It is “not unusual” for UK-listed companies to carry legal risks around the world, Nikhil Rathi, the chief executive of the Financial Conduct Authority, told the FT last month. The boss of the regulatory body that ultimately decides which companies can list their shares in London added: “What’s important is that they disclose it, the investors understand it and they can price that risk.”
Rathi’s remarks were inevitably read as aimed at Shein, the Chinese-founded but Singapore-headquartered fast-fashion retailer whose possible listing in London has been a running story since the company filed preliminary paperwork seven months ago.
That interpretation looked correct. Whereas US lawmakers bombarded Shein with hostile questions about its supply-chain practices in China to the point where the company abandoned hope of listing in New York, the early reception in the UK has been constructive. Labour ministers, desperate to give the London stock market a shot in the arm, have sounded positive. And here was the FCA merely stressing the need for relevant disclosures to allow investors to make up their own minds.
So, did Shein seize the opportunity when sending a representative to the Commons business and trade select committee this week to directly address allegations that it uses cotton produced in the Xinjiang region of China, which has been linked to Uyghur forced labour?
Not a bit of it. It sent the general counsel for its European division, Yinan Zhu, who was clearly under instructions not to utter a word that could be interpreted as unpatriotic by any hypersensitive Chinese official tuning in from Beijing.
Proceedings were farcical from the off. “Do you source cotton from China?” asked the committee’s chair, Liam Byrne, which was a gentle opener since he was referring only to China as a whole rather than Xinjiang. And, given that Shein’s biggest manufacturing base by far is in China, the question cannot have been unexpected.
But Zhu wouldn’t engage, pleading that such “detailed operational information” was beyond her remit. The most the committee could extract was an offer of a written reply at a later date. “The reluctance to answer basic questions has frankly bordered on contempt of the committee,” concluded Byrne, not unreasonably.
It is conceivable, of course, that Shein’s supply chain is clean, or as clean as those of any China-dependent retailer. Zhu obviously wouldn’t say Xinjiang cotton is banned, but the company has signed relevant statements of compliance to modern slavery acts in the US, UK and elsewhere. A generous interpretation would say that Shein is just terrified of uttering the word “Xinjiang” in case it enrages Chinese authorities, which regularly issue dire threats against western brands that say they boycott cotton from the region.
But, come on, this approach to communication won’t wash. Shein is supposedly seeking a valuation of £50bn, which would get it into the FTSE 100 index and indirectly into the pension pots of millions of savers. At some point, you have to be able to give straight answers to fair questions, as opposed to cooking up a bland form of words with the FCA in private for the purposes of a flotation prospectus.
There are other reasons to be sceptical about a Shein IPO. The mooted valuation looks extreme for a business that barely talks about its financial performance. There is also the risk that the UK and EU rewrite rules that allow parcels worth less than £135 or €150 to avoid custom duty. But the main factor is the one demonstrated at Tuesday’s select committee meeting: why would anybody want to pay a premium price for a company that is so obviously fearful the Chinese government will wreck its business if it says a word out of line? The London IPO market is not in good shape, but Shein still doesn’t look like a solution.
