(Yicai) Sept. 3 -- Changzhou Xingyu Automotive Lighting System, one of China’s biggest suppliers of auto lights, has apologized for dismissing 107 newly hired graduates after clients Volkswagen Group and Mercedes-Benz took steps to address concerns arising from the abrupt dismissals amid mounting scrutiny of Xingyu's hiring and labor practices.

During Xingyu’s earnings conference call yesterday, Chairwoman Zhou Xiaoping said the Jiangsu province-based company has been reflecting deeply on the matter and offered its sincere apologies again. The firm will overhaul its recruitment and employment procedures to “genuinely safeguard workers’ lawful rights and interests,” she added.

Xingyu publicly released a letter of apology on Aug. 27, acknowledging decision-making errors and management oversights in the matter, and pledged to provide the affected graduates with free accommodation and living allowances for three months, which could be extended to six months if they do not find new positions in that time.

The company’s shares [SHA: 601799] closed 3.6 percent lower at CNY74.88 (USD11.15) each in Shanghai today, having fallen by about a quarter since the news of the layoffs first broke early last month and by over 52 percent from a 52-week high of CNY158.50 (USD23.59) on Feb. 12.

HR Failings

Xingyu hired a large number of master’s degree students who would graduate this year during last year’s autumn recruitment, National Business Daily reported. But on Aug. 8, its human resources department informed them that they should either resign or be reassigned to frontline positions, citing poor market conditions and operational issues.

Xingyu recruited 440 graduates from the class of 2026, of whom 107 had their labor contracts terminated, according to a report released by Changzhou’s HR and social security bureau on Aug. 25. The negotiation process was simplistic and harsh, and communication was inadequate. The company’s HR director has since been suspended. Yicai was unable to identify a specific individual corresponding to the HR director position mentioned in the official report.

Some of the affected graduates reportedly notified Xingyu’s overseas clients about the matter. Volkswagen attaches great importance to the complaints concerning Xingyu and immediately launched an investigation, which is ongoing, a spokesperson for the German automaker’s China business told Southern Metropolis Daily. Respect for workers’ legal rights and interests runs through VWs entire supply chain management, the person added.

The conduct described does not align with Mercedes-Benz’s corporate principles, its Whistleblower System Business and People Protection Office said in a emailed response to the complainants. Mercedes-Benz expects its partners to observe its corporate principles, the Whistleblower System BPO noted, adding that it intends to forward the report to colleagues acting as external business partners in the relevant area for further review.

Media reports also say that Hong Kong Exchanges and Clearing, which runs the city’s only securities and derivatives markets and its clearing houses, has forwarded the emails it received from graduates about their terminated Xingyu employment contracts to its Listing Division for handling, and the matter is being investigated as an individual case.

Dual Listing Application

Xingyu listed on the Shanghai Stock Exchange in 2011, and it is now pursuing a dual primary listing on the Hong Kong Stock Exchange.

The company’s headcount has greatly shrunk in recent years, according to its HKEX listing application and subsequent financial statements. Xingyu had about 7,500 employees at the end of last year, down from 10,400 at the end of 2024.

Meanwhile, its outsourced labor expanded to 10.9 million working hours last year from 2.4 million in 2022, with related costs up 24 percent to CNY302 million (USD44.6 million). In the period, the company also failed to make full social insurance and housing provident fund contributions for some employees.

According to its listing prospectus, revenue grew from CNY10.2 billion (USD1.5 billion) in 2023 to CNY15.3 billion in 2025, with the annual growth rate slowing to 15 percent from 24 percent. The company’s main clients include German, Japanese, US, French, and Chinese carmakers, with its top five customers contributing 65 percent of its revenue last year.

High customer concentration means that any change in a key client’s supplier rating can directly affect revenue, according to a commentary by the Zhangjiang Platform Economy Research Institute in Shanghai's Pudong New Area.

For companies expanding overseas capacity and pursuing Hong Kong listings, compliance in employment procedures is no longer confined to domestic labor law, the think tank also noted. The supplier codes of conduct imposed by multinational automakers and the regulatory requirements of stock exchanges provide established channels through which such complaints can have broader consequences, it said.

Editor: Futura Costaglione