The internal insider "forced the door open," and 100 million yuan of subsidiary funds "disappeared without a trace." Three questions for Xilinmen: Where did the money come from, who is in charge, and where did it go? | Meijing Hot Commentary

Daily Economic Commentator | Du Hengfeng

Editor | Cheng Peng Wei Guanhong Proofreader | Chen Keming

On March 27, listed company Xilimen announced that it discovered that its controlling subsidiary, Xitu Technology, had encountered suspected illegal misappropriation of funds by insiders taking advantage of their positions, resulting in as much as RMB 100 million of funds in bank accounts being illegally transferred. To further prevent risks to fund safety, the company has placed protective freezes on the related bank accounts that may be involved; the amount of protective judicial freezing exceeds RMB 900 million.

At present, Xilimen has disclosed relatively limited information about the above incident. However, in light of the company’s announcement and business registration information, three key questions regarding the illegal transfer of the RMB 100 million have come to the surface, and are worth investors’ attention and the listed company’s emphasis.

The first question: Where did the RMB 100 million come from?

Xilimen’s cash is mainly concentrated in the parent company, but the amount of funds accumulated across more than 30 subsidiaries is also very large. In the company’s consolidated statements in the 2025 half-year report, it shows monetary funds of RMB 1.972 billion; in the parent company’s statements, monetary funds are RMB 1.444 billion. The difference is about RMB 530 million, which roughly represents funds retained by subsidiaries (not considering consolidation offsets for fund transfers and other items). The annual reports from 2021 to 2024 show that this difference ranged between RMB 540 million and RMB 870 million. The funds that were illegally transferred and frozen this time are all funds from the subsidiaries’ accounts, totaling more than RMB 1 billion, which is the period with the most fund accumulation by subsidiaries in recent years.

Xitu Technology was officially established in January 2021, and within the Xilimen group it is considered a relatively new subsidiary, with registered capital of RMB 50 million. The account that was frozen this time is the Shaoxing Xinxi company established in October 2022, with registered capital of RMB 10 million. In the periodic reports, Xitu Technology and Shaoxing Xinxi have little presence; they are not “material subsidiaries” of Xilimen. That is to say, the assets, revenue, or net profit of the two companies account for no more than 10% of Xilimen’s overall figures. Besides the initial investment funds, where did these funds come from—did they form through business operations or were they obtained via financing? Only by first understanding the sources of the funds can Xilimen truly manage its subsidiaries’ fund safety.

The second question: Who is managing the massive funds?

According to annual report information compiled by Tianyancha, Xitu Technology had 64 insured employees in 2021, and the strategic mission Xilimen assigned to Xitu Technology at that time was: to be responsible for the development and expansion of hotel channel business. After that, however, the number of insured employees at Xitu Technology continued to decline, falling to 8 in 2024. Shaoxing Xinxi and another company with frozen funds, Xiyue Sales, also had only single-digit numbers of insured employees. At the same time, these subsidiaries have very few key personnel. For example, in the account of Xiyue Sales, funds exceed RMB 800 million, and its legal representative, directors, and general manager are all served by Zhu Mou. The author’s search found that the key personnel of subsidiaries did not hold positions among the listed company’s directors, supervisors, or senior executives, and their hierarchical level was not high.

Xilimen’s announcement states that the transferred funds were “cumulatively RMB 100 million.” This implies the transfers were not a one-time event, and the parent company did not discover it immediately at the first instance. Since the subsidiaries have fewer personnel, the effective separation of authority for large-sum transfers is lacking, and individual permission is excessively large—this is the most common reason for financial loss of control. Because the core personnel of the subsidiary are at a lower level, it is easy for the parent company’s supervision to create blind spots, leading to management being out of control. In the latest announcement, Xilimen says it will strengthen all directors, executives, and key-post personnel’s learning of laws and regulations; however, that is only a formality. For subsidiaries that handle massive funds, if the parent company dispatches higher-level personnel to simultaneously serve as key-post roles, and manages them end-to-end, it can effectively prevent similar problems.

The third question: Where did the funds go?

Xilimen states that it has established communication channels with the relevant parties and is actively negotiating the return of the transferred funds. From this, it appears that the first layer of the funds’ destination is very clear. The illegally transferred funds should be returned to the payer’s original path as a matter of course, and Xilimen also said, “There is still some uncertainty regarding the追回 (recovery) matters.” The reason for such uncertainty may be that the payee moved the funds again, and the individuals involved had an intention to illegally appropriate the funds. It is also possible that the payee itself has business or capital dealings with Xitu Technology; the counterparty may believe the funds are legitimately theirs and refuse to return them. Of course, there could be other possibilities in practice, but in any case, it indicates that Xilimen failed to detect issues in the subsidiaries’ finances and operations.

With numerous subsidiaries, Xilimen adopts a “strong center, weak branches” strategy. Through simple calculation, from 2021 to 2024, the ratio of revenue in the parent company’s statements to the revenue in the consolidated statements was 45%–50%, and the ratio of net profit was 86%–162%. This means that subsidiaries play a bigger role in cost functions, while most profits are concentrated in the parent company. But controlling only the profit side is not enough. While subsidiaries assume cost functions, they inevitably also handle large transactions; then, are the funds accumulated as a result safe? Relevant management costs must not be saved.

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