Risk Analysis of the RMB 3,286 Fine Incident at Fu'en Co., Ltd.'s Vietnam Factory

Based on in-depth investigation,

. Fu’en Co., Ltd. is a fabric enterprise applying for listing on the main board of the Shenzhen Stock Exchange, with major clients including UNIQLO, H&M, ZARA and other international brands[1].

In November 2024, “Fu’en (Vietnam) Co., Ltd.”, the Vietnamese subsidiary of Fu’en Co., Ltd., was fined approximately RMB 3,286 (converted) by local authorities for

[1]. Although the fine amount is small, this incident exposes multiple potential risks for Chinese enterprises’ overseas investments.

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The direct reason for the fine on Fu’en Co., Ltd.'s Vietnam factory is

, which reflects:

Risk Dimension	Specific Performance
Weak Compliance Awareness	Insufficient attention to Vietnam’s tax filing deadlines
Lack of Management System	Failure to establish a sound compliance management system for overseas subsidiaries
Inadequate Professional Capability	Lack of professionals familiar with local tax laws

According to relevant regulations, Vietnam’s tax compliance requirements include[2]:

• Strict tax filing deadlines
  : Fixed filing windows for various tax types; late filing will result in fines
• Transfer pricing documentation requirements
  : Required to prepare transfer pricing documents such as contemporaneous data
• Permanent establishment risk
  : Need to pay attention to whether a permanent establishment is formed and its corresponding tax implications
• Withholding tax obligations
  : Withholding tax must be deducted and paid for outbound dividends, interest, and royalties

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Fu’en Co., Ltd.'s Vietnam factory started small-scale production in

[1] and is currently in the capacity ramp-up phase. The company forecasts:

“2025 revenue will decrease by 5.79% year-on-year, and non-recurring profit and loss adjusted net profit attributable to parent company shareholders will decrease by 16.86% year-on-year”[1]

This is mainly due to:

• Increased current depreciation and amortization
• Rising labor costs
• Newly added capacity has not been effectively absorbed

Indicator	2022	2023	2024	2025 (Forecast)
Revenue (RMB 100 million)	17.64	15.17	18.13	17.08
Non-Recurring Adjusted Net Profit (RMB 100 million)	2.76	2.27	2.55	2.12
Capacity Utilization Rate	-	-	92.63%	84.35%

Data shows that the capacity utilization rate in the first half of 2025 has dropped significantly compared to 2024, indicating

[3].

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Fu’en Co., Ltd. faces a severe

:

“Revenue from the top five brand customers has consistently accounted for over 70% of the company’s total revenue”[1]

Customer Name	2023 Sales Year-on-Year Change
H&M	-20.28%
UNIQLO	-25.53%
ZARA	-54.77%

• Weakened bargaining power
  : High dependence leads to a weak position in price negotiations
• Sensitive to order fluctuations
  : Loss of any major customer will seriously impact performance
• Passive account period
  : Major customers usually enjoy longer account periods, increasing capital pressure

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Fu’en Co., Ltd.'s products are mainly targeted at overseas markets, with overseas sales accounting for over 50% of total revenue[1]. Against the backdrop of a complex global economic environment and prominent geopolitical issues:

• Frequent changes in tariff policies
  : Directly affect export competitiveness
• Supply chain transfer pressure
  : Customers may require production base relocation
• Exchange rate fluctuation risk
  : Uncertainty in foreign exchange receipts and payments

Risk Type	Specific Performance
Policy Risk	Changes in labor regulations, adjustments to tax incentives
Management Risk	Execution deviations and reduced management efficiency due to cultural differences
Operation Risk	Insufficient supporting facilities, risk of logistics disruptions[2]

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In December 2022, Wang Xuelin, the actual controller of Fu’en Co., Ltd., transferred equity to three investors at a price of

, which is only slightly higher than the post-dividend adjusted valuation of RMB 6.44 per registered capital[1].

• In 2022, cash dividends of
  RMB 381 million
  were distributed, of which over RMB 300 million flowed to the actual controller’s family
• The net profit attributable to parent company shareholders in the same period was only RMB 277 million, raising suspicion of “tunneling-style dividends”
• IPO fund-raising was planned immediately after the dividend distribution, sparking market doubts

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Risk Category	Risk Level	Impact Degree
Tax Compliance Risk	★★★☆☆	Short-term, partial
Overcapacity Risk	★★★★☆	Medium-term, overall
Customer Concentration Risk	★★★★★	Long-term, fundamental
Geopolitical Risk	★★★★☆	Medium-term, macro
Equity Structure Risk	★★★☆☆	Short-term, governance-level

Based on the above analysis, the main investment risks reflected by this incident include:

1. Inadequate overseas operation management capability
   : The tax violation incident exposes a weak compliance management system
2. Core business relies on external customers
   : Over 70% of revenue comes from a few brand customers, resulting in weak risk resistance
3. Pressure to absorb newly added capacity
   : The Vietnam factory faces high costs in the initial production phase, putting pressure on profitability
4. Questionable corporate governance
   : The rationality of the timing of large-scale dividends and fund-raising is questionable

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[1] Sina Finance - “Deeply Tied to UNIQLO, H&M, Fu’en Co., Ltd. Pursues IPO: The Wang Enwei Family Received Over RMB 300 Million in Dividends in a Year” (2026-01-17)
https://finance.sina.com.cn/jjxw/2026-01-17/doc-inhhqpee0010284.shtml

[2] Ingstart - “Guide to Establishing Factories in Southeast Asia: Country Selection and Implementation Strategies for Chinese Traditional Manufacturing Industries” (2025-10-22)
https://www.ingstart.com/blog/39991.html

[3] Sina Finance - “Fu’en Co., Ltd.'s Per Capita Labor Cost Decreases, but Overseas Subsidiary Generates No Revenue After Commencing Production” (2025-12-31)
https://finance.sina.com.cn/roll/2025-12-31/doc-inheshqn6680055.shtml