Xingyu rescinds 107 graduate contracts as HK IPO faces labor scrutiny

Xingyu Automotive Lighting rescinded contracts for 107 of 440 new graduates, prompting a labor bureau inquiry as it pursues a Hong Kong listing.

The Changzhou Municipal Human Resources and Social Security Bureau opened an inquiry on Aug 25, saying the company's actions were "simple and blunt, lacking sufficient and effective communication," according to the bureau's notice. Xingyu apologized two days later, admitting to "management failures and a lack of empathy" and offering a 15,000-yuan living subsidy, free dormitory housing, and job-placement help.

The incident exposed deeper compliance gaps. Dispatched workers at Xingyu and its Foshan subsidiary exceeded the 10 percent legal cap at end-2025, and social insurance and housing fund contributions were underpaid from 2023 through Q1 2026, with shortfalls ranging from 0.7 percent to 1.4 percent of revenue. The company received 451 million yuan in government subsidies from 2023 to 2025, including employment-support programs, and was named a "National Advanced Private Enterprise for Employment and Social Security" in December 2025.

The scandal lands at a critical juncture. Xingyu secured CSRC approval on Aug 15 to issue nearly 45 million new shares for its Hong Kong listing, but the labor controversy could complicate the HKEX hearing. First-half 2026 revenue grew just 1.87 percent to 6.884 billion yuan, while receivables reached 6.503 billion yuan — more than 90 percent of revenue.

Xingyu, China's largest automotive lighting supplier, builds adaptive driving beam headlights for Volkswagen's ID electric family and BYD's Han sedan. The company's 2025 revenue reached 15.257 billion yuan, with net profit of 1.624 billion yuan. Automotive lighting accounted for 94.6 percent of revenue, split between front lights at 8.04 billion yuan and rear lights at 5.547 billion yuan.

The company is expanding overseas to offset slowing domestic demand. Its Serbia plant, operational since 2022, produces rear lights for European markets, with a second phase planned to add about 6 million lighting units annually. Xingyu has also established entities in Mexico, the United States, and North Carolina as it targets North American growth.

First-half 2026 operating cash flow fell 17.28 percent year over year to 9.91 billion yuan, reflecting longer payment cycles from automakers squeezed by China's EV price war. The company still approved a 56.64-million-yuan dividend alongside its interim results.

The labor compliance issues raise questions about whether Xingyu is prepared for the governance standards expected of a dual-listed company. International institutional investors and ESG questionnaires will scrutinize the company's labor practices during the HKEX hearing process. The A-share stock may face selling pressure as investors reassess governance risks.

This article is for informational purposes only and does not constitute investment advice.