Summary of Key Points
Xingyu Co., Ltd. (a leading A-share company in the automotive lighting industry), during the critical period of its second IPO application for the Hong Kong stock market, negotiated the termination of contracts with 107 newly hired graduates, which sparked widespread public outrage. The incident concluded with the company issuing an apology, providing three months of financial support, and suspending the HR director from duty. The Human Resources and Social Security Bureau only issued a critical admonishment. Overseas manufacturers such as Mercedes-Benz and Volkswagen have initiated investigations due to EU ESG (Environmental, Social, and Governance) regulations, and the Hong Kong Stock Exchange may require additional documentation regarding labor practices. This incident exposes common issues in private manufacturing companies, including distorted decision-making under pressure, lack of crisis management capabilities, and imbalanced internal management structures.
The Incident: From the Outbreak of Public Opinion to the Delayed Response
Around August 8th, recordings of the contract terminations and the experiences of the graduates began to spread on social media. Xingyu issued an apology on August 27th, 19 days later, by which time the Human Resources and Social Security Bureau had already reported the handling of the situation on August 25th. The company's measures included providing three months of job-seeking subsidies to the 107 graduates and continuing to offer free accommodation, as well as suspending the HR director from duty.
- Response from the Human Resources and Social Security Bureau: No fines were imposed; instead, a critical admonishment was given to help the company save face (the report stated that the company "deeply regretted" the situation).
- Reactions from Overseas Customers: Mercedes-Benz and Volkswagen have started investigations in accordance with the EU's "Due Diligence Directive on Corporate Sustainability" (which essentially checks whether suppliers are mistreating their employees), and the outcome is likely to be a similar admonishment as well.
- Impact on the IPO: The Hong Kong Stock Exchange places great emphasis on labor and ESG standards, so Xingyu may need to provide additional explanatory materials during its application process, which could delay its IPO.
Why Target the Graduates?
Xingyu's actions are not due to malice but a reflection of its financial pressures:
1. Pressured Industry Profits: Traditional automotive lighting business profits are declining, and while smart lighting has potential, research and development are costly, and mass production times are uncertain. Automakers also demand price cuts of 5-8% annually, leaving manufacturers with very little profit.
2. Turning Point in Performance: In the first half of 2026, revenue only increased by 1.87%, while net profit decreased by 5.26%, with a significant drop of 18.26% in the second quarter. With earnings not covering expenses, companies are forced to cut costs.
3. Misaligned Recruitment Timing: The company previously hired 440 graduates, but now its business has shrunk, making these employees unnecessary. If the contracts were not terminated, their salaries and training would be a financial burden. However, terminating contracts with newly hired graduates is less costly than compensating older employees.
4. The HR Department's Dilemma: They could either provide full compensation according to the law (N+1), resulting in higher short-term costs, or try to get employees to resign voluntarily by transferring them to other roles, which would reduce compensation. Xingyu chose the latter option, only to stir up further problems.
Poor Crisis Management: The Power Imbalance within the Company
Xingyu's public relations efforts were virtually non-existent, and the slow response reflects internal management issues:
- Differential Power within Departments: In private companies, business and finance departments often have significant influence, while public relations, legal, and ESG departments are less heard from. No one consults these departments before making decisions, and they are only called upon to clean up the mess afterward. In foreign-funded companies, multiple departments, including HR and legal, would weigh in together, with public relations often having the power to veto certain actions (for example, stopping a project if it could lead to a public relations crisis).
- Bosses Make the Final Call: In private manufacturing, the boss's orders take precedence over all other processes. Xingyu's decision-making may not have been arbitrary, but it did not consider the potential public relations risks. Even if HR was aware of the issues, they would not dare to defy the boss's cost-cutting demands.
- Public Relations' Silence: When the media contacted Xingyu for clarification, the company's PR department refused to respond. This is not because they wanted to avoid talking; many questions were difficult to answer (e.g., "Were the contract terminations due to reduced orders from manufacturers?" or "Were employees laid off to improve financial reports before the IPO?"). The more they tried to explain, the more mistakes they seemed to make, so they chose to remain silent.
Overseas Customers and the IPO: Invisible Constraints
Additional pressure came from external factors:
- ESG Requirements from Overseas Customers: European automakers like Mercedes-Benz and Volkswagen must comply with EU regulations. If suppliers have labor issues, they may face downgrades or even order cancellations (although no actual orders were canceled this time, the warning was clear).
- The Hong Kong Stock Exchange's Standards: The exchange is very strict about ESG and labor rights. With this incident during the IPO application period, Xingyu will need to provide extensive explanations, which could delay its listing process.
A Common Industry Problem: Why Do Such Issues Repeat?
Xingyu is not the first, nor will it be the last company to face these issues:
- Difficulty for Private Companies to Restrict Their Own Powers: Allowing the boss to delegate decision-making to compliance and PR departments is almost impossible, unless there is external pressure from customers or strict regulatory requirements (which are unlikely in the short term).
- Post-Mortem Wisdom Is Useless: After the Xibe restaurant scandal last year, bosses thought they would avoid similar mistakes, but the same mistakes are made in different industries and situations because the underlying issues are not systematically addressed.
- The Danger of Public Opinion: Companies often prioritize survival, but once a public relations crisis erupts, it leads to damaged reputations, customer doubts, and delayed IPOs, making things even harder.
Who Will Learn from This?
Although Xingyu has overcome this issue, other companies in the industry may simply watch from the sidelines. Unless there is external pressure (such as from overseas customers or stricter regulations), the practice of terminating contracts with graduates and making decisions without considering public opinion will continue. For companies, "survival" and "compliance" are not mutually exclusive; ignoring compliance will eventually lead to serious consequences.