Bloomberg reported on Sunday (February 1) that the entire metal trading industry is facing losses of over 1 billion yuan due to a key middleman fleeing from China. This incident has triggered lawsuits, asset freezes, and a new round of regulatory scrutiny on state-owned enterprises by regulatory authorities.
According to sources familiar with the matter, the central figure in the event is a metal trader nicknamed “Hat,” Xu Maohua. He orchestrated a series of circular trades involving multiple companies, including those dealing with copper and other metals.
Xu Maohua’s disappearance and abandonment of numerous unfinished business dealings have resulted in economic losses for some companies that had business ties with him, with a particular focus on the state-owned enterprise, Guotou Industries Group.
Sources revealed that Xu Maohua’s escape disrupted a longstanding trading chain in the industry. Xu owed copper and other metal payments to companies like Guotou, which in turn owed funds to their upstream suppliers. After Xu went missing, the entire trading chain was broken, exposing all parties involved to risks.
Reportedly, some individuals directly impacted by Xu’s fleeing are trading partners.
According to Bloomberg, six individuals who worked with Xu disclosed that he managed a group of enterprises that purchased metals from smelters or other traders and then resold them to state-owned enterprises. Allegedly, he also arranged for these goods to be repurchased at a pre-agreed price in the future.
Subsequently, Xu quickly liquidated these transactions by selling the accounts receivable provided by state-owned buyers to factoring companies, including some banks, at a discounted price, sometimes even before physical metal delivery. This structure provided immediate liquidity but exposed the financing party to counterparty risks.
It was reported that during the metal sales, Xu did not fully own some of the metals, and many of the companies involved in the transactions were actually controlled by him.
Some individuals familiar with Xu and his dealings speculated that his financial situation deteriorated rapidly, possibly prompting him to flee after suffering losses due to a decline in silver prices. Over the past few months, the price of silver had doubled.
In recent years, the Chinese metal market has been marred by scandals, including the bankruptcy of China’s largest copper importer and a case where overstating aluminum inventory resulted in over $1 billion in losses. The latter led to a trader being sentenced to life imprisonment in 2025.
Xu Maohua is a prominent figure in the Chinese metal market. Born in 1972 in Gansu Province, he graduated with a bachelor’s degree from North Industry University. According to sources, he initially engaged in scrap metal trading in Guangdong and expanded his business to refined metals and concentrates, including copper, zinc, and indium.
According to announcements from the involved companies, Guotou Industries Group is currently facing a lawsuit and has been asked to compensate over 200 million yuan in loans and related losses. Additionally, a court in Tianjin, responding to a request from a Chinese policy bank, has ordered the seizure of 3150 metric tons of refined copper stored by Guotou in Wuxi, Jiangsu Province. These metals have been frozen to preserve assets during potential litigation.
Guotou Industries Group is a trading subsidiary of the State Development & Investment Corporation, which is involved in the Chinese Belt and Road Initiative, aiming to develop infrastructure globally.
Although the total losses have not been officially disclosed yet, traders and financial professionals involved in the online trades estimate that the industry’s losses are at least over 1 billion yuan. Given the scale and frequency of trading, some market participants believe that the final loss amount might be significantly higher.
The State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), responsible for managing state-owned assets in China, has recently instructed its major bulk commodity trading companies to review their operations and curb non-core business activities used to inflate income.
Regulatory authorities are particularly concerned about “circular trading,” a trading model that uses interlinked purchase and sales contracts to facilitate fund transfers between companies. Such trades can artificially inflate turnover while masking potential financial risks, but they face risks in fund recovery, resembling more like loans disguised as sales.