Fast fashion giant Shein is facing a cybersecurity probe from the Cyberspace Administration of China as it seeks to go public with a US IPO.
The Cyberspace Administration of China is reviewing Shein’s supply chain presence in the country, where the bulk of its manufacturers and suppliers are located.
The review focuses on how Shein handles information about its employees, partners and suppliers in the region, The Wall Street Journal reported. The CAC is also examining whether Shein can ensure that data doesn’t get leaked overseas, according to the Journal.
The review poses several issues for Shein, as it takes steps toward an IPO after it confidentially filed to go public in the U.S. in November, CNBC previously reported.
For one, it squarely positions Shein as a Chinese company — at least in the eyes of China — at a time when relations between Washington, D.C., and Beijing are increasingly strained. Shein has worked hard to present itself as a global company that was merely founded in China, as lawmakers from both sides of the aisle have expressed concerns about its ties to the region.
If Shein wasn’t a Chinese company, the retailer wouldn’t necessarily need Beijing’s permission to go public.
U.S. regulators are increasingly concerned about Chinese companies doing business in the U.S., and want to ensure sensitive data on American customers doesn’t end up in the Chinese government’s hands.
Beijing also has similar concerns. Shein will not only have to win over U.S. regulators, but it will also have to secure China’s blessing.
In 2021, Beijing launched a similar security review of ride-hailing giant DiDi Global just days after it went public on the New York Stock Exchange and raised some $4.4 billion. Within a year, the company was delisted and shareholder value was wiped out.
Following DiDi’s downfall, all Chinese companies seeking an overseas IPO are now subject to a security review and government approval in China. If the reviews turn up information that doesn’t sit well with Chinese regulators, they could squash the deal.