I. A Plain Language Summary of the Key Events
Xingyu Co., Ltd., a leading company in the domestic automotive lighting industry, hired 440 new graduates, mostly with master's degrees, in July 2026. These graduates were assigned to high-paying research and development positions. However, just one month after they started working, the company forced them to resign voluntarily on the grounds of a poor industry outlook. The company offered them two options: either sign a voluntary resignation agreement and receive half a month's salary as compensation, or they would be transferred to a frontline assembly line as ordinary workers, paid on a piece-rate basis. The company also hinted that those who refused to sign the agreement would receive negative reviews in their background checks, which could affect their future job prospects. In the end, 107 of the new graduates were forced to resign.
Such tactics by companies to encourage employees to leave have been common in the past, but this incident triggered a chain reaction: The Changzhou Human Resources and Social Security Bureau publicly criticized Xingyu for its harsh methods, causing the company's stock price to plummet from 147 yuan to 74 yuan, a nearly 50% drop. Subsequently, major European customers such as Volkswagen, Mercedes-Benz, and BMW initiated special compliance investigations. Xingyu's efforts to list on the Hong Kong stock market under the A+H scheme were also halted after the Hong Kong Stock Exchange received complaints. The ESG (Environmental, Social, and Governance) practices that companies used to enhance their image have now become a critical factor that can threaten their business operations, listing qualifications, and access to the global supply chain.
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II. A Detailed Analysis of the Situation
1. The Farce of Persuading Employees to Resign: A Costly Mistake
Many might think that Xingyu's approach was clever: By transferring 107 new graduates to other positions, the company could avoid paying the legally required severance compensation of at least several months' salary, resulting in a significant saving. However, this was not Xingyu's first time engaging in such tactics. Public records show that the company had 10,400 employees at the end of 2024, but by the end of 2025, that number had dropped to 1,000. Additionally, the number of hours worked by outsourced workers increased dramatically from 2.38 million in 2022 to 10.87 million in 2025, a 4.6-fold increase. The company had previously been found to exceed the national regulations on the use of temporary workers and failed to provide adequate social security and housing benefits to some employees. It had a history of using various methods to “indirectly” encourage older employees to leave.
This time, however, Xingyu overreached. The new graduates, who were well-informed about their rights and willing to fight for them, exposed all the company's previous violations. The speed at which public opinion turned against the company far exceeded its expectations.
2. Why Are German Automakers Involved in the Management of a Chinese Company’s Personnel?
Many wonder why German automakers like Volkswagen and Mercedes-Benz would get involved in such matters. The reason is legal: Germany enacted the Supply Chain Due Diligence Act in 2023, and similar regulations exist within the European Union. These laws require European companies to thoroughly inspect the labor rights of their entire supply chain. If a supplier is found to be exploiting workers or violating labor laws, the automakers could face fines equivalent to up to 4% of their annual global turnover. Moreover, there is a global automotive industry alliance of 21 companies that requires all suppliers to complete a standardized assessment, which explicitly prohibits the indirect dismissal of employees and threats. Xingyu had previously claimed to be fully compliant in these assessments and highlighted its commitment to hiring and treating new graduates well in its ESG reports. Now, with the exposure of these lies, Xingyu's ESG rating could be severely damaged, potentially leading to its exclusion from the supply chain. Given that Xingyu receives a significant portion of its revenue from these foreign customers, losing this supply chain would be a devastating blow to its business.
3. A 50% Stock Price Drop and the Shattered Listing Dreams
The financial consequences of Xingyu's actions are devastating: Its stock price dropped by 50%, representing a loss of hundreds of millions based on its previous market value of nearly 70 billion yuan. Even more detrimental is the fact that the company had just submitted an application to list on the Hong Kong stock market, hoping to raise funds for capacity expansion and to secure overseas orders. However, the Hong Kong Stock Exchange changed ESG reporting requirements from voluntary to mandatory in 2025, making labor rights and major labor disputes mandatory disclosures. With complaints from the new graduates already in hand, any ESG-related deficiencies could doom Xingyu's listing efforts. Companies like Geely and Great Wall, which are also members of the sustainability alliance, could see their business affected if Xingyu's rating declines. This incident highlights the real cost of neglecting ESG practices.
4. The Exposure of Domestic Companies’ ESG Deceptions
The ESG concept has been popular in China for the past five to six years, but most companies have merely gone through the motions, using third-party services to produce attractive reports to show their environmental and social responsibility. The Xingyu incident has exposed the hypocrisy of this approach. Companies that previously thought ESG requirements were trivial now face strict scrutiny from customers, regulators, and stock exchanges. Those that try to cut costs by exploiting workers or manipulating ESG reports will face costs far exceeding the savings they hoped to achieve.