Shein Fails to Shine

Ichiro Suzuki

On September 1, on-line fast fashion retailer Shein became a public company listed in the Hong Kong Stock Exchange, raising HK$13.6 billion (US$1.74 billion). Its market capitalization was 26 billion U.S. dollars on Day 1, way down from a hundred billion dollars plus that the company hoped to have a few years ago. On top of value of the company received from the market, listing in Hong Kong was a big disappointment and compromise for founder and CEO Chris Xu. Born in China in 1984, Xu later became Singapore permanent resident with US citizenship. He started the business in China in 2008 as a wedding apparel venture before shifting to fast fashion and renaming his company. In line with his background, Xu made great efforts in making Shein look remotely associated with the country of his birth. The majority of Shein’s sales comes from North America and Europe. Very little sales are made in China, and hence few people in the mainland know the company. With the company‘s heavy exposure to Western consumers, Xu wished to have his company listed in New York or London, but was turned down by both exchanges and had to settle with Hong Kong despite Xu’s wish to hide the company’s Chinese origin.

Out of Xu’s desire to keep distance from China, Shien is headquartered in Singapore, not in Nanjing, PRC where the company was founded. The media calls such a disguising effort ‘Singapore-washing’. Regardless of where it is legally based, the company is deeply rooted in China with its supply chain and manufacturing facilities deployed in the mainland China. In fact, its state-of-the-art supply chain management is one of the factors that made Shein competitive. Shein’s platform launches hundreds of new style every day to catch micro trends instantly. It starts by making 100 to 200 items per design to test if people want to buy it. Then it takes about only 25 days to go from a new design idea to finished products on the website. Most items costs ten dollars or euros on average, making it affordable to tight budget consumers. Low prices also allow consumers to try styles that look risky.

On top of manufacturing efficiency, Shein systematically exploited a global trade provision known as the “de minimis exemption” to build its ultra fast fashion empire. By shipping millions of small orders directly from overseas warehouses, as opposed to the heavily-taxed ones in North America and Europe, to individual consumers rather than importing goods in bulk, Shein weaponized this loophole to gain massive cost and operational advantages over traditional retailers. Under the de minimis rule (historically Section 321 of the U.S. Tariff Act), individual packages valued below a certain threshold - $800 in the U.S. and €150 in the EU and varying anoints elsewhere - were allowed to enter the country completely duty-free and tax-free. Traditional retailers like Gap and H&M import clothing in massive bulk containers, paying millions of dollars annually in import tariffs. Because Shien structured its deliveries as direct-to-consumer “micro parcels”, virtually every single package fell under this threshold. This allowed Shein to pay $0 in import duties, passing those massive savings to consumers in rock-bottom retail prices. Once past customs via the de minimis exemption, domestic logistics partners scanned the packages and handed them directly to local mail carriers, creating the illusion of a domestic delivery while operating entirely from abroad. 

Because millions of individual small packages flooded domestic ports daily, customs agencies simply lacked the manpower to inspect them. Shein used this ‘informal entry’ status to bypass forced-labor reviews, specifically circumventing the U.S. Uyghur Forced Labor Prevention Act (UFLPA). It also allowed them to slip past consumer safety, health and environmental standards that domestic businesses are strictly forced to comply with, though Shein vehemently denied allegations concerning forced labor and environmental practices. Shein’s strategic use of trade provisions - most notably the deminimis customers loophole - is highly typical of the modern wave of cross-border Chinese e-commerce companies. Ali Express (Alibaba) and TikTok Shop all adopted identical logistics to bypass traditional import tariffs and underprice Western retailers. At one point, Shein and Temu alone accounted for more than 30% of all the de minimis shipments entering the U.S.

A series of developments surrounding Shein has made it clear that loopholes do not last indefinitely. Governments moved aggressively to close the loopholes. The U.S. government completely axed the de minimis exemption for goods originating from China and Hong Kong. In the EU, regulators advanced plans to completely abolish the €150 low-value tax exemption to stop market distortion, protect local retailers and collect lost government revenues. 

It is perfectly legal to exploit loopholes and almost everyone does it. When Chinese titans do it, however, it become too visible to keep Western regulators’ silence on their activities. Recognizing the enormous cost advantages, a number of American and European brands also shifted their logistics and infrastructure to exploit the de minimis exemptions, but it was Chinese titans that raised the regulators’ eyebrows. While Shein played the loopholes brilliantly, the company made a strategic error by making loophole exploitation too central a part of its business model. 

Under a new, tightened regulatory regime, Shein is fighting an uphill battle. The company is shifting away from direct factory air-shipping toward local warehouse models that require paying duties and taxes. Without cost advantages, revenue growth slowed to 8% in 2025 and mere 1.1% in early 2026. Shein posted a net loss of $99 million for the first quarter of 2026, dropping sharply from $395 million net profit the year before. Ten days after becoming a public company, Shein traded 15% below the IPO price of HK$48.56 to be one of the worst major IPOs in Hong Kong. Shein should be able to survive, but its future is vastly different from what Xu envisioned a few years ago. 

About the author: Mr. Suzki is a retired banker based in Tokyo, Japan.