RPT-BREAKINGVIEWS-Shein is next litmus test for India-China ties

By Shritama Bose

MUMBAI, April 22 (Reuters Breakingviews) - Shein's India plans may be running into a fresh tangle. China's desire to keep manufacturers from moving supply chains outside the country poses a threat to the fast-fashion giant's joint venture with Mukesh Ambani's $200 billion Reliance Industries RELI.NS. The future of the alliance could set the tone for business between the Asian giants as Beijing seeks warmer regional ties to soften the blow from America's trade war.

The Chinese-founded company is renegotiating, and may scale down, its partnership with Reliance's consumer unit because of pressure from Beijing, the Economic Times reported on April 15, citing unnamed sources. A person close to Shein told Breakingviews the tie-up was only intended to be a brand licensing agreement. But four months ago India's commerce minister, Piyush Goyal, hailed the joint venture in parliament as a platform to create a network of local "suppliers who will manufacture products under the brand of Shein and sell them domestically and globally".

The partnership's potential to revamp India's garment supply chains and to help the country level up, export-wise, with Bangladesh and Vietnam was a large part of why New Delhi welcomed Shein back into India. Five years after the country banned its app in 2020 following clashes on the border between Indian and Chinese troops, Reliance launched the Shein India Fast Fashion app in February.

Maximising gains from the alliance is important too for Asia's richest man. Reliance Chair Mukesh Ambani wants to list his consumer business at some point. The country's largest retailer was valued at over $100 billion in 2023 but it is struggling with sales growth, which more than halved year-on-year during the three months to December. Selling goods from its 25,000 suppliers to overseas markets via Shein would help Reliance compete with Walmart-backed WMT.N Myntra and Trent's Zudio, part of the Tata group.

It amounts to a timely test of Chinese President Xi Jinping's desire for a "dragon-elephant tango", a deepening of business ties, which will require both countries to compromise. New Delhi's lingering distrust of China is why the Shein-Reliance joint venture did not include an equity investment from the fashion group and was designed to only pay it a share of the profit if there is any.

The partnership now exemplifies Beijing's challenge to retain its vaunted supply chains while pulling non-U.S. trade partners closer.

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CONTEXT NEWS

Fast fashion retailer Shein is renegotiating its global sourcing partnership with India's Reliance Industries and may scale it down, the Economic Times reported on April 15, citing unnamed people directly aware of the development.

China's Ministry of Commerce has communicated with Shein and other companies to discourage them from diversifying supply chains by sourcing from other countries, Bloomberg reported on April 8, citing an unnamed person familiar with the discussion.