Shein and Temu are buying European compliance, and treating it as a cost of entry

The European Commission's investigations into Shein and Temu under the Digital Services Act and consumer protection law were widely read as a check on Chinese marketplaces entering Europe. The response from those marketplaces suggests they read it as a price list.

Three companies, three different objectives

They are usually grouped together. They are not doing the same thing.

Shein is pursuing ultra-fast fashion through a direct-to-consumer model, competing on affordability and trend responsiveness. Its aim is customer base, brand recognition and EU logistics infrastructure — with the stated ambition of overtaking Zara as France's second-largest fashion retailer.

Temu, part of PDD Holdings, is building a budget marketplace on a consumer-to-manufacturer model that strips out intermediary cost. Its aim is to undercut Amazon and eBay using China's supplier base. With US tariffs threatening its core market, Europe and Brazil became critical, and it planned to shift 80% of European orders to local warehouses.

TikTok Shop, run by ByteDance, is doing something structurally different: converting engagement into transactions inside the app, using recommendation algorithms rather than price. It targets beauty, electronics and household goods, and has aimed at 20% of Europe's e-commerce market by 2026.

The competitive geometry follows from that. Shein and Temu fight each other directly on price, and their advertising war has driven CPM rates on Meta platforms up 22%. TikTok positions itself as complementary — content-driven discovery rather than a price fight — which is why it has focused on mid-tier fashion and home goods rather than meeting Temu at the bottom.

Cooperation exists mainly in logistics. Shein hired former TikTok logistics executives for European fulfilment; TikTok Shop works with DHL for three-to-five-day delivery. All three depend on Chinese manufacturing networks, and two of the three are actively moving away from that dependence.

The numbers they were underwriting

Ambitions across the €800 billion European e-commerce market:

• Temu — €58 billion European GMV, growing 45% year on year
• Shein — €20 billion in Europe, led by France at €7 billion and the UK at €5 billion
• TikTok Shop — €2–4 billion GMV in its first year, depending on seller uptake

The country priorities follow smartphone penetration, logistics quality and price sensitivity. France, where Temu passed 10 million monthly users. Germany, where Temu's sales grew 115% year on year and it planned 50% local sourcing. Spain and Italy, reached via low-cost sea freight through Turkey. And smaller markets with low online penetration and young populations — Georgia at 15.8% CAGR, Bulgaria at 13.6%.

What the investigations were actually about

The charges under the DSA and consumer law were specific: opaque seller information, non-compliant or unsafe products, misleading discount presentation, and failure to protect minors from aggressive marketing.

None of these are tariff questions. They are questions about how a marketplace operates — and that matters, because the response could not be a pricing adjustment.

The response was to localise

Temu built warehouses in Poland and Germany targeting 80% local inventory, raised average order value 15–35%, partnered with DHL to compress delivery, invested €150 million in product safety testing with EU-certified laboratories, and introduced a "Made in Europe" collection with discounts attached.

Shein opened design centres in Milan and Paris to create EU-specific product, tightened CE certification checks, established regional headquarters in Ireland, launched a ten-point sustainability plan including recycling and carbon-neutral shipping, and shifted 60% of production to EU-adjacent countries including Turkey and Mexico.

Both invested in data encryption and algorithmic transparency for GDPR and DSA compliance.

The concessions were accepted rather than contested: higher compliance costs, €2-per-parcel EU processing fees on small consignments, local sourcing mandates and supply chain audits under the Corporate Sustainability Due Diligence Directive. Temu's net profit fell 47% in Q1 2025 on EU adjustments.

It kept going. That is the fact worth dwelling on. A 47% profit hit treated as an entry cost tells you how the European market is valued internally — and how patient the capital behind it is.

One practice does sit closer to the line: splitting orders into smaller parcels to stay under the EU's €150 duty-free threshold. That is an exploitation of a threshold rather than a breach of it, and the €2 handling fee on small parcels is the direct response to it. It is also the clearest signal that the low-value parcel route was always a transitional arbitrage rather than a business model.

TikTok is preparing differently

Having watched two peers absorb investigations, TikTok has front-loaded compliance.

On algorithms: disclosed how recommendations work, allowed opt-out from personalised ads, prepared for content moderation requirements including a ban on dark patterns. On minors: stricter age verification and default privacy settings. On products: mandatory EU Responsible Person declarations and CE/UKCA certification for electronics, localised moderation teams in Berlin and Paris for right-to-explanation compliance, and partnerships with EU software firms for real-time monitoring.

Its market entry avoids the fight entirely — partnering with existing Amazon and eBay sellers to populate inventory, offering VAT withholding and remittance plus logistics subsidies, zero-commission listings to attract sellers, and influencer partnerships rather than heavy advertising spend.

It still faces risk, particularly France's anti-fast-fashion legislation. But a content-driven model with early compliance is a materially easier regulatory position than an ultra-low-price model built on direct parcel shipment.

Where the Chinese state sits in this

Not where it is usually assumed. The Ministry of Commerce has not intervened in the EU investigations. What it has done is supply infrastructure: overseas warehouse subsidies and industry funds, published cross-border e-commerce compliance guidelines emphasising GDPR adherence and tariff strategy, negotiation with the EU on small-business tariff exemptions and customs simplification, funding for AI-driven compliance tooling such as automated HS code classification, and China–EU e-commerce forums to work regulatory friction.

Publicly it has criticised US and EU scrutiny as unfair while stressing compliance with international rules. The guidance to companies runs toward EU regulatory alignment, local partnership to mitigate geopolitical risk, and Belt and Road logistics optimisation.

Support for compliance capability, not resistance to it. Which is consistent with the pattern in other sectors: the state builds the capacity to meet the rule rather than fighting the rule.

What this means if you are on the European side

Regulatory pressure is converting importers into local operators. Warehouses in Poland and Germany, design studios in Milan and Paris, an Irish headquarters, 60% of production moved to Turkey and Mexico. The competitor that emerges from this process employs Europeans, sources in Europe, and is considerably harder to exclude than one shipping parcels from Guangzhou.

Compliance cost is not a deterrent at this capital scale. A 47% quarterly profit decline did not slow the expansion. Strategies premised on regulation making the European market unattractive are misreading the time horizon.

The threshold arbitrage is closing, and it was never the point. Parcel splitting under the €150 threshold is being addressed. The durable structure being built underneath — local inventory, local certification, local sellers — survives that change untouched.

If you are a European retailer, the useful question is not whether these platforms will be regulated. It is what they look like in three years, once they have paid for compliance and hold local inventory, local design and local logistics. That is the competitor to plan against.