Shein seen boosting Indian manufacturing as U.S.-China trade war shakes up supply chains

Fast fashion giant Shein is reportedly set to boost its manufacturing in India with a view to bolstering its international supply chains amid the ongoing U.S.-China trade war.

The Chinese-founded, Singapore-headquartered brand and Indian partner Reliance Retail are set to expand their supplier base in the South Asian country and begin international sales of India-made Shein clothes within the next six to 12 months, Reuters reported Monday, citing sources.

The plans aim to increase Indian suppliers from 150 to 1,000 within a year, they added.

Shein told CNBC the partnership was limited to the licensing of its brand to Reliance Retail for Indian domestic consumption only. Reliance did not immediately respond to a request for comment.

According to the sources, discussions between the firms were underway ahead of fresh U.S. tariffs on China and the closure of the former's 'de minimis' trade loophole.

Analysts nevertheless dubbed it a potentially savvy move given brewing trade tensions and increased scrutiny over Shein's supply chains ahead of its closely watched initial public offering.

''Shein's expansion of its production in India is on the face of it a shrewd move, given the trade headwinds facing the company," Susannah Streeter, head of money and markets at Hargreaves Lansdown, told CNBC via email.

"It does look like using India as a manufacturing base is a long-term plan and the current tariff challenges could speed this up," Ed Sander, analyst at Tech Buzz China, added.

Shein launched in India in 2018 but it was banned in 2020 as part of a government clampdown on Chinese firms.

It returned to India in February, as part of a licensing deal with Reliance Industries, the conglomerate owned by Asia's richest person, Mukesh Ambani. The partnership is one of many Reliance has with global clothing brands including Brooks Brothers, Marks & Spencer and Diesel.

Under the deal, Shein-branded clothes are produced domestically in India and sold on the SheinIndia.in website. This differs from most other Shein websites, which list products made in China. The firm nevertheless has existing manufacturing in Brazil and Turkey.

An official from Reliance Retail said at the time that Shein would use India as "supply source for its global operations," according to the BBC. They added that the deal would simultaneously help Reliance in "building the network" and training Indian garment manufacturers as part of India's wider plans to promote its textile and garments export industry.

"I doubt if the option of exporting elsewhere from India will be the main aim at the moment," Sander said, noting current limitations around India's factory capacity. "Having said that, this could change in the future if Reliance scales up."

It comes as other companies have also been ramping up their production in India as they seek to avoid the most punitive tariffs on China. Tariffs on India are currently held at 10% while trade negotiations remain underway.

"With the outcome of U.S. China trade talks still unclear, diversifying the manufacturing base to other parts of the world which could benefit from lower tariffs on exports to the U.S. looks sensible," Streeter said in emailed comments.

U.S. tech giant Apple has also been boosting its production in India with a view to making around 25% of global iPhones in the country in the coming years. Those plans sparked backlash from U.S. President Donald Trump, who threatened to impose 25% tariffs on such goods.

The timing is especially interesting for Shein, however, as it seeks to overcome scrutiny in its troubled pursuit of an IPO. The e-commerce behemoth reportedly recently shifted its listing from London to Hong Kong after failing to receive approval from Chinese regulators.

Shein has long sought to shake allegations over the use of forced labor to produce its low-cost goods — claims it vehemently denies. Still, some raised concerns about whether India would provide the silver bullet.

"India is not without risk in this respect. There have been reports of labor violations amounting to forced and child labor occurring on cotton farms supplying to three Indian textile suppliers to 60 multinational clothing brands," Streeter said.

"Among responsible consumers and investors, there still may be significant skepticism about this move.''

A spokesperson for the Indian government did not immediately respond to CNBC's request for comment on the claims.