at €135bn (£115bn) and H&M, listed in Stockholm, which has a market valuation of SKr263bn (£20bn), both of which are the types of company that Shein would regard as a peer.
As Europe’s biggest stock market, the UK would under those circumstances be an obvious listing destination for Shein. London is also home to two online fashion retailers – Asos, valued at £445m and Boohoo, valued at £444m – whose business models are similar to those of Shein. The Chinese company could therefore list in London in the knowledge that the analyst community have a reasonable understanding of businesses like its own.
Worth the risk?
Perhaps the bigger question, given the questions that refuse to go away about Shein’s business practices, is whether playing host to the company is worth the risk to London.
Other European countries would also love to see Shein list on their market.
Paris, despite France recently unveiling legislation to punish purveyors of throwaway fashion, has lobbied for Shein to list there.
That is another reason why Mr Hunt clearly thinks a Shein IPO here is a prize worth chasing.
At the end of the day, though, it will be the UK’s asset managers which will make that judgement.
