EU takes on e-commerce giant Shein

On February 17, the European Commission (EC) launched a formal investigation into Shein, the world’s third biggest e-commerce platform. Last year Europe accounted for about half its global sales of US40 billion.

EC is using its Digital Services Act (DSA), which took effect in late 2023. It said the investigation centres on three issues – the sale of illegal products on Shein’s platform, the use of addictive design techniques to keep users engaged and a lack of transparency on how it recommends products to consumers.

“The DSA keeps shoppers safe, protects their wellbeing and empowers them with information about the algorithms they are interacting with,” said Henna Virkunnen, executive vice-president of tech sovereignty, security and democracy in the EC. “We will assess whether Shein is respecting these rules and their responsibility,” she said.

Shein faces strong opposition in Europe, especially in France. In November last year, it opened its first permanent store in Paris inside the historic BHV, one of the city’s most iconic department stores.

More than 120,000 people signed an online petition against the opening. It was also opposed by child-protection and environmental groups. Dozens of protestors gathered at the store.

One carried a photograph saying “No Style is Worth Slavery” with an image of workers in a detention centre in Xinjiang watched over by a guard.

That same month, several French ministers went to Charles de Gaulle airport outside Paris to inspect packages sent by Shein. About 300,000 packages were searched, with a quarter found to violate French or EU standards. Consumer groups said that Shein was selling sex dolls and weapons on its platform. “Protect children, not Shein,” said a poster held by one protestor at its news Paris store.

Last November, France urged the EU executive to crack down on sales of child-like sex dolls on Shein’s platform. Following this, it stopped the sale of all sex dolls worldwide.

Founded in 2008 by Xu Yangtian, Shein offers consumers direct contact with 7,000 contract manufacturers, cutting out middlemen and keeping costs down and lead times low.

According to the International Post Corportation, Shein last year accounted for nine per cent of global cross-border e-commerce, third after Amazon and Temu, each about 25 per cent.

It plans an IPO this year in Hong Kong, to raise about US$30 billion. It abandoned plans to list in New York and London because of regulatory and other issues. It believes investors here understand better its business model.

Driving the anger in Europe is the fear that domestic manufacturers and retailers, especially small family-owned shops, cannot compete with Shein’s rock-bottom prices and will be forced to close.

“Illegal products often flood directly from China via Shein into the internal market and right to their doorsteps,” said Anna Cavazzini, a Green member of the European parliament and chair of its internal market committee. In January, the members grilled senior officials of Shein.

This is part of the fear of a “Chinese invasion” of Europe which is targeting its manufacturing base.

In response, Shein said: “we take our obligations under the DSA seriously and have always co-operated fully with the European Commission. We have accelerated the rollout of new safeguards around age-restricted products. Protecting minors and reducing the risk of harmful content and behaviours are central to how we develop and operate our platform.”

It added: “We have invested signicantly in measures to strengthen compliance with the DSA, including conducting systemic-risk assessments and mitigation frameworks, and enhancing protection for younger users.

“We accelerated the rollout of additional safeguards around age-restricted products, including age-verification measures to prevent minors from viewing or purchasing age-restricted content or products.”

The EC investigation will look at addictive design and user wellbeing, including features that encourage excessive engagement, such as reward system that offers points or incentive. It will also assess whether Shein has adequate systems in place to prevent the sale of products the EU considers illegal, including child sexual abuse material.

The third issue is how Shein recommends products and content to users. EU rules state that platforms must clearly explain the main parametres behind their recommender systems and offer at least one option that is not based on profiting.