Shein sought to reassure US over China supply chain ahead of IPO


Shein privately sought to convince US politicians and regulators that the fast-fashion group’s products do not contain cotton from China’s Xinjiang region, according to people close to the company, while shying away from doing so in public for fear of angering Beijing.

The company, founded in China in 2008 but now headquartered in Singapore, conducted the lobbying during its abortive push to list in New York, the people said, as it sought to counter accusations that its supply chain was not sufficiently transparent.

Shein this year decided to switch its initial public offering to London, a move that needs to be approved by Chinese authorities because the majority of its staff and manufacturing are in the country.

The disparity between the company’s public and private positions on Xinjiang cotton reflects the fine line it has to tread in meeting western standards on its supply chain while satisfying Beijing’s expectations of corporate patriotism. It also shows the difficulties all fashion groups face in accountability on their sourcing.

One supply chain expert familiar with Shein’s operations said it was “bordering on impossible” to carry out due diligence on Shein’s sourcing of materials. 

The US has banned imports of cotton and other products from Xinjiang citing “horrific abuses” against the region’s mostly Muslim Uyghur people, who civil rights groups say have been used as forced labour in fields and factories — something China categorically denies.

A cotton picker works in a field in Kuqa, Xinjiang
The US has banned imports of cotton and other products from Xinjiang © VCG via Getty Images

Shein privately lobbied US decision makers to reassure them that it has rigorous systems to prevent its suppliers from using Xinjiang cotton, according to the people close to the company.

But its public statements, which include assurances that it has “zero tolerance for forced labour” and requires “our contract manufacturers to only source cotton from approved regions”, have avoided explicit references to Xinjiang.  

Shein declined to comment.

Public silence on the use of Xinjiang cotton and Uyghur labour opened the company to a barrage of criticism in the US, where China hawks including Republican Senator Marco Rubio lobbied the US Securities and Exchange Commission to reject Shein’s IPO application if it did not agree to enhanced disclosures.

Rubio this month urged the UK government to investigate whether the company has used forced labour in its operations after Shein’s shift to a listing in the UK, where it has also faced criticism over the lack of transparency in its supply chain.

Shein’s silence on Xinjiang stands in contrast to rivals such as Zara-owner Inditex, Hennes & Mauritz, Uniqlo and Primark, which have all previously said that they do not have production or source from companies in Xinjiang.

Clothes hanging on a donkey during the opening of Shein’s ‘pop-up’ store in Madrid
Shein is less reliant on cotton than many of its peers, using mainly polyester in its garments © Alejandro Martinez Velez/Europa Press via Getty Images

Publicly ditching Xinjiang cotton can be costly for fashion companies, especially those that count China as a sales engine. Western brands including Nike, Adidas and H&M were hit by a Chinese consumer backlash in 2021 after they pledged not to buy cotton from the region.

Even though Shein does not sell in China, it has to tread carefully since it requires Beijing’s blessing before listing overseas. The FT reported this month that the company’s efforts to distance itself from its Chinese origins had prompted extra scrutiny from Beijing as it reviewed Shein’s application to list overseas.

Meanwhile, experts say it is difficult for any fashion company to rid its supply chain of cotton grown in Xinjiang, especially if it uses Chinese manufacturers.

Lena Staafgard, chief operating officer of sustainability non-profit the Better Cotton Initiative, said that although “the needle is moving” on traceability, eliminating Xinjiang cotton was “challenging” because once the fibre entered the supply chain and was processed by downstream suppliers, it became “very hard” for retailers to identify its origin.

BCI, which has signed up more than 300 retailers and brands including Abercrombie & Fitch, Puma and Ikea, started operating in China, the world’s largest cotton-producing country, in 2012. But in 2020 it said it would suspend activities in Xinjiang as well as licensing of the region’s cotton.

Big names in fashion, including H&M and British designer Stella McCartney, told a UK parliamentary inquiry at the time that they could not guarantee they were not profiting from Uyghur forced labour despite their best efforts to eradicate it from their supply chain. 

Chart showing share of raw materials used (%) by Shein, Inditex and H&M. Shein is less reliant on cotton than other fashion groups

“Given the complexity of global cotton supply chains from farm level, via ginners, to spinners of yarn, fabric production and finally manufacturing, there is today no solution available to fully trace the origin of cotton used in final products,” H&M wrote in a letter to UK MPs in 2020.

Processes such as so-called DNA testing on garments, which breaks down the composition of cotton, can cost up to £2,000 per T-shirt, according to one UK retail executive, although they added that random checks on garments were becoming more common to help audit supply chains.

Even though Shein is less reliant on cotton than H&M, Primark and Inditex, with polyester its most used fabric, experts say its vast network of suppliers makes due diligence more difficult than for its counterparts. 

Shein works with more main suppliers than rivals, a vast network that enables it to upload thousands of new designs daily to its app and bargain down prices. The supply chain expert said groups such as Inditex and H&M placed larger orders with a more consistent set of suppliers.

Shein has more than 5,000 third-party supplier partners for its branded products, compared with 1,729 for Inditex and 574 for H&M, according to the company websites. These third-party suppliers also outsource work to other parties. 

Two supply chain experts said it was becoming more risky to conduct audits on Chinese manufacturers after Beijing introduced a new anti-espionage law last year that companies fear could be used to prosecute people conducting due diligence on sensitive issues such as forced labour.

Over the past year, Shein started working with factories in Brazil and Turkey to bring some production closer to shoppers in the Americas and Europe.

But the bulk of its goods are still made in China, which remains the most efficient place to produce the vast quantities of clothes that sustain its popularity with shoppers, according to one person close to the company.

“China is such a unique environment for manufacturing,” the person said. “If a factory’s sewing machine breaks down in Guangzhou, we can get it fixed the same day.”

Additional reporting by Barney Jopson in Madrid, Silvia Sciorilli Borrelli in Milan, David Keohane in Tokyo and Ryan McMorrow in Beijing

Source link


Please enter your comment!
Please enter your name here