HUAKONG SEG(SZ:000068) Nan Fang Du Shi Bao·2025-08-07 22:50Core Viewpoint - The arbitration dispute between Shenzhen-listed company Huakong Saige and the government of Qitaihe City, Heilongjiang Province, has escalated, with both parties accusing each other of breach of contract regarding a lithium battery project that has stalled for four years [1][6][9]. Group 1: Background of the Dispute - The dispute originated in December 2019 when the Qitaihe government designated a lithium battery anode material project as a key investment initiative and signed an investment contract with Huakong Saige's subsidiary, Heilongjiang Aoyuan New Materials [6]. - The agreement included the government's commitment to provide 272,000 square meters of land and to construct a factory based on the company's design, while Huakong Saige was to build a production line with a capacity of 30,000 tons per year [6]. Group 2: Project Stagnation - The project quickly stalled after its initiation, with Huakong Saige publicly acknowledging in 2021 that the construction had not started due to pandemic-related factors [8]. - By 2023, the project had a remaining book balance of 5.206 million yuan, and the company indicated in its 2024 annual report that it had made impairment provisions, stating that the project was expected to remain suspended [9]. Group 3: Escalation of Arbitration - In June 2025, both the Qitaihe government and Huakong Saige initiated arbitration, each accusing the other of breach of contract, with the government claiming that Huakong Saige had not invested the pre-paid 50 million yuan, leading to a demand for the return of funds and breach of contract penalties [9]. - Huakong Saige countered that the government failed to fulfill its obligations regarding land preparation and factory construction, seeking to reclaim the land and recover 48.89 million yuan in land transfer fees along with 7.52 million yuan in invested losses [9]. Group 4: Financial Implications - As of August 2025, the Qitaihe government increased its arbitration claim to a total of 23.96246 million yuan, which represents approximately 17.6% of Huakong Saige's revenue of 136 million yuan in the first quarter of 2025 [11][12]. - If Huakong Saige loses the arbitration, it could face significant financial pressure, exacerbating its already challenging financial situation, as the company reported a net loss of 17.37 million yuan in the same quarter [12].