Sen Marco Rubio (R-Fla.) is calling on the chairman of the Securities and Exchange Commission (SEC) to require China-backed company Shein to make comprehensive disclosures about the nature of its business operation and “the risks of doing business” in China. The senator urged the SEC’s head to block the company’s public listing in New York if the fashion firm fails to do so to protect U.S. investors.
In a letter dated Feb. 15 to SEC Chairman Gary Gensler, Mr. Rubio raised concerns over Shein’s recent approach to Chinese regulators asking for its initial public offering (IPO) approval.
“Shein’s collaboration with Chinese regulators raises serious doubts that its IPO filings are complete and accurate,” Mr. Rubio wrote. “Those very regulators order Chinese companies to deceive U.S. authorities and investors about the risks of doing business in the PRC [People’s Republic of China].”
Shein is a fast-fashion online retailer that directly ships products to customers at significantly low prices. It relies on thousands of suppliers in the textile hub of Guangdong province, China. The company became the world’s largest fashion retailer with an IPO valued at around $60 billion in 2022.
The letter comes as more scrutiny has intensified over the online fashion retailer’s questionable business operations in recent years. Last year, a bipartisan group of lawmakers also sent a letter to the SEC to urge the securities agency to audit the China-backed company over alleged use of Uyghur forced labor in the making of its products.
In the letter, Mr. Rubio noted that Shein presents itself as a “global” company with headquarters in Singapore, but, in fact, it was founded and has “a massive network of factories” in China.
Mr. Rubio also raised concerns about new regulations from China’s securities watchdog, the China Securities Regulatory Commission (CSRC). These rules enable Beijing to scrutinize offshore listings and prevent offerings that might jeopardize the regime’s national interests.
The regulations prohibit Chinese companies seeking IPOs abroad from making statements regarding shortcomings and problems of the Chinese economy, business environment, as well as Beijing policies, among other restrictions. In May 2023, Beijing also asked law firms to downplay Chinese-related risks in IPO documents for offshore IPO documents, according to Reuters.
A 2022 Bloomberg report said Shein allegedly used cotton from forced labor in the Xinjiang region. The United States banned cotton importation from Xinjiang for “horrific abuses” against the Uyghur.
Trade Loopholes Exploitation
The key to Shein’s success is a little-known trade exemption known as the de minimis rule, according to some politicians and analysts. This U.S. trade exemption allows the online retailer to ship small packages worth $800 or less directly to shoppers without paying tariffs. The exemption allows websites selling cheap Chinese goods to evade millions of dollars in taxes and fees, as well as regulations banning forced labor in the consumer product supply chain.In the letter, Mr. Rubio also requests the SEC’s head to include an acknowledgment that Shein’s business “relies on exploiting de minimis entry.”
Mr. Rubio sponsors proposed legislation that would ban Chinese manufacturers from using the exemption.
Last year, Rep. Mike Gallagher (R-Wis.), chairman of the U.S. House Select Committee on the Chinese Communist Party, and Rep. James Comer (R-Ky.), chairman of the House Committee on Oversight and Accountability, requested U.S. Postmaster General Louis DeJoy for “documents, information and data” related to e-commerce shipments of goods from China to the United States.
