This summer, hundreds of fresh graduates entered A-share listed company Changzhou Xingyu Automotive Lighting Systems Co.,Ltd. (601799) with high hopes for their futures. But shortly after joining, 107 of these recent graduates were suddenly informed their contracts were being terminated.

In the aftermath, many of the abruptly dismissed employees filed complaints with institutions including the European Union and the Hong Kong Stock Exchange.

Under pressure, the company issued a public apology, pledging to provide appropriate compensation to the 107 terminated graduates.

This graduate dismissal controversy has since unearthed a history of labor-related issues at the company.

A review of the company's previously submitted Hong Kong IPO prospectus reveals that by the end of 2025, its labor dispatch ratio had exceeded the 10% legal cap on total workforce, and it had also previously failed to make full social insurance and housing fund contributions for employees.

While repeatedly having to explain its labor issues, the company has continued to receive government subsidies including employment support, totaling RMB 451 million from 2023 to 2025.

Against this backdrop, the company is at a critical juncture in its push toward a Hong Kong listing.

Where the story begins

On August 15, the company received the filing acceptance notice from the China Securities Regulatory Commission for overseas listing, marking further progress in its Hong Kong IPO journey.

However, filing acceptance does not mean the listing has been approved. The company still needs to complete processes such as the Hong Kong Stock Exchange hearing. Becoming embroiled in a large-scale graduate dismissal dispute at this time means it may need to provide more explanations on labor compliance, employee rights, and even ESG issues.

Labor issues resurface

The hundreds of fresh graduates who joined the company likely never imagined their first jobs would end so quickly.

On August 25, an announcement from the Changzhou Municipal Human Resources and Social Security Bureau confirmed the company's heavy-handed approach to mass layoffs.

The notice revealed that the company had recruited 440 graduates from the class of 2026 this year, then terminated contracts with 107 of them, directly criticizing the approach as "crude and lacking adequate communication."

Under pressure, the company publicly apologized two days later, acknowledging that the incident exposed "decision-making errors" and "management oversights."

The company then rolled out remedial measures, offering job-seeking living allowances and free accommodation to the affected graduates, while committing to further financial compensation for those still unemployed after a period.

This multi-day dispute over graduate dismissals has thus temporarily found a resolution plan.

This is not the first time the company has needed to explain its labor practices.

As of the end of 2025, the company had 2,984 dispatched workers, with its subsidiary Foshan Xingyu employing an additional 120.

During that year, the company's dispatched labor proportion exceeded the red line of 10% of total workforce usage.

The company also acknowledged in its prospectus that both it and Foshan Xingyu had exceeded this legal cap on dispatch labor ratios.

This labor issue was only resolved before the company's second filing submission to the Hong Kong Stock Exchange. At the end of February this year, Foshan Xingyu reduced its ratio below 10% by cutting dispatched workers, while the company itself did not complete rectification until the end of May.

Similarly, the company has also failed to make full social insurance contributions for its employees.

From 2023 to 2025 and Q1 2026, the shortfall in social insurance and housing fund contributions accounted for approximately 1.4%, 1%, 0.8%, and 0.7% of the company's revenue for the respective periods. Additionally, some employees' social insurance and housing funds were paid through third-party agents, where underpayment also occurred.

In stark contrast, less than a year before the graduate dismissal incident, the company had been honored for its employment and social security performance.

In December 2025, the All-China Federation of Industry and Commerce, the Ministry of Human Resources and Social Security, and the All-China Federation of Trade Unions jointly awarded the company the title of "National Advanced Private Enterprise for Employment and Social Security," making it one of only six private enterprises in Jiangsu Province to receive this honor.

Interestingly, while repeatedly facing questions over labor issues, the company has been a beneficiary of various employment support policies over the past few years.

From 2023 to 2025, the company received government subsidies of RMB 118 million, RMB 175 million, and RMB 158 million respectively, totaling RMB 451 million over three years.

Notably, these subsidies involved projects related to R&D and employment support.

From exceeding labor dispatch ratio limits and underpaying social insurance and housing funds for some employees, to the concentrated dismissal of 107 graduates, the recurring labor compliance issues have forced the market to reassess the company's fundamentals.

Global expansion narrative under scrutiny

The company's core business is straightforward: selling automotive lighting to new energy vehicle makers as well as automakers like Volkswagen, BMW, and Mercedes-Benz.

In 2025, revenue from automotive lighting products reached RMB 14.431 billion, accounting for 94.6% of total revenue. Front lighting and rear lighting contributed RMB 8.040 billion and RMB 5.547 billion respectively, representing the bulk of revenue.

With rising penetration of new energy vehicles, the company's performance has surged over recent years, with revenue climbing from RMB 10.248 billion in 2023 to RMB 15.257 billion in 2025. Net profit also rose from RMB 1.102 billion to RMB 1.624 billion during the same period.

However, as automotive market growth slows, the company is inevitably affected. In H1 2026, revenue growth was 1.87%, a slowdown of over 15 percentage points compared to the same period in 2025.

This has also brought collection pressure. As of the end of June 2026, the company's receivables and notes receivable totaled RMB 6.503 billion in book value, accounting for over 90% of revenue for that period.

The change in net operating cash flow also reveals the mounting pressure. In H1 2026, net operating cash flow was only RMB 991 million, down 17.28% year-on-year.

In other words, as competition intensifies among downstream automakers, the company must contend not only with slowing demand but also with capital tied up due to extended payment cycles.

With domestic growth decelerating, overseas markets have naturally become a key direction for the company to find new growth.

Europe is currently the first market where production capacity has been established. The company's Serbia Phase 1 plant, operational since 2022, primarily produces rear lighting for near-market supply to Germany, Czech Republic, Spain, and other European markets. Now, it is advancing a Phase 2 project, planning an annual output of approximately 6 million lighting units, expanding products from rear lighting to higher-value items like front lighting.

North America is the next stop. The company has established entities including Mexico Xingyu, US Xingyu, Delaware Xingyu, and North Carolina Xingyu, while also planning to expand into the Middle East, India, and South American markets.

It is precisely for this reason that the company is pushing forward with its Hong Kong IPO, planning to allocate part of the proceeds to overseas plant construction.

But just as it prepares to channel more capital and capacity overseas, the successive labor compliance issues have added fresh uncertainty to this globalization narrative.

Before truly selling its lighting products globally, the company must first answer whether it possesses the labor compliance capability expected of a global supplier.