Chinese authorities have urged Shein to halt its plans to diversify its supply chain by moving some production outside of China, people familiar with the matter say.

The Ministry of Commerce reportedly contacted Shein and other companies to discourage sourcing from other countries. This came just before former US President Donald Trump announced new “reciprocal tariffs.”

In response, Shein has postponed planned supplier visits to factories in Vietnam and other Southeast Asian countries.

Neither Shein nor the ministry has commented.

This development comes as China’s role as a global manufacturing hub is being challenged. Starting May 2, tariff exemptions for small parcels from China will end, raising costs for companies like Shein and Temu.

🔗 Source: Bloomberg

🧠 Food for thought

A. Fast fashion’s precarious supply chain model faces unprecedented test

Shein’s business model has been uniquely dependent on China’s manufacturing ecosystem and the “de minimis” loophole that allowed small parcels to enter the U.S. duty-free.

The company built its $66 billion valuation by leveraging southern China’s vast garment manufacturing network to produce ultra-cheap clothing with extraordinary speed, offering $2 blouses and $10 shirts that ship directly to U.S. consumers1.

Historical data shows that the U.S. imports over 98% of its clothing, making the fashion industry particularly vulnerable to tariff increases. Shein exemplifies this dependency through its just-in-time manufacturing model developed in Nanjing2.

With the de minimis exemption expiring May 2nd and tariffs on Chinese goods reaching 54%, Shein faces a fundamental challenge to its entire business architecture that goes beyond simple cost increases1.

The company’s historical growth strategy relied on Chris Xu’s implementation of a technologically advanced supply chain aligning production with real-time market demand—a system deeply embedded in China’s manufacturing infrastructure3.

Similar supply chain disruptions have previously impacted other fast fashion players, as evidenced by H&M’s struggles with offshore manufacturing and long lead times that contributed to $4.3 billion in unsold inventory in 20184.

B. China-U.S. tariff battle reveals shifting government priorities across trade wars

Beijing’s intervention to halt Shein’s supply chain diversification marks a significant policy shift compared to China’s approach during Trump’s first term tariffs.

Recent Shein developments