Shen, the Chinese hyper-fashion giant, is in the eye of the European hurricane. The platform that revolutionized the consumption of textiles at ridiculous prices and unprecedented production speed is now facing an unrelenting regulatory front: the European Union is investigating it for deceptive business practices, France temporarily suspended access to its website after a scandal selling sex dolls that look like girls, and Italy fined it €1 million in August for falsifying the environmental impact of its products (a strategy known as… Greenwashing) and distributors from several countries, including the Spanish Retail Association (ARTE), are demanding terms to level the playing field. The model that led it to conquer the European Gen Z wardrobe is now hitting the wall of norms and values with which Brussels is trying to protect its digital economy.
Shein doesn’t design clothes, but consumption patterns. The key to its business is data: its powerful algorithm is able to predict trends in dozens of markets in real-time based on user behavior, allowing stock supply to be adjusted according to demand within seconds. This hardware, which combines artificial intelligence, flexible suppliers and ultra-low prices, has blown up competition around the world.
In 2024, the company, which does not sell products in China and focuses its sales abroad, recorded revenues of $37 billion (about 32 billion euros), according to the latest data published by its parent company, Roadget Business, quoted by Reuters. By 2025, the company expects to achieve net profits of $2,000 million (1,734 million euros), according to sources quoted by Bloomberg, indicating that its profits could almost double compared to $1,100 million last year. In comparison, the sales of its competitor, Inditex, amounted to 38.6 billion euros, and it achieved net profits of 5.9 billion dollars, while the sales of the H&M group amounted to 22 billion, with a profit of one billion dollars.
The number of monthly users of Shein in the EU rose to 146 million in the middle of this year, 16% more than in the middle of last year. Low-cost exports from Shein and other giants such as Temu or Alibaba continue on an upward trajectory. So far this year, they have totaled $20.5 billion (about 17.8 billion euros), nearly five times 2020’s numbers, according to Reuters.
It was founded in 2008 in the Chinese city of Nanjing, and in 2022 it changed its headquarters to Singapore, with the aim of accelerating its international expansion. Its business model takes the idea of high-speed production to the extreme. To do this, it uses a network of small weaving workshops with which it negotiates lower prices in exchange for loyalty and volume of orders.
The Panyu area, in the Chinese city of Guangzhou, the capital of Canton Province, is one of its manufacturing centers, where there are more than 7,200 companies dedicated to clothing and 27,000 others selling clothing, according to official data. Much of it is concentrated in Nancun, an area known as “Shen City” due to the number of companies that supply the Chinese giant, and other similar platforms, such as Teemo.
Shin City is a maze of crowded streets. There are many workshops at street level. Four- and five-story buildings are also full of them. The walls are filled with advertisements for textile companies looking for employees, salary details and fabric orders. They ride transport motorcycles carrying reels of loose fabric. Clothes bags move from one place to another. In the workshops, employees sew, fold and iron the finished items. SheIn logos, bags and parcels are often seen throughout the region.
The owner of one of these stores, Luo Weijun, an immigrant from Jiangxi province, said last spring that he was happy with Chen’s model. It seemed “more human” to him than others like Timo or Amazon, he told El País newspaper during a visit to Baño, while packing branded clothes. According to his testimony, Shen usually avoided competition between equals and entrusted the making of each model to a workshop. On the other hand, other businessmen expressed more reservations, because the profit margins from working with Shein are very small.
People in the area work long hours for very low wages. A 2024 investigation by Swiss organization Public Eye stated that “illegal working hours and piece-rate wages remain a common feature of the daily lives of the workers interviewed.”
In February, Sheen admitted to two cases of child labor among its suppliers when questioned by British MPs, although it claimed to have stopped them immediately. The company was facing questioning from lawmakers at a time when it was considering offering its shares for an IPO in London for 50 billion pounds (about 56,900 euros), a process that did not succeed. Now, the company is considering moving its headquarters from Singapore to China to pave the way for a potential IPO in Hong Kong, according to Bloomberg.
Its business model also depends on the ability to exploit tax and customs loopholes. These loopholes have put it at odds with the United States and the European Union. The so-called exemption minimum This was one of the concerns of US President Donald Trump in his barrage of tariffs. In May, the Republican abolished this exception, which allowed the entry of low-value parcels (less than $800, about 685 euros) without taxes or customs controls, which greatly benefited China, the largest sender of these shipments.
The EU has a similar clause for packages worth less than 150 euros, which Brussels plans to abolish in March 2028 under the current customs reform plan. Some lobby groups, hurt by the growing influx of low-cost Chinese exports, have called on the European Commission to accelerate its plans.
The community executive has also increased surveillance around Shin in recent months. Under the Digital Services Act (DSA), which was approved in 2022 and will come into full force from 2024, the European Union requires large platforms in the digital world to adhere to additional control requirements so that what is offered on their platforms complies with the law. In the case of product sales giants, they are required to ensure that they do not, for example, sell illegal weapons or dolls that incite the sexual exploitation of children.
Since then, Brussels has tightened the blockade. In June 2024, it asked the company to provide more information about the measures it has taken to comply with the DA on issues such as the transparency of its recommendation system or the protection of minors. In February, it returned to the fray, requesting internal documents and more detailed information on issues such as the risks associated with the presence of illegal products and consumer protection. The procedure could lead to the opening of a file and the imposition of fines amounting to one million dollars.
In addition, the Commission is coordinating the investigation into Shein’s possible practices at European level, together with national consumer authorities. Among them are false discounts, pressure sales with false purchase dates and incomplete, incorrect and misleading information. In May, Brussels notified the company that it had found practices in violation of EU law and requested more information. The investigation is ongoing.
The Chinese government is avoiding this issue for now. In response to a journalist’s question about the suspension of Chen’s service in France, Mao Ning, spokesman for the Chinese Ministry of Foreign Affairs, referred Thursday to “the relevant authorities.” He added that the Chinese government requires companies to operate in accordance with laws and regulations and fulfill their corporate responsibilities. “We also hope that relevant parties will respect the principles of the market economy and provide a fair, transparent and non-discriminatory business environment for companies in all countries,” he concluded during a routine appearance.
About The Author
