Disappearance of metals dealer Xu Maohua triggers lawsuits, asset freezes and fresh scrutiny of state-owned trading practices in China
Chinese metals traders have racked up losses of at least 1 billion yuan (about $144 million) after a key counterparty at the centre of a complex trading network fled the country, triggering lawsuits, asset freezes and fresh regulatory scrutiny of state-owned enterprises (SOEs), Bloomberg News reported on Monday, citing people familiar with the matter.
At the heart of the episode is Xu Maohua, a Foshan-based metals dealer nicknamed “The Hat” who orchestrated a web of copper and other metal transactions involving multiple trading firms. Among the highest-profile participants was SDIC Commodities, a trading arm of the state-backed State Development & Investment Corp (SDIC), a conglomerate with annual revenue of nearly 200 billion yuan.
Unfinished deals, mounting losses
According to the report Xu owed money to SDIC Commodities for shipments of copper and other metals, while the SOE in turn had payment obligations to its own suppliers. When Xu disappeared, the trading chain effectively snapped, leaving counterparties exposed.
While there is no official tally of total losses, estimates compiled from traders and financiers involved in the network suggest damages of at least 1 billion yuan. Several market participants believe the final figure could be significantly higher, given the scale and frequency of the trades.
The fallout has already spilled into the courts. Guangdong Prolto Supply Chain Management, a Shenzhen-based trader, has sued SDIC Commodities for 219 million yuan, alleging non-payment for metal concentrate shipments, according to an exchange filing in December.
In a separate development, a Tianjin court has ordered the seizure of 3,150 tonnes of refined copper stored in Wuxi, Jiangsu province, by the SDIC unit at the request of a Chinese policy bank. The metal has been frozen to preserve assets pending potential litigation, according to the report.
Regulatory alarm over ‘circular trading’
The episode has drawn the attention of China’s state-owned assets watchdog, the State-Owned Assets Supervision and Administration Commission (SASAC). In recent weeks, SASAC has instructed major commodities trading firms under its supervision to review operations and curb non-core activities used to inflate revenues, the report said.
Regulators have been particularly concerned about so-called “circular trading”, transactions in which companies buy and sell the same asset among related parties to create the appearance of revenue without genuine end-user demand. Such practices can artificially boost turnover while masking underlying financial risks.
SASAC had first tightened oversight in 2023 following a debt crisis at a state-owned timber company. However, compliance has been uneven. With China’s economy slowing and margins under pressure, some SOEs have been tempted to seek additional revenue streams through aggressive trading strategies, market participants said.
How the network allegedly worked
The report citing six people who previously worked with or traded alongside Xu said, he operated through a cluster of companies that purchased metals from smelters or other traders and resold them to SOEs, including SDIC Commodities. Part of the arrangement allegedly included commitments to repurchase the cargoes at a later date.
Xu was able to unlock cash quickly by selling invoices issued by SOE buyers to factoring firms, including some banks, at a discount, in some cases before physical delivery of the metals. This structure provided immediate liquidity but left financiers exposed to counterparty risk.
The report said that some of the metals involved were not owned outright by Xu at the time of sale, and that many of the firms participating in the transactions were effectively controlled by him.
Market participants told Bloomberg News Xu’s financial troubles may have been exacerbated by a separate bearish bet on silver prices that went wrong. Silver prices have surged sharply in recent months, compounding losses for those positioned for a decline.
China’s commodities markets, particularly in base metals, have been marred by periodic scandals over the past decade, ranging from fictitious warehouse stockpiles to high-profile bankruptcies of major copper importers. In one case involving inflated aluminum inventories, losses exceeded $1 billion and a trader was sentenced to life imprisonment last year.
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