In June 2026, Xiaohongshu is in a critical window for its planned Hong Kong initial public offering. Reports on June 15th indicated the company aimed to confidentially submit its listing application to the Hong Kong Stock Exchange by the end of the month, targeting a valuation as high as $31 billion. However, just before the expected submission, a real-name complaint from a former insider has cast a shadow over this highly anticipated IPO.
Where to begin with the legal dispute
On the evening of June 29th, an individual named Chen Hao, who identified himself as the former Head of Commercialization for South China Direct Sales at Xiaohongshu, published an article on his personal WeChat public account stating he had formally submitted a "Complaint Regarding Xiaohongshu's Listing Compliance" to the HKEX Listing Department and the Hong Kong Securities and Futures Commission on June 28th. The submission reportedly included a full set of supporting materials such as first and second-instance court judgments, stock option litigation files, old and new termination certificates, and corroboration from other employees. The regulatory email system has confirmed receipt of all materials.
The dispute between Chen Hao and Xiaohongshu dates back to 2022. He joined the company in June of that year as Head of Commercialization for South China Direct Sales. His employment contract was signed with the domestic entity Shuyi Shuer Culture Media (Shanghai) Co., Ltd., while his stock option agreement was executed with the offshore entity Xingin International Holding Limited, with the agreement signed by Xiaohongshu's founder and CEO Mao Wenchao. The option vesting was tied to his service period, with 50% vesting after two years of employment.
A pivotal change occurred in December 2023. With only five months remaining until the first batch of his options were set to vest, Xiaohongshu unilaterally terminated his employment on grounds of "incompetence." His termination certificate was marked with the term "replacement." Chen Hao subsequently initiated labor arbitration and litigation. After over two years involving one arbitration, three court hearings, and one mediation, the Guangzhou Intermediate People's Court ruled in the second instance that Xiaohongshu's termination of the labor relationship was unlawful. Xiaohongshu was ordered to pay Chen Hao approximately 850,000 yuan in total, comprising about 190,600 yuan for illegal termination compensation and service bonus, and about 661,500 yuan for stock option losses.
Key allegations targeting the VIE structure
According to Chen Hao's public post, his submission to the HKEX and SFC raises three main verification requests.
First, to investigate contradictions in the disclosure of information regarding the Variable Interest Entity structure. This is considered the most impactful part of the complaint. Xiaohongshu's Hong Kong listing plan inevitably employs a red-chip VIE structure, where an offshore holding company achieves consolidated financial reporting and listing under common control through contractual arrangements with domestic operating entities. However, during the prior stock option litigation, Xiaohongshu consistently argued in writing that there was "no controlling relationship" between the domestic entity and the offshore option platform, and contended that the option dispute should be submitted to arbitration in Hong Kong.
Chen Hao points out a fundamental contradiction: the same company argued in court that there is "no controlling link between domestic and offshore entities," while in its HKEX listing review, it asserts they are "controlled by the same founder, closely related, and can be consolidated." The two-tier courts rejected Xiaohongshu's defense, ruling that the domestic company and the offshore option platform are controlled by the same founder, constituting a substantive relationship, and that the option dispute falls under labor dispute. This judgment is also reportedly the first judicial case in China to explicitly recognize stock option incentives under an internet company's offshore VIE structure as labor compensation.
Second, to mandate the disclosure of all labor law violation records. Chen Hao demands that the issuer fully disclose all records of labor arbitration, litigation, mass layoffs, and issuance of inaccurate termination certificates during the reporting period, thereby fully informing Hong Kong investors of potential contingent liabilities.
Third, to investigate deficiencies in ESG and labor compliance. Chen Hao calls for the full disclosure of rectification plans in the formal prospectus. Furthermore, he revealed that since he began publicly seeking redress, nearly 50 former Xiaohongshu employees have reported similar experiences—being dismissed around the time their options were set to vest, leading to the options becoming void. This suggests the potential labor compensation risk could far exceed his personal 850,000 yuan settlement.
The company's current stance
The potency of this complaint lies in its precise timing, as Xiaohongshu is in the critical window for confidentially submitting its application to the HKEX. The exchange has clear review standards for the internal governance, labor compliance, and internal control systems of listing applicants. The full set of judicial materials provided by Chen Hao has been confirmed as received by the regulatory system.
Consistency in VIE structure disclosures is a core review requirement by the HKEX for red-chip structure listings. The complaint materials indicate that there are disconnects in the delineation of rights and responsibilities between Xiaohongshu's domestic operating entity and its offshore option platform, with related risks not fully presented in the listing preparation materials. Should the HKEX initiate multiple rounds of compliance inquiries, the review timeline for Xiaohongshu's listing could face uncertainty.
As of the time of reporting, Xiaohongshu has not issued a public response regarding the complaint. It is noteworthy that Chen Hao's public account article has been reported by Xiaohongshu for allegedly "infringing upon corporate business reputation."
Concurrently, Xiaohongshu's regulatory record in recent years adds further dimensions for scrutiny regarding its compliance narrative. Since 2018, the platform has been summoned by regulators and even taken down for rectification multiple times due to content violations. Official notices from the Cyberspace Administration have pointed out that Xiaohongshu failed to implement its primary responsibility for information content management, with its hot search lists frequently featuring undesirable information such as炒作 of celebrity news, severely impacting the online ecosystem. In May 2026, an investigation also highlighted practices on platforms like Xiaohongshu involving the use of children in adult-style attire for borderline marketing.
Potential impact on the planned listing
Reports suggest Xiaohongshu is targeting a valuation of $31 billion. However, this real-name complaint from a former employee is placing the compliance governance of this super-app platform under a spotlight. As the HKEX's review standards for ESG and labor compliance become increasingly stringent, the issues raised in Chen Hao's complaint—such as contradictions in VIE structure disclosures and the alleged pattern of dismissals around vesting periods—could, if deemed by regulators as material information disclosure flaws, not only trigger multiple rounds of inquiries and prolong the review cycle but also potentially affect investor confidence in the company's governance quality.
For Xiaohongshu, the true test posed by this complaint may not lie in the 850,000 yuan compensation itself, but in how it demonstrates to the HKEX that there is no irreconcilable gap between the statements it made in court and the disclosures it presents in its prospectus.
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