A reported cybersecurity probe from the Cyberspace Administration of China (CAC) is the latest in a series of hitches faced by Singapore-based fast fashion company Shein as it prepares to file for an Independent Public Offering (IPO) in the United States.

The CAC has launched an investigation into how Shein stores and uses information it holds on partners in China, according to the Wall Street Journal. This likely follows Shein’s filing with the China Securities Regulatory Commission, a body that regulates Chinese companies’ overseas filings. Despite not selling in China, the company was founded in the country before moving its headquarters to Singapore and retains close ties with its clothing suppliers.

Shein had not responded to a request for comment at time of publication.

Senior GlobalData analyst Malcolm Rodgers told Just Style the investigation in and of itself is not cause for concern.

“I do not think it’s unusual for the Chinese government to increase scrutiny on a company as it seeks to undergo an IPO, especially listing on a US exchange,” he explained. “The cyberspace administration has a broad scope of oversight as the Cybersecurity Law of China (CSL) interprets almost any company with an online presence as beholden to the legislation.”

The risk of failure for Shein following cybersecurity probe

The analyst explained the problem for Shein is that the law is vague: “The CSL is one of a trio of laws […] that the government uses to regulate online spaces and businesses, While the actual letter of these laws are not particularly long, their interpretation by the regulator can be tricky.

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“One example of a well-known and successful Chinese company with international presence running afoul of the regulator is ride-hailing app DiDi (China’s version of Uber). In July 2022 it was assessed a $1.2bn fine by the regulator for violation of CSL, DSL and PIPL. Violations cited included very specific things like the improper collection of user data like familial relationships and facial recognition data that was beyond the scope necessary for the operations of the business, as well as more vague violations such as undergoing operations that ‘seriously affect national security’.”

DiDi had already listed on the New York Stock Exchange (NYSE) when the probe hit, but was forced to leave the market within a year with a share price 80% lower than when it opened.

Shein is aiming to raise over 15 times the $4.4bn valuation of DiDi, according to Bloomberg and the US is by far its largest market.

According to GlobalData’s Value Apparel Market Size, Share And Trend Analysis By Region And Category Performance, Top Brands And Forecast To 2027 report, the company is the global market leader in the value fashion market, and a failed integration into the US stock market could see it fall from this position.

If it is decided Shein is misusing Chinese data, there is a risk the CAC could delay its IPO, or potentially ban it altogether, but as Shein has a large supplier presence in China staying on the right side of its laws is equally vital to its success.