Changpeng Wan
– Final trading occurred on July 15 at 0.15 yuan/share after Shenzhen Stock Exchange delisting decision
– 28-year listed company suffered consecutive annual losses exceeding 10 million yuan since 2022
– Auditor disputes over 196 million yuan revenue recognition triggered dual CSRC investigations
– Failed last-ditch legal maneuver to sue auditor Xutai Accounting Firm for 38.27 million yuan
– Case demonstrates critical red flags: penny stock status, delayed reporting, auditor disagreements
The Final Trading Bell
On July 15, 2025, Hengli Industrial Development Group Co., Ltd. [000622] ceased trading on the Shenzhen Stock Exchange at a historic low of 0.15 yuan per share. This concluded a humbling trajectory for an enterprise that once pioneered China’s automotive air-conditioning industry. The delisting followed a mandatory 15-day exit period that began June 25, after regulators determined ongoing operations were unsustainable. Market capitalization had evaporated to just 63.78 million yuan – a stark contrast to its mid-1990s market debut when automotive parts manufacturing represented cutting-edge industrial development.
Financial autopsies reveal Hengli Tui (000622) suffered systemic erosion since 2021. Core automotive operations deteriorated until manufacturing represented under 15% of activity, replaced by stopgap measures including commodity trading and contract assembly work. Critically, Shenzhen Stock Exchange rules mandate delisting when annual revenues fall below 100 million yuan concurrent with net losses – thresholds Hengli breached decisively despite multiple rescue attempts.
Shareholder Consequences
Official registers confirm 18,500 shareholders remained invested through September 2023. Individual investors like retired engineer Zhang Wei face near-total portfolio devastation: “My life savings purchased shares at fourteen yuan during the 2020 stimulus rally. That money funded my grandson’s education abroad. We’ve lost everything.” Such experiences expose regulatory gaps in protecting retail participants during protracted downlistings.
– Average position size: <15,000 yuan per shareholder
– Majority ownership duration: 5+ years holding average
– Post-delisting securities become OTC-traded requiring specialized brokerage access
From Industrial Pioneer to Penny Stock
Established in 1993 and listed in 1996, Hengli Tui (000622) originally supplied air-conditioning systems to FAW Group and Dongfeng Motor Corporation during China’s automotive golden age. Early technical advantages included seven patented heat-exchange technologies that dominated domestic combustion-engine vehicle markets. Former engineering director Li Feng recalls, “We had 60% market share in commercial vehicle HVAC units when domestic brands like Great Wall Motors were emerging. Our decline mirrors China’s transition toward electric vehicles where we lacked investment.”
By 2021, competitive pressures created irreversible decay. Production utilization rates dropped below 20% across Shenzhen and Hubei facilities, forcing partial conversions to warehousing and third-party logistics. Financial statements documented the hollowing-out:
– Primary business revenue decline: 79% 2020–2023
– Workforce reduction: 680 employees to 127 within 36 months
– Asset impairment losses: 347 million yuan write-downs in productive equipment
Suspension Precedents
Market authorities previously suspended Hengli Tui (000622) trading in 2018 following three consecutive loss-making years. Its reinstatement in 2020 provided temporary respite through speculative EV battery sector positioning. But this lifeline proved ephemeral when technical partnerships with CATL and BYD failed to materialize into substantive contracts.
Financial Death Spiral
Hengli Tui (000622) epitomizes financial statement decay patterns preceding Chinese delistings. The company reported one profitable year (2021: 1.72 million yuan) between 2020–2024, achieved solely through extraordinary one-off asset disposals rather than operational improvement. Audited losses then exceeded 10 million yuan annually during 2022–2023 as core capabilities atrophied.
Regulatory tripping points activated in May 2024 when Shenzhen Stock Exchange applied *delisting risk warning* status (ST designation) after audited 2023 results confirmed both net losses and sub-100 million yuan revenue – violating dual listing sustainability criteria. This commenced the months-long countdown toward formal market ejection.
Revenue Recognition Disputes
A critical flashpoint emerged during fiscal 2024 auditing. Management claimed 300–350 million yuan revenue from equipment leasing arrangements through Hubei subsidiaries. However, appointed auditors Xutai Accounting Firm challenged the legitimacy and accounting treatment:
– Recognition timing: Whether payments were collected during fiscal period
– Related parties: Transactions potentially involving undisclosed affiliated entities
– Termination clauses: Contracts contained cancellable conditions favoring counterparties
The resulting audit report prepared by Xutai Accounting Firm disallowed 104 million yuan accounting entries, reducing claimed revenue to 196 million yuan and triggering *disclaimer of opinion* status. Management publicly contested these adjustments as technically improper during heated exchanges throughout spring 2024.
Regulatory Collisions
Hengli Tui (000622)’s collision course with regulators escalated through successive enforcement actions:
CSRC Investigations
The China Securities Regulatory Commission launched dual probes:
– May 6: Failure to submit annual reports by statutory deadline
– June 2: Suspected falsification in disclosures regarding revenue recognition
Such concurrent investigations delayed remedial options and signaled administrative determinations preceded exchange proceedings.
Litigation Gambits
In unprecedented maneuvers, Hengli sued statutory auditor Xutai Accounting Firm on May 8 seeking 38.27 million yuan damages for “professional negligence delaying financial statements.” Legal analysts consider this a strategic diversion lacking precedent, given statutory auditor independence principles established post Luckin Coffee scandal.
Concurrently, management engaged secondary auditor Shenzhen Tangtang Accounting Firm attempting to restate 2023 figures above the critical 100 million yuan threshold. This April 2025 re-audit attempt failed to prevent exchange delisting determinations handed down weeks later.
Broader Delisting Implications
Hengli Tui (000622) joins strengthening delisting patterns across Chinese exchanges. Shenzhen Stock Exchange eliminated 24 listed entities during 2024 – quadruple the 2022 total – demonstrating stricter capital market hygiene enforcement under CSRC guidance. Parallel reforms include:
– Compressed delisting timetables: Exit cycles reduced from 30 to 15 trading days
– Tighter financial thresholds: Revenue minimums rising from 100 million to 300 million yuan
– Auditor oversight: Penalties for accounting firms enabling misleading reporting
For China’s NEEQ over-the-counter market where Hengli shares now trade, liquidity constraints typically force further 60-80% depreciation post-delisting according to Shenzhen Securities Research Institute data. OTC bid-ask spreads often exceed 15%, creating captive positions for remaining shareholders.
Investor Safeguards
Signs of ultimate corporate failure investors must monitor:
– Sustained penny stock status below 1 yuan
– Third-party auditor disclaimers or adverse opinions
– Revenue concentration in non-core irregular activities
– Regulatory investigations preceding financial disclosures
Market Efficiency and Forward Outlook
China’s strengthened delisting mechanisms aim to eliminate zombie enterprises capitalizing during earlier lax enforcement periods. Professor Wang Jiangyu, commercial law scholar at City University of Hong Kong, notes: “Hengli Tui (000622)’s protracted expiration demonstrates market regulators prioritizing stability over artificial life support – painful near-term but cleansing for ecosystem development.” Remaining shareholders face constrained recovery pathways outside shareholder derivative lawsuits against past directors.
For China’s auto parts sector, Hengli’s collapse underscores transition necessities as EV adoption surpasses 50% penetration. Firms lacking R&D capabilities in thermal management for battery systems increasingly face market ejection regardless of historical market positions. This dynamic affects numerous microcap suppliers with pre-2000 technical bases as industry landscapes transform.
Case studies like Hengli Tui (000622) deliver unambiguous lessons: monitor operational fundamentals beyond speculative narratives, verify auditor alignment before earnings releases, and recognize penny stocks carry asymmetric risks. Periodic CSRC announcements tracking delisted entities provide critical educational references. Consult independent financial advisors when audit disputes or regulatory warnings emerge – decisive responses prevent permanent capital impairment from financial distress cascades.
