- A whistleblower has put the social media giant’s IPO ambitions under fresh regulatory scrutiny
- Contradictory VIE claims and disputed stock options could become a bigger problem than market competition
On May 28, China’s social app Xiaohongshu celebrated what looked like a defining moment in its evolution.
The lifestyle platform announced it had secured the rights to broadcast the 2026 FIFA World Cup in China, promising to stream all 104 matches free of charge.
The move signaled ambitions well beyond beauty tips and restaurant recommendations. By investing heavily in the world’s biggest sporting event, Xiaohongshu was making an unmistakable push to attract more male users, expand beyond its lifestyle niche, and accelerate its march toward 200 million daily active users.
World Cup, red card
But before the opening whistle of the World Cup, Xiaohongshu found itself shown a red card of a different kind.
As reports circulated that the company was preparing to file for a Hong Kong IPO by the end of June at a valuation of between US$50 billion and US$70 billion, former commercial executive Chen Hao (陈浩) submitted a real-name-based complaint on June 28 to both the Hong Kong Stock Exchange’s Listing Division and the Hong Kong Securities and Futures Commission.
The allegation strikes at an issue far more sensitive than an ordinary labor dispute: corporate disclosure and regulatory consistency.
Chen joined Xiaohongshu in 2022. His employment contract was signed with the company’s mainland operating entity, while his employee stock option agreement was signed with an offshore entity.
In December 2023—just five months before his first batch of options was due to vest—he was dismissed on grounds of alleged poor performance.
After nearly two years of litigation, a Chinese court awarded him about 850,000 yuan in compensation, including around 660,000 yuan for losses relating to the forfeited options.
The court victory itself is noteworthy. But what Chen says he discovered during the proceedings could prove far more consequential.
Two stories, one VIE
According to Chen, Xiaohongshu argued in court that the mainland operating entity and the offshore company that granted the options had no control relationship and no investment relationship.
Yet if Xiaohongshu proceeds with a Hong Kong listing, it will almost certainly rely on the familiar red-chip variable interest entity (VIE) structure used by many Chinese technology companies.
Under such a structure, the offshore listed company must disclose in its prospectus that it exercises effective control over the mainland operating entities through a series of contractual arrangements.
The same corporate structure would therefore be accompanied by two completely different legal representations.
In one forum, the offshore and mainland entities are unrelated. In another, they are fully controlled by the same listed company.
That contradiction sits at the heart of Chen’s complaint.
The issue carries added weight because China’s overseas listing filing rules, introduced by the China Securities Regulatory Commission in 2023, explicitly require companies using VIE structures to truthfully disclose their control relationships.
Filing materials containing contradictory or materially inconsistent descriptions of the same facts may constitute regulatory violations.
If the allegations are accurate, the question extends beyond one employee’s stock options. It becomes a question of whether the company made mutually incompatible legal representations depending on which forum it was facing.
So far, Xiaohongshu has not publicly responded to Chen’s complaint.
A individual familiar with the matter told Chinese media that the dispute had already concluded through legal procedures, represented a routine employment disagreement, and had no connection with the company’s IPO plans.
A pattern or coincidence?
Chen, however, says his case is not unique.
According to him, nearly 50 former employees have reported similar experiences of being dismissed shortly before their options vested, causing those equity awards to expire.
If accurate, such allegations would inevitably raise questions about whether isolated personnel decisions reflected a broader pattern.
If those former employees experienced similar circumstances, collective legal action could provide greater clarity.
Chen has already established one judicial precedent by successfully recovering compensation for forfeited equity.
Additional cases would allow the courts—I’m not speculating here—to determine whether a systemic practice existed and whether further remedies are warranted.
The timing could hardly be worse.
Earlier this year, Xiaohongshu unexpectedly found itself at the center of global attention when an influx of so-called “TikTok refugees” turned the platform into an unlikely bridge between Chinese and American internet users.
The New York Times described the phenomenon as an unexpected window for people-to-people exchanges between the two countries.
Trust on the line
Winning the World Cup streaming rights further elevated Xiaohongshu’s international profile. Now, however, a single compliance complaint threatens to overshadow that momentum.
The stakes extend beyond one company’s listing.
According to Ipsos’ 2025 global survey, consumer trust in Chinese brands across developed markets climbed above negative territory for the first time, marking an important milestone for the international reputation of Chinese companies.
At such a moment, governance failures—or even the appearance of governance failures—carry consequences that could reverberate well beyond a single IPO.
Capital markets reward growth, innovation and user engagement. But they also demand consistency, transparency and credibility.
If a company is perceived as taking one legal position in court while preparing to present another to public investors, questions naturally follow.
If disputes over employee equity cannot be resolved transparently, investors may reasonably ask what confidence they should place in the disclosures contained in a prospectus.
The World Cup may have crowned its champion, but in the capital markets, the match that matters most to investors—corporate governance and regulatory compliance—is only just beginning for Xiaohongshu.
