The battle between two of China’s largest e-commerce firms is heating up, as they take the cutthroat tactics that have long been around in the country to the international markets they both covet.
Chinese e-commerce deals giant Pinduoduo’s affiliate, Temu, which is aggressively expanding overseas, recently filed a court document in the U.S. accusing fast fashion giant Shein of anti-competitive practices. Specifically, Temu claims that Shein has been “forcing exclusive dealing arrangements on clothing manufacturers.”
“For a long time, we have exercised significant restraint and refrained from pursuing legal actions. However, Shein’s escalating attacks leave us no choice but to take legal measures to defend our rights and the rights of those merchants doing business on Temu, as well as the consumers’ rights to a wide variety of affordable products,” a Temu spokesperson said in a statement to TechCrunch.
“Our legal measures aim to bring the other party back to the rule-based fair competition, which will benefit all participants in the ecosystem, including consumers, suppliers, and service providers.”
In response to Temu’s accusations, Shein said it “believe[s] this lawsuit is without merit and we will vigorously defend ourselves.”
From China to the world
Temu’s allegation against Shein is reminiscent of Alibaba’s infamous “choosing one from two” policy, where vendors were asked to sell exclusively on Alibaba’s platforms and skip its archrival, Pinduoduo. As part of its sweeping crackdown on the tech industry, the Chinese government launched a probe into Alibaba in late 2020 over its monopolistic practices.
Since then, China has proposed an anti-monopoly law to rein in the power of its consumer internet giants. The question is whether China will take action on the ongoing battle between Shein and Temu, neither of which sells products directly in China.
Shein’s holding company is domiciled in Singapore, though it has a significant operational footprint and sources mainly from manufacturers in China. In an effort to ramp up global expansion, the entity behind Temu and Pinduoduo recently made Dublin its base.
A closer look at what Shein and Temu are fighting over — clothing manufacturers — reveals an interesting detail. Besides price control, why would Shein keep such a tight grip on its apparel suppliers, given the abundance of resources in China? A post on Xiaohongshu, China’s lifestyle and experience sharing community, offers a clue.
The author of the post, who appears to be a Temu seller, claims that her jeans factory is having trouble procuring cotton that’s not produced in Xinjiang, the major source of cotton in China. For context, the U.S. fashion industry now must wean itself off Xinjiang cotton after a law came into force in 2021, giving U.S. border authorities greater powers to block goods linked to alleged forced labor in China.
The exclusivity requirement isn’t only about cotton. As of May, Shein has required all of the approximately 8,338 manufacturers supplying or selling on its platform to sign exclusive-dealing agreements, preventing them from selling on Temu or supplying products to Temu sellers, according to Temu’s filing.
These approximately 8,338 manufacturers represent 70-80% of the total number of merchants capable of supplying ultra-fast fashion, Temu claims.
The legal dispute between Shein and Temu is not one-sided. Back in March, Shein made accusations that Temu “willfully and flagrantly infringed Shein’s exclusive and valuable trademark and copyright rights,” and engaged in a scheme to boost its own growth in the U.S. by “impersonating [the] Shein brand on social media, trading off of the well-known Shein trademarks, and using copyrighted images owned by Roadget as part of [its own] product listings.”
The article was updated on August 1, 2023, with statements from Shein and Temu.