China Urges Shein to Keep Production Local Amid Global Expansion

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China’s central government has quietly warned Shein to avoid shifting its supply chain out of the country. This advisory comes as the fast-fashion brand accelerates its production diversification into countries like Vietnam, India, and Turkey, responding to mounting geopolitical risks and rising US tariffs.

While not publicly confirmed by Beijing, the warning underscores the state’s increasing concern over private sector firms that hold symbolic economic value. Shein, with its low-cost, trend-driven apparel model and massive global reach, represents more than just a successful exporter.

The strategic significance of Shein’s manufacturing base

For nearly a decade, Shein has built its operations around a rapid manufacturing network centered in China, especially in Guangzhou. Its model relies on a decentralized network of small suppliers that allow for fast turnaround and minimal inventory risk.

This production system is deeply embedded in China’s industrial ecosystem, offering both economic stability and job creation. Informally referred to as “Shein villages,” these hubs are home to thousands of workers and small factory owners whose livelihoods are linked to Shein’s contract volumes.

Beijing sees this web of production not only as economically essential but politically valuable.

Shein’s global play: from Singapore HQ to Vietnam factories

Shein’s decision to relocate its headquarters to Singapore in recent years signaled a strategic reorientation. Combined with its efforts to build production bases in Vietnam and Turkey, the company is attempting to reduce its exposure to China-specific risks.

One of the major catalysts has been a 145 percent tariff imposed by the US on Chinese apparel imports, alongside the elimination of the de minimis trade rule, which previously allowed shipments under $800 to enter duty-free. These changes have dramatically altered the cost equation for firms reliant on Chinese exports.

As a result, Shein has been working to incentivize suppliers to open facilities in Southeast Asia. Though the company denies any large-scale shift, factory owners in Guangzhou report a noticeable decline in order volumes.

The domestic impact: China’s “Shein villages” feel the shift

The response from local manufacturers in southern China has been immediate. In Guangzhou, some factory owners say their orders have dropped by as much as 50 percent in the past year. Many of these operations are already on thin profit margins, and the transition is testing their financial resilience.

Shein’s attempt to maintain production in China while opening new channels abroad highlights the tightrope it walks. Even as it seeks efficiencies and risk reduction, the company must avoid drawing too much scrutiny from Beijing.

The company’s silence on these changes is strategic. Any admission of moving production abroad in a significant way could trigger regulatory delays or more pointed interventions from Chinese authorities.

IPO ambitions meet political friction in London

Shein has cleared an initial regulatory step in the UK with the Financial Conduct Authority approving its IPO prospectus. The company aims to list in London at a valuation of roughly £50 billion.

But any IPO by a Chinese-founded company with operations still based in China must pass an additional hurdle. The China Securities Regulatory Commission (CSRC) must also sign off on the listing. This requirement has become increasingly politicized as China seeks to control the outbound flow of capital and maintain influence over companies that began on home soil.

If the CSRC finds that Shein’s foreign expansion threatens national interests or undermines job stability, it could delay or block the listing altogether.

Shein’s situation illustrates the broader dilemma facing many globally minded companies based in China. On one hand, international capital markets reward firms that reduce exposure to Chinese regulatory and geopolitical risk. On the other, Beijing increasingly expects loyalty from companies that owe their success to Chinese labor, infrastructure, and government policies.

Whether Shein can sustain operations in both arenas without alienating either remains to be seen. For now, its ability to quietly move supply chains abroad while appearing domestically committed may define not only its IPO prospects but also its long-term viability.

Sources:

• Reuters