Founded in October 2005 by Taiwan resident Wen Shiyi with the vision of "spreading Chinese culture through modern technology," Hangzhou Xuanji Technology Co., Ltd. (hereafter "Xuanji Tech" or "the Company") aimed to tap into the domestic animation industry. Over the next two decades, Xuanji Tech created original 3D animation IP brands like Qin's Moon, The Legend of Tianxing, and Wu Geng Ji, and also produced commissioned works such as Douluo Continent, Heavenly Jewel Change, Swallowed Star, and Shendao. Alongside Yihui Kaiyuan and CCTV Animation, Xuanji Tech was once hailed as one of the "Big Three" in China's animation industry.

Having carved out a significant position in the industry, the company has accelerated its capital market journey. In July 2025, Xuanji Tech was listed on the New Third Board. In April of this year, it filed a prospectus to apply for an IPO on the Beijing Stock Exchange. On August 3rd, Xuanji Tech disclosed its response to the exchange's review inquiry, detailing its core technology, performance growth, customer concentration, and fundraising plans. However, founder Wen Shiyi will not benefit from this IPO. According to a supplementary legal opinion issued by Junhe Law Firm to the New Third Board in May 2025, Wen Shiyi transferred his 50% stake in Xuanji Tech, which was held on his behalf by Shen Leping, to Shen for free in June 2014, ending their nominee shareholding arrangement. What are the hidden details behind this move?

Why the Original Controller Gave Away Shares for Free

According to the supplementary legal opinion, Shen Leping joined Xuanji Tech shortly after its inception, serving as producer, screenwriter, and director. He played a crucial role in creating the Qin's Moon series of digital content, and has served as the company's legal representative, executive director, and general manager since 2008, leading it to become a leading player in domestic digital content creation. Shen Leping's other role was to hold shares on behalf of founder Wen Shiyi. This arrangement was rooted in the historical context. At the time, the "Catalogue of Industries for Guiding Foreign Investment" prohibited foreign investment in the radio and television production sector. Consequently, Wen Shiyi enlisted Shen Leping and other individuals to hold shares on his behalf.

The legal opinion explicitly states that Shen Leping received his 50% stake from Wen Shiyi as a free transfer. After the nominee relationship was dissolved, Wen Shiyi only held shares in Xuanji Tech indirectly through Longcheng Technology. Longcheng Technology subsequently transferred its shares externally multiple times, generating total proceeds of 411 million yuan. Compared to Wen Shiyi's total equity investment of 40 million yuan in Xuanji Tech, this yielded a substantial return, making the free share transfer commercially reasonable. The buyers of Longcheng Technology's shares included Enlight Media, Huaqi Investment, Yunfeng Fund, and Linzhi Lixin, among others. Notably, a single share transfer in November 2017 alone generated 326 million yuan. In its response to the Beijing Stock Exchange's IPO inquiry, Xuanji Tech referred to Wen Shiyi as the "former controller." The company still has ties to its former boss. The filing shows that Qingming Technology, a company co-invested in by Wen Shiyi and his relatives, is Xuanji Tech's landlord. Currently, Xuanji Tech leases three properties from Qingming Technology for office space, with leases running until the end of 2027. Previously, Xuanji Tech also purchased the Qin's Moon trademark and novel copyrights from Qingming Technology.

Tencent Underpins the Majority of the Business

Shareholding information reveals that before this IPO, Shen Leping controls a total of 38.90% of Xuanji Tech's shares through entities like Shanghai Xuanman, Xuantian Investment, and Xuanle Investment, making him the controlling shareholder and actual controller. Other shareholders include Linzhi Lixin, Yuan Guoliang, Xingwang Investment, Juncenda Capital, Enlight Media, and Yunfeng Fund. Linzhi Lixin, a Tencent-affiliated investment platform, is the second-largest shareholder with an 18.98% stake. Linzhi Lixin has previously invested in brands like Tenway Network, Maoyan Culture, and Xinlishi. This investment from Tencent has fueled Xuanji Tech's rapid growth. Financial reports show that from 2023 to 2025 (the "reporting period"), Xuanji Tech's revenue was 262 million yuan, 317 million yuan, and 402 million yuan, respectively. During this period, the Tencent Group was consistently Xuanji Tech's largest customer, primarily for digital content production services. Revenue from the Tencent Group accounted for 76.65%, 56.05%, and 50.62% of total revenue in each respective period. Regarding the high proportion of related-party transactions with Tencent, Xuanji Tech explained that it is due to the concentration of downstream customers in the domestic digital content production industry. As a major industry player, Tencent has significant demand for digital content, making the sales to the Tencent Group commercially reasonable and necessary. However, Xuanji Tech acknowledged that if future changes in industrial policy, market conditions, or increased competition lead to reduced procurement from related customers, it could adversely affect the company's performance.

Does a Customer-First Approach Lead to a Lack of Originality?

The prospectus shows that Xuanji Tech's revenue comes from three main sources: digital content creation and licensing, digital content production services, and derivative product sales. Digital content creation and licensing is essentially the original IP business. It involves creating original 3D digital content based on original novels, comics, or other IP, then licensing these products and IP to external parties for a fee. The Qin's Moon series is the flagship product of this segment. Digital content production services, or "animation OEM," involves accepting commissions from clients to use digital technology to transform stories into 3D images and animations. Works like Douluo Continent and Swallowed Star are representative of this business. Currently, Xuanji Tech's original content creation capacity is limited, with its revenue primarily supported by this OEM business. During the reporting period, the revenue share from digital content creation and licensing fell from 10.76% to 2.84%, generating only just over 11 million yuan in 2025. Meanwhile, revenue from digital content production services consistently accounted for over 87% of total revenue, exceeding 382 million yuan in 2025. Furthermore, revenue from derivative product sales has remained low, below 10 million yuan in each period. Since 2023, Xuanji Tech has not delivered any new wholly-owned original IP works. In response, the Beijing Stock Exchange asked Xuanji Tech to explain the reason for this, along with its "existing stock of proprietary IP and future development plans, and whether the digital content creation and licensing business faces a risk of continued decline." Xuanji Tech stated that it had considered its overall business strategy, existing production resources, and the need to maintain good customer relationships. It chose to take on customer projects requiring year-long series, and did not produce any new, wholly-owned original IP animation products. In short, the priority was to fulfill its OEM contracts to maintain client relationships. Xuanji Tech mentioned that it will focus on the long-term lifecycle management of IPs like Qin's Moon and Feng Shen Ji. However, it also noted that "due to factors such as increased content competition, changing market preferences, and the replacement effect of emerging IPs, the recognition of the company's proprietary IPs may weaken, which will negatively impact the digital content creation and licensing business." The prospectus shows that Xuanji Tech plans to raise 550 million yuan in this IPO, primarily to enhance its digital content production service capabilities, fund technology research and development, and acquire IP reserves.